TSX: SPF.UN
CALGARY, March 6 /CNW/ -
Financial Summary
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Three Months Ended Years Ended
(millions of dollars, except December 31 December 31
per trust unit amounts) 2006 2005 2006 2005
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Financial
Operating distributable cash
flow before strategic
plan costs
Superior Propane 32.6 31.9 90.6 94.2
ERCO Worldwide 20.0 24.2 75.7 93.1
Winroc 10.7 8.7 34.6 30.2
Superior Energy Management
("SEM") 3.0 1.8 10.3 5.3
Discontinued operations
- JW Aluminum ("JWA") 8.1 8.6 38.9 8.6
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74.4 75.2 250.1 231.4
Corporate costs (2.4) (2.7) (6.4) (8.7)
Interest (16.4) (12.5) (63.3) (35.7)
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Distributable cash flow before
strategic plan costs 55.6 60.0 180.4 187.0
Strategic plan costs (5.3) - (19.7) -
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Distributable cash flow 50.3 60.0 160.7 187.0
Distributable cash flow per
trust unit (before strategic
plan costs), basic $0.65 $0.70 $2.11 $2.35
Distributable cash flow per
trust unit, basic $0.59 $0.70 $1.88 $2.35
Average number of trust units
outstanding (millions) 85.5 85.4 85.5 79.7
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Operating
Propane retail sales volumes
(millions of litres) 407 420 1,386 1,468
Propane retail sales margin
(cents per litre) 14.6 15.5 15.1 15.8
Total chemical sales (thousands
of metric tonnes "MT") 191 205 756 742
Average chemical selling price
(dollar per MT) 554 545 540 550
Natural gas sold (millions of
gigajoules "GJ") 10 9 40 37
Natural gas sales margin
(cents per GJ) 62.0 47.8 54.3 39.2
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Message from Chairman and CEO to Unitholders
For Superior Plus, 2006 was undoubtedly the most challenging in the
history of the Fund and a very difficult period for us and our fellow
unitholders, following nine consecutive years of solid growth and prosperity.
In May 2006, the Board commenced a comprehensive strategic review process in
response to the impact of record warm weather conditions on Superior Propane's
business during last year's winter heating season, medium-term weakness in the
operating results of ERCO Wordwide due to the impact of the rapid rise in the
Canadian dollar and significant increases in electricity prices on ERCO's
operations and customers, as well as the resulting reduction of the Fund's
monthly distribution and the weakness of the market price of our trust units.
- REALIGNED STRATEGY -
As part of the strategic plan announced in July 2006, I have taken on the
role as CEO in addition to serving as Chairman. Together with the Board and
new corporate management, we have reshaped Superior Plus into a more focused,
less leveraged and better positioned diversified income trust with a focus on
stability of distributions and long-term, value-based growth. We are
encouraged by our achievements to date and continue to deliver on our
promises. Let us review the steps we have taken, the strength we have gained,
and the opportunities we see for maintaining sustainable distributions and
creating long-term value for our investors.
- MEETING OUR COMMITMENTS -
The process of delivering on our commitments has been arduous and I am
pleased by the results achieved over the past few months. In 2006, we
successfully executed on several main elements of our strategic plan:
- Sold JW Aluminum, a leading manufacturer of specialty, flat-rolled
aluminum products in the United States for US$310 million (approx.
Cdn$350 million) and used the proceeds to repay debt.
- Lowered average senior debt level to 1.9 times EBITDA, now within the
upper range of our target of 1.5 to 2.0 times. The total average debt
level at 3.4 times EBITDA is now closer to the target of 2.5 to 3.0
times.
- Closed ERCO Worldwide's Bruderheim, Alberta, sodium chlorate
facility, which removed 80,000 tonnes of capacity, balancing market
conditions in North America and increasing the efficiency and
competitiveness of ERCO's operations.
- Started up ERCO's 55,000 tonne capacity sodium chlorate plant in
Chile, a growing pulp and paper region of the world.
- Renegotiated the Valdosta, Georgia power contract, enabling ERCO's
100,000 tonne capacity plant to operate as swing production facility.
- Commenced a distribution reinvestment plan to fund growth capital
projects for existing Canadian-based businesses.
- Changed the corporate management team and refocused on strategy
execution, capital allocation, risk management and succession
planning.
- Secured new $250 million credit facility and repaid $200 million of
Medium Term Notes, enhancing debt covenant and repayment flexibility.
- Implemented an internal reorganization into a "trust over
partnership" structure, enhancing distributable cash flow.
We continue to meet our commitments and distributable cash flow per trust unit for 2006, before strategic plan costs at $2.11 and after strategic plan costs at $1.88 per trust unit were strong and within the upper range of our expectations. Distributable cash flow at $180.4 million before strategic review costs of $19.7 million declined by 4% compared to the $187.0 million generated in 2005, demonstrating good operating performance by Superior Propane and ERCO Worldwide despite their challenges and increased profitability from Winroc and Superior Energy Management. JW Aluminum contributed $38.9 million to the Fund's 2006 results.
Superior Propane
----------------
Superior Propane contributed $90.6 million in operating distributable cash flow in 2006, compared to $94.2 million in 2005. These results reflect good performance, despite the significant adverse impact of warm weather conditions and customer conservation on its 2006 first quarter sales volumes. The decline was partially mitigated by the $3.1 million decrease in net maintenance capital expenditures resulting from the sale of surplus properties, tanks and cylinders.
In January 2006, John Gleason became president of Superior Propane, leading the repositioning and retooling of the business, designed to achieve profitable growth in the future. Superior is making steady progress on aligning the cost structure to current sales volumes and improving operating efficiencies, while continuing to focus on customer retention and service programs to increase sales. During 2006, Superior completed the installation of on-board truck computers, enhancing the flexibility of its workforce and optimizing its routing and scheduling logistics. To mitigate increasing operating expenses related to labour, fuel, insurance and regulatory requirements, Superior Propane introduced a fee structure for propane deliveries, including a transportation and hazardous materials handling fee.
Superior has consistently increased revenues from other services and has benefited from the February 2005 acquisition of Superior Gas Liquids, a natural gas liquids wholesale marketer, providing transportation, storage, risk management, supply and logistics services to Superior as well as to third parties in Canada and the United States. Superior continues to expand its service offerings such as preventative maintenance and warranty programs and will be separating the service side from the propane delivery business to gain further efficiencies and implement best practices across Canada.
During 2007 and 2008, Superior intends to implement an accelerated fleet renewal and bulk truck leasing program. Lease arrangements are available at attractive rates and provide savings in maintenance and operating costs over time. Newer, more reliable vehicles and a better matching of truck size to delivery type will improve employee productivity and customer service.
These initiatives, along with normal winter weather patterns and continued focus on delivering with excellence are expected to win new customers and gain organizational momentum. We anticipate that these initiatives will result in improved profitability with operating distributable cash flow for 2007 estimated in the range of $95 - $100 million, increasing in 2008 to $100 - $105 million. We are confident that the propane retailing business will continue to provide a solid foundation for stable returns and profitable growth for many years to come.
ERCO Worldwide
--------------
ERCO contributed $75.7 million in operating distributable cash flow in 2006, compared to $93.1 million in 2005. These results exceeded our 2006 expectations, considering the medium-term challenges experienced by the North American pulp and paper industry which resulted in reduced regional sodium chlorate demand. North American bleached pulp producers continue to experience global competitive pressures as a result of increased fiber and energy costs and the impact of foreign exchange rates, which resulted in the closure of seven mills during 2006. Combined with the mill closures in late 2005, this resulted in an overall reduction in demand for sodium chlorate of approximately 82,300 tonnes.
Increasingly, new world-scale pulp mills are relocating and/or expanding production capacity in offshore regions with significant access to low cost, renewable wood fibre, relatively stable lower cost energy supply and supportive government policies. As a result of this and the impact of high electricity costs and foreign exchange on its business, ERCO closed its higher cost 48,000 tonnes annual capacity sodium chlorate facility in Thunder Bay, Ontario in April 2006, and its 80,000 tonnes Bruderheim, Alberta facility in October 2006. The closures improved the utilization of ERCO's remaining six sodium chlorate plants in North America and balanced supply and demand.
In October 2006, ERCO was granted access to electricity supplied by Georgia Power pursuant to their industrial interruptible tariff, enabling the 100,000 tonne Valdosta, Georgia plant to operate as swing production facility when power prices are favourable and can be supported in the sodium chlorate market place. This is expected to have a positive impact on ERCO's future results. In late 2006, softwood pulp prices increased and the U.S. dollar strengthened, improving the sodium chlorate demand profile.
Internationally, ERCO completed its 55,000 tonne facility in Chile and commenced production in September 2006 to exclusively supply three existing mills owned by CMPC Celulosa S.A. over a long-term arrangement, participating in the continued growth opportunities in lower pulp and paper cost producing regions of South America and Asia.
ERCO's total production capacity of approximately 502,000 metric tonnes makes it the second largest producer of sodium chlorate in North America. ERCO continues to pursue opportunities in emerging markets. It is one of only two suppliers in the world of modern dioxide generators and related technology used by pulp mills to convert sodium chlorate into chlorine dioxide. This provides a unique competitive advantage, including early access to new market trends.
Chloralkali/potassium products represented 28% of ERCO's 2006 sales and contributed 35% to cash generated from its operations before changes in net working capital. This provides an important diversification of ERCO's product lines, as nearly all of ERCO's chlorine, hydrochloric acid, potassium hydroxide and potassium carbonate production, and approximately 94% of its caustic soda production are sold to end markets not related to the pulp and paper industry. Chloralkali operations performed above historical levels in late 2005 and most of 2006, gradually returning to more balanced conditions. Unlike the U.S. Gulf market, ERCO's chloralkali end markets are less susceptible to large swings in profitability. Good growth opportunities exist and ERCO is continuing to evaluate the economics of converting its Port Edwards, Wisconsin potassium/chloralkali facility from a mercury-based process to membrane technology at a cost currently estimated at US $85-$100 million. Such a move would significantly improve the facility's capacity and process efficiency and allow ERCO to take advantage of additional business opportunities.
Based on the steps taken and encouraged by ERCO's 2006 achievements, as well as improved sodium chlorate market fundamentals, we expect ERCO's operating distributable cash flow net of maintenance capital expenditures to be $65 - $70 million for 2007 and 2008, with potential additional upside for 2008.
Winroc
------
Winroc, our walls and ceilings product distribution business posted another record year, contributing operating distributable cash flow of $34.6 million in 2006, an increase of 15% compared to 2005. It's profitability has increased consistently over the past 10 years, driven by a combination of organic growth and acquisitions. Its strong position in the commercial, renovation and housing construction markets is expected to continue to provide solid operating results.
Winroc's focus on service is key to its success. Delivering product on time to the right place at the construction site, makes Winroc an important productivity partner for its contractor customers. The continued softening of new housing construction in some markets is mitigated by strong commercial and renovations markets, which comprise more than 50% of Winroc's business. With its 39 distribution branches across Ontario, Western Canada, Utah, Nevada, Arizona and Minnesota, Winroc's extensive geographic diversification is also a mitigating factor in the residential construction slow-down being experienced in certain regions.
For 2007, we expect pressure on new home construction to be somewhat mitigated by stronger commercial activity. We are estimating operating distributable cash flow after maintenance capital expenditures of $30 - $35 million, increasing to the $32 - $37 million range in 2008 range with some improvement in the new home construction segment and assuming no new acquisitions. The fragmented nature of the specialty buildings distribution industry continues to provide attractive consolidation opportunities. Winroc has identified a number of acquisition and expansion opportunities which are anticipated to add further value over time.
Superior Energy Management (SEM)
--------------------------------
SEM, our fixed-price natural gas retailing business posted stellar results, contributing $10.3 million of operating distributable cash flow, almost double compared to 2005. These results reflect SEM's success in transitioning its strategic focus to building sales channels and momentum in smaller volume, higher margin and longer-term commercial and residential markets. Exiting 2006, SEM supplied approximately 40 million gigajoules of natural gas to approximately 85,900 residential and 6,700 commercial flowing customers with a weighted average remaining customer contract life of 42 months. During 2006, SEM has made substantial progress in expanding the infrastructure to support its growth plans beyond the Ontario residential market and the Ontario and Quebec commercial natural gas markets. SEM is currently looking at expanding into the B.C. market later in 2007 and potentially entering certain Northeast U.S. markets over time.
Based on the growth profile in its existing business, SEM is expected to generate operating distributable cash flow for 2007 of $12 - $15 million, further increasing in 2008 to $15 - $18 million. In addition, SEM continues to assess the merits of expanding its product line by offering fixed-price electricity contracts to residential and small commercial customers in Ontario. This market of approximately four million customers and a low penetration rate relative to the Ontario natural gas market represents a significant growth opportunity for SEM.
- STRONG DIVERSIFIED ASSET BASE -
One of Superior Plus' key strengths is our solid portfolio of well diversified businesses, each of which has a strong market position on which to build. Each business has an unwavering focus on safe, reliable operations and quality service. Improving competitiveness and enhancing profitability will provide Superior Plus with renewed access to capital markets at attractive terms to prudently finance organic growth and acquisition opportunities to further leverage our existing asset base. Our high quality assets will be a strong foundation to sustain distributions and provide value to our investors for many years to come.
- NEW FOCUS AND DIRECTION -
The implementation of the strategic plan has bolstered accountability at the divisional levels, allowing each business to maintain a participative and entrepreneurial corporate culture. In November, Wayne Bingham joined Superior Plus as Executive Vice-President and Chief Financial Officer to further Superior's corporate goals and objectives. Under our joint leadership and guidance, the corporate office acts as a strategic capital manager, and has shifted its focus from active business to active investment and risk management.
To remain focused on the strategic visions, including the challenges and opportunities of the businesses, the Board has enhanced and strengthened its governance processes. An advisory committee has been established for each business, which includes two independent directors and the president of another division. The advisory committee assists in delineating capital allocation and acts as additional sounding board for strategic plans and initiatives. We are beginning to see concrete results from the heightened focus on operational strategy and financial discipline.
- STABILITY OF DISTRIBUTIONS -
Providing stable distributions to our unitholders that are sustainable over the long term continues to be our guiding principle. Earlier in the year, cash distributions were reduced and a new target payout ratio of 85 - 90% was established. Cash distributed in 2006 reached $1.82 per trust unit which reflects higher distribution rates paid earlier in the year. This resulted in a payout ratio of 86% on distributable cash flow before strategic review costs. Our current distribution rate of $1.56 per trust unit corresponds to an estimated payout for 2007 within our target range of 85 - 90%.
The trend to lower our payout ratio over time to ensure financial stability is well supported by the renewed growth of our diversified asset base. Under our previous distribution policy, the Fund paid out substantially all of its distributable cash flow. Since its inception, the Fund has paid out $18.39 on an original unit price of $10.95 and has distributed cash in excess of $1 billion. During the past five years, Superior Plus has invested in excess of $1 billion in growth capital projects and made a significant contribution to the Canadian economy.
- INCOME FUNDS IN TRANSITION -
On October 31, 2006, the Federal Government of Canada announced a proposal to impose a tax on distributions from publicly traded income trusts and limited partnerships, beginning in 2011. The intent of the proposal is to effectively tax trusts at the same level as corporations. We are currently assessing the potential impact of the proposed change on Superior Plus and the options available to us. The effect of a potential tax in 2011 would be partially mitigated by substantial tax pools available to Superior Plus. Based on preliminary views, we believe that the change may create opportunities for a diversified business trust with good assets and stable cash flows. Depending on final tax rules, U.S. acquisitions and expansions may become more attractive and there may be domestic acquisition opportunities, as smaller income trusts attempt to exit the market.
Overall, we expect the change in tax rules to have little impact on our growth strategy. Our capital requirements are within the new guidelines and our threshold returns for growth capital projects are well in excess of our cost of capital and are more than sufficient to account for the proposed tax changes. In terms of our distribution policy, we believe that there will be a continuing need for high dividend yield vehicles in Canada.
- STRONG FINANCIAL POSITION -
One of our top focuses and priorities is to maintain a strong balance sheet. Historically, the financial performance of Superior Plus has been solid and our recent challenges that led to the implementation of the strategic plan were largely industry and market related. Prudent financial policies will continue to underpin the ongoing success of accessing multiple sources of capital on attractive terms to capitalize on the attractive opportunities for profitable growth that exists within our underlying business portfolio.
During 2006, we made substantial progress in achieving lower leverage ratios that are appropriate in the context of our overall business, cash flow profile, and capital requirements of our businesses, as well as our distribution policy. We have also increased our liquidity and enhanced our debt repayment profile. At December 31, 2006, Superior Plus had $588 million of two year committed revolving term bank credit facilities with nine chartered banks, of which $425 million was undrawn. Total debt of $756 million, includes $314 million of publicly traded convertible debentures with maturity dates to 2015.
Financial initiatives for 2007 include continued focus on working capital requirements within each of our businesses and a review of our overall banking arrangements. This is aimed at ensuring continued flexibility and optimal financial strength to execute on operational and strategic opportunities.
- LOOKING AHEAD -
In 2006, our energy and resources were fully absorbed by the implementation of the strategic plan. We could not have accomplished so much in such a short period of time without the dedication and commitment of our past and present directors and employees involved in the restructuring process. In particular, we extend our thanks and appreciation to management and the employees of the operating divisions for their focus and dedication to their businesses, including the team at JW Aluminum for their cooperation and professionalism during the course of the sale.
Although we have made considerable progress to date, we expect market prices of income trusts to remain volatile over the short term. We will now direct our efforts towards maintaining our momentum in delivering solid operating performance to regain the trust and confidence that will ultimately be rewarded by the market. For 2007, the Fund anticipates distributable cash flow per trust unit in the $1.65 to $1.85 range, increasing in 2008 to the $1.85 to $2.00 range without additional upside from potential accretive growth capital projects. We believe our financial strength, balanced portfolio of high quality assets and value-based growth strategy will translate into stable distributions and create long-term value for our unitholders.
Grant D. Billing
Chairman and Chief Executive Officer
Analyst Conference Call
Superior Plus will be conducting a conference call and webcast for investors, analysts, brokers and media representatives to discuss the 2006 Fourth Quarter and Annual Results at 9:30 a.m. EST (7:30 a.m. MST) on Wednesday, March 7, 2007. To participate in the call, dial: 1-800-732-9307. An archived recording of the call will be available for replay until midnight, April 4, 2007. To access the recording, dial: 1-877-289-8525 and enter pass code 21217330 followed by the pound 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.
2006 Annual Financial Statements and Management's Discussion and Analysis
The Fund intends to file its 2006 Annual Report, including its 2006 Management's Discussion and Analysis and 2006 Annual Financial Statements with securities regulators on Monday, March 12, 2007. Hard copies of the 2006 Annual Report are expected to be available on March 21, 2007.
Financial Discussion of 2006 Fourth Quarter and 2006 Year End Results
Overview of the Fund
Superior Plus Income Fund is a diversified business trust. The Fund holds 100% of Superior Plus LP, a limited partnership formed between Superior Plus Inc., as general partner and the Fund as limited partner. Superior Plus has four Canadian based operating divisions: Superior Propane is Canada's largest distributor of propane, related products and services; ERCO Worldwide is a leading supplier of chemicals and technology to the pulp and paper industries, a regional Midwest supplier of chloralkali products and the third largest producer of potassium products in North America; Winroc is the seventh largest distributor of walls and ceilings construction products in North America; and Superior Energy Management provides fixed price natural gas supply services in Ontario and Quebec.
Forward Looking and Non-GAAP Statements
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 its wholly owned partnership, Superior Plus LP ("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
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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 maintain the 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 acquisitions 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.
Fourth Quarter and Year to Date Results
Fourth quarter distributable cash flow (before strategic plan costs of $5.3 million) was $55.6 million ($50.3 million after strategic plan costs), a decrease of $4.4 million (7%) over the prior year quarter (a decrease of $9.7 million or 16% after strategic plan costs). The decrease in distributable cash flow was predominantly a result of strategic plan costs of $5.3 million incurred in the quarter and an increase in interest costs of $3.9 million, due to increased debt levels and higher interest rates. Operating distributable cash flow was comparable to the prior year quarter as improved operating results from Superior Propane, Winroc and SEM more than offset a weaker contribution from ERCO. JW Aluminum added $8.1 million of operating distributable cash flow up to its sale on December 7, 2006.
Distributable cash flow per trust unit before strategic plan costs was $0.65 in the fourth quarter ($0.59 after strategic plan costs), a decrease of $0.05 (7%) from the prior year quarter, and a decrease of $0.11 per trust unit (16%) after strategic plan costs, due to the decrease in distributable cash flow. The average number of trust units outstanding was consistent with the prior quarter.
Distributable cash flow for the year ended December 31, 2006 (before strategic plan costs of $19.7 million) was $180.4 million ($160.7 million after strategic plan costs), a decrease of $6.6 million (4%) from the prior year before strategic plan costs, and $26.3 million (14%) after strategic plan costs. Increased profibility from Winroc and SEM were outpaced by lower results from Superior Propane, reflecting depressed heating demand in the first quarter due to unseasonably warm weather and challenging conditions experienced by ERCO's North American sodium chlorate operations. JW Aluminum contributed $38.9 million to the Fund's 2006 results. Interest costs were higher than the prior year due to higher interest rates and average debt levels.
Distributable cash flow per trust unit (before strategic plan costs) was $2.11 ($1.88 after strategic plan costs), down $0.24 (10%) before strategic plan costs, and $0.47 (20%) after strategic plan costs. The decrease in per unit amounts is due to reduced distributable cash flow and a 7% increase in the number of trust units outstanding.
Net earnings for the fourth quarter were $38.1 million, compared to $21.2 million for the prior year quarter. The increase in net earnings is principally due to reduced amortization in the current quarter compared to the prior year due to accelerated amortization recorded in the prior year quarter as a result of ERCO's decision to close its Thunder Bay, Ontario sodium chlorate facility. Additionally, fourth quarter net earnings were affected for the same reasons as distributable cash flow for the fourth quarter.
Distributable Cash Flow(1)
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Three Months Ended Years Ended
December 31 December 31
2006 2005 2006 2005
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Cash generated from continuing
operations before natural gas
customer acquisition costs and
changes in working capital 44.9 54.7 137.5 196.0
Add: Management
internalization costs - - 1.3 1.3
Distributable cash flow
from discontinued
operations (See "JWA"
discussion) 8.1 8.6 38.9 8.6
Less: Maintenance capital
expenditures, net (1.8) (2.6) (13.8) (16.5)
Amortization of natural
gas customer
acquisition costs (0.9) (0.7) (3.2) (2.4)
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Distributable cash flow 50.3 60.0 160.7 187.0
Strategic plan costs 5.3 - 19.7 -
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Distributable cash flow before
strategic plan costs 55.6 60.0 180.4 187.0
Distributable cash flow 50.3 60.0 160.7 187.0
Distributable cash flow
(reinvested) funded from debt (16.9) (7.9) (5.0) 5.0
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Distributed cash flow 33.4 52.1 155.7 192.0
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Distributable cash flow per
trust unit (before strategic
plan costs), basic(2) $0.65 $0.70 $2.11 $2.35
Distributable cash flow per
trust unit (before strategic
plan costs), diluted(3) $0.65 $0.67 $2.11 $2.27
Distributable cash flow per
trust unit, basic(2) $0.59 $0.70 $1.88 $2.35
Distributable cash flow per
trust unit, diluted(3) $0.59 $0.67 $1.88 $2.27
Distribution payout ratio
(before strategic plan costs) 60% 87% 86% 103%
Distribution payout ratio
(after strategic plan costs) 66% 87% 97% 103%
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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, management internalization costs,
maintenance capital expenditures, and amortization of natural gas
customer acquisition costs.
(2) The weighted average number of trust units outstanding for the
quarter ended December 31, 2006 is 85.5 million (2005 - 85.4 million)
and for the year ended December 31, 2006 is 85.5 million (2005 -
79.7 million).
(3) For the three months and twelve months ended December 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 10.8 million trust units (86.4 million total
trust units on a diluted basis) with a resulting impact on
distributable cash flow of $4.9 million ($64.9 million total on a
diluted basis). For the prior twelve months ended December 31, 2005,
the dilutive impact of the convertible debentures, trust unit options
and trust unit warrants was 8.3 million trust units (88.0 million
total trust units on a diluted basis) with a resulting impact on
distributable cash flow of $13.1 million ($200.1 million total on a
diluted basis).
Superior Propane
Superior Propane generated operating distributable cash flow of
$32.6 million in the fourth quarter, an increase of $0.7 million from the
prior year quarter due to higher other services gross profit and reduced
operating expenses, partially offset by reduced propane gross profits.
Condensed operating results for the three months and years ended
December 31, 2006 and 2005 are provided in the following table. See "Segmented
Distributable Cash Flow" for detailed comparative business segment results.
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(millions of
dollars except Three Months Ended Years ended
per litre December 31 December 31
amounts) 2006 2005 2006 2005
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cents/ cents/ cents/ cents/
Gross Profit litre litre litre litre
------ ------ ------ ------
Propane
sales 59.3 14.6 64.9 15.5 209.4 15.1 231.7 15.8
Other
services 18.9 4.6 15.0 3.6 63.5 4.6 52.7 3.6
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Total Gross
Profit 78.2 19.2 79.9 19.1 272.9 19.7 284.4 19.4
Less:
Cash
operating,
admin & cash
tax costs (47.6) (11.7) (49.9) (11.9) (182.6) (13.2) (187.4) (12.8)
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Cash generated
from operations
before changes
in net working
capital 30.6 7.5 30.0 7.2 90.3 6.5 97.0 6.6
Maintenance
capital
expenditures,
net 2.0 0.5 1.9 0.4 0.3 - (2.8) (0.2)
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Operating
distributable
cash flow 32.6 8.0 31.9 7.6 90.6 6.5 94.2 6.4
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Propane retail
volumes sold
(millions of
litres) 407 420 1,386 1,468
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Propane sales gross profit of $59.3 million declined $5.6 million (9%)
from the prior year quarter, as sales volumes declined by 13 million litres
(3%) and sales margins decreased by 0.9 cents per litre (6%). Auto propane
volumes declined by 4 million litres (11%), consistent with decline trends in
this end-use market. Residential and commercial volumes declined by 5 million
litres (3%), due principally to warmer weather in Eastern Canada. Weather in
Eastern Canada was 7% warmer than the prior year and 9% warmer than the five
year average. Industrial volumes were comparable as a reduction in heating
related demand was substantially offset by stronger oil patch volumes. Propane
sales margins declined principally due to the outsourcing of primary
transportation services following the sale of the Energy Transportation in the
fourth quarter of 2005. Additionally, propane sales margins were negatively
impacted by reduced, high-margin heating related business mix.
Other services gross profit was $18.9 million for the fourth quarter, an
increase of $3.9 million (26%) over the prior year quarter, as Superior
Propane's fixed-price heating programs returned to historical profitability.
The 2005/2006 heating season fixed-price program was negatively impacted by
the gulf coast hurricane in the third quarter of 2005 which had increased the
hedging costs of the program. Additionally, other service gross profit
benefited from a full quarter's impact of the propane delivery and hazmat fees
implemented during the fourth quarter of 2005, to mitigate increasing fuel and
regulatory costs.
Volume and Gross Profit by End-Use Market Segment
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Three Months Ended December 31 Years Ended December 31
2006 2005 2006 2005
----------------------------- ------------------------------
End-Use Volume Gross Volume Gross Volume Gross Volume Gross
Applications: (1) Profit(2) (1) Profit(2) (1) Profit(2) (1) Profit(2)
----------------------------- ------------------------------
Residential 54 17.0 58 18.8 163 54.3 183 59.9
Commercial 88 16.1 89 17.4 296 56.7 315 60.9
Agricultural 41 3.0 42 4.0 89 7.7 100 11.5
Industrial 191 19.2 194 20.5 686 71.5 696 78.8
Automotive 33 4.0 37 4.2 152 19.2 174 20.6
Other Services - 18.9 - 15.0 - 63.5 - 52.7
----------------------------- ------------------------------
407 78.2 420 79.9 1,386 272.9 1,468 284.4
----------------------------- ------------------------------
Average Margin(3) 14.6 15.5 15.1 15.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Volume of retail propane sold (millions of litres)
(2) Millions of dollars
(3) Average retail propane sale margin (cents per litre)
-------------------------------------------------------------------------
Volume and Gross Profit by Region
-------------------------------------------------------------------------
Three Months Ended December 31 Years Ended December 31
2006 2005 2006 2005
----------------------------- ------------------------------
Regions: Volume Gross Volume Gross Volume Gross Volume Gross
(1) Profit(2) (1) Profit(2) (1) Profit(2) (1) Profit(2)
----------------------------- ------------------------------
Atlantic 25 8.4 27 8.8 97 30.5 110 32.3
Quebec 67 12.0 76 13.0 233 44.5 257 49.9
Ontario 85 20.7 94 23.4 309 75.3 342 80.1
Sask/Man 67 8.4 61 7.8 195 26.6 202 27.2
AB/NWT 100 16.4 98 15.3 331 53.0 322 51.8
BC/YK 63 12.3 64 11.6 221 43.0 235 43.1
----------------------------- ------------------------------
407 78.2 420 79.9 1,386 272.9 1,468 284.4
----------------------------- ------------------------------
Average Margin(3) 14.6 15.5 15.1 15.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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 $47.6 million,
decreased by $2.3 million (5%) from the prior year quarter, principally due to
the reduction of operating costs associated with the sale of the Energy
Transportation primary fleet operations. Net maintenance capital proceeds for
the quarter totaled $2.0 million, an increase of $0.1 million compared to the
prior year quarter, and benefited from $4.3 million of proceeds on the
disposition of Superior Propane's Concord, Ontario property, offset by
$2.3 million in expenditures. The sale of the Concord property has been
facilitated by reallocating customers previously serviced by this location to
other Superior Propane branches.
Superior Propane has been leasing service trucks, crane trucks and tandem
tractors for several years and will now be expanding and streamlining its
leasing programs with a master lease and other lease arrangements at
attractive rates. Superior intends to expand the program to bulk trucks and
accelerate the fleet renewal for 2007 and 2008. Increasing lease costs are
anticipated to be offset over time by lower operating costs, resulting from
lower repair and maintenance costs, fleet reliability, as well as improved
productivity, safety and corporate image. The program is designed to better
align the cost structure with Superior Propane's ongoing operations and result
in customer service improvements. In 2007, this is anticipated to positively
impact operating distributable cash flow by lowering ongoing maintenance
capital expenditures by approximately $3.5 - $4.0 million.
ERCO Worldwide
ERCO Worldwide generated operating distributable cash flow in the fourth
quarter of $20.0 million, a reduction of $4.2 million (17%) from the prior
year quarter, predominantly due to additional operating expenses.
Condensed operating results for the three months and years ended December
31, 2006 and 2005 are provided in the following table. See "Segmented
Distributable Cash Flow" for detailed comparative business segment results.
-------------------------------------------------------------------------
(millions of
dollars except
per metric Three Months Ended Years Ended
tonne ("MT") December 31 December 31
amounts) 2006 2005 2006 2005
-------------------------------------------------------------------------
Revenue $ per MT $ per MT $ per MT $ per MT
Chemical 105.9 554 111.7 545 408.6 540 408.2 550
Technology 9.6 50 5.5 27 28.6 38 23.4 32
Cost of Sales
Chemical (52.8) (276) (58.3) (284) (214.9) (284) (213.2) (287)
Technology (6.3) (33) (2.5) (13) (18.2) (24) (11.5) (15)
-------------------------------------------------------------------------
Gross Profit 56.4 295 56.4 275 204.1 270 206.9 280
Less: Cash
operating,
administrative
& tax costs (33.3) (174) (28.7) (140) (120.9) (160) (105.7) (142)
-------------------------------------------------------------------------
Cash generated
from operations
before changes
in net working
capital 23.1 121 27.7 135 83.2 110 101.2 138
Maintenance
capital
expenditures (3.1) (16) (3.5) (17) (7.5) (10) (8.1) (11)
-------------------------------------------------------------------------
Operating
distributable
cash flow 20.0 105 24.2 118 75.7 100 93.1 127
-------------------------------------------------------------------------
Chemical
volumes sold
(thousands of MTs) 191 205(1) 756 742(1)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Hydrochloric acid volumes have been restated to reflect a dry basis
of measurement as compared to a wet basis of measurement to reflect
industry practice.
Fourth quarter gross profit was $56.4 million, comprised of $53.1 million
from chemical sales and $3.3 million from technology services. Chemical sales
gross profit was consistent with the prior year quarter, as a marginal
increase in sodium chlorate gross profit was offset by a moderate decrease in
chloralkali/potassium gross profit. Sodium chlorate gross profits were
marginally higher than the prior year quarter as a 13% decrease in sodium
chlorate sales volumes was more than offset by the impact of the start-up of
ERCO's Chilean facility, lower effective electrical prices and higher realized
selling prices. The decrease in chloralkali/potassium gross profits reflect
the return to more normalized pricing levels compared to the record prices
realized during the fourth quarter of 2005. Technology gross profit was
consistent with the prior year period, as increased chlorine dioxide generator
project revenues were offset by reduced royalty revenue, due to normal course
royalty license expirations.
Cash operating, administration and tax costs were $33.3 million, an
increase of $4.6 million (16%) from the prior year quarter, due to the
inclusion of costs associated with the Chilean facility and higher maintenance
and compliance costs. Maintenance capital expenditures of $3.1 million were
consistent with the prior year quarter.
Growth capital expenditures of $1.8 million were incurred in the quarter
and were principally focused on the completion of the 55,000 tonne sodium
chlorate plant in Chile. The project is now complete at a cumulative project
cost of $70.2 million.
ERCO is continuing to evaluate the economic feasibility of converting its
Port Edwards, Wisonsin potassium/chloralkali facility from a mercury based
process to membrane technology at a cost currently estimated at US $85-$100
million. The project is expected to provide significant improvements in
process efficiency and capacity. If the project does not proceed,
environmental compliance expenditures of approximately $3.5 to $4.0 million,
of which $2.6 million were accrued upon acquisition, are required in 2007 to
meet government regulations which became effective December 17, 2006. ERCO has
received a one year extension from government authorities to complete its
project evaluation.
In accordance with Superior's strategic plan, ERCO closed its 80,000 tonne
sodium chlorate plant in Bruderheim, Alberta during November of 2006 due to
high electricity costs, lower realized sodium chlorate prices resulting from
the appreciation of the Canadian dollar on US dollar denominated sales and
reduced sodium chlorate demand due to the closure of various bleached pulp
mills in North America. The Bruderheim facility is currently operated by ERCO
as a dissolving facility. Closure costs were $4.1 million and have been
categorized as strategic plan costs. ERCO is currently assessing options
related to the closure of the facility which range from a sale to a full
dismantlement and reclamation of the property. Depending on the closure option
available, additional costs to close the facility will range from NIL to
$5.0 million. See "Corporate" for a detailed discussion of strategic plan
costs. The fixed price power agreement previously used by the Bruderheim
facility was transferred to ERCO's Grande Prairie, Alberta sodium chlorate
facility and will provide competitive rates until its expiry in 2017.
During 2006, ERCO established a new long-term electrical supply agreement
for its Valdosta, Georgia sodium chlorate facility. The agreement with Georgia
Power will supply ERCO's facility with power at the industrial interruptible
tariff rate which is anticipated to be in the mid US $40's/MW, using US $10/GJ
as the assumed natural gas cost in the tariff calculation. The facility will
operate as a swing facility when electrical prices are favorable and can be
supported in the sodium chlorate market price.
Winroc
Winroc generated operating distributable cash flow of $10.7 million, an
increase of $2.0 million (23%) from the prior year quarter, as sales and gross
profit improvements in Western Canada were partially offset by weaker
performance in the Ontario and United States markets.
Condensed operating results for the three months and years ended December
31, 2006 and 2005 are provided in the following table. See "Segmented
Distributable Cash Flow" for detailed comparative business segment results.
-------------------------------------------------------------------------
Three Months Ended Years Ended
December 31 December 31
(millions of dollars) 2006 2005 2006 2005
-------------------------------------------------------------------------
Distribution sales gross profit 31.7 30.9 127.2 113.4
Direct sales gross profit 1.6 1.5 5.0 4.4
-------------------------------------------------------------------------
Gross Profit 33.3 32.4 132.2 117.8
Less: Cash operating,
administrative & cash tax costs (21.9) (22.7) (91.0) (82.0)
-------------------------------------------------------------------------
Cash generated from operations
before changes in net working
capital 11.4 9.7 41.2 35.8
Capital expenditures, net (0.7) (1.0) (6.6) (5.6)
-------------------------------------------------------------------------
Operating distributable cash flow 10.7 8.7 34.6 30.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Distribution sales gross profit of $31.7 million in the fourth quarter was
$0.8 million (3%) higher than the prior year period, as increased volumes and
margins in Western Canada outpaced reduced volumes and margins in Ontario due
to competitive pressures and reduced board volumes in the United States,
resulting from reduced residential construction demand. Drywall sales volumes,
an indicator of overall sales volumes, decreased by 16% compared to the prior
year quarter. The decrease in sales volumes was due to weaker sales volumes in
Ontario and the United States outpacing the increase in sales volumes in
Western Canada. Cash operating and administrative costs were $0.8 million (4%)
lower than the prior year quarter due principally to lower sales volumes,
offset partially by costs associated with restructuring the Ontario operations
and cost pressures experienced in the Western Canada operations. Maintenance
capital expenditures of $0.7 million in the quarter were comparable to the
prior year period. In conjunction with Superior Propane, Winroc has entered
into master lease arrangements for the ongoing requirements of its delivery
fleet. Similarly to Superior Propane, the leasing program is anticipated to
positively impact operating distributable cash flow by lowering maintenance
capital expenditures for 2007 by approximately $1.5 - $2.0 million.
Superior Energy Management ("SEM")
SEM's condensed operating results for the three months and years ended
December 31, 2006 and 2005 are provided below. See "Segmented Distributable
Cash Flow" for detailed comparative business segment results.
-------------------------------------------------------------------------
(millions of
dollars except Three Months Ended Years Ended
per gigajoule December 31 December 31
("GJ") amounts) 2006 2005 2006 2005
-------------------------------------------------------------------------
cents cents cents cents
per GJ per GJ per GJ per GJ
------ ------ ------ ------
Gross profit 6.2 62.0 4.3 47.8 21.7 54.3 14.5 39.2
Less: Cash
operating,
admin. &
selling costs (3.2) (32.0) (2.5) (27.8) (11.4) (28.5) (9.2) (24.9)
-------------------------------------------------------------------------
Operating
distributable
cash flow 3.0 30.0 1.8 20.0 10.3 25.8 5.3 14.3
-------------------------------------------------------------------------
Natural gas sold
(millions of GJs) 10 9 40 37
-------------------------------------------------------------------------
-------------------------------------------------------------------------
SEM generated operating distributable cash flow of $3.0 million in the
fourth quarter, an increase of $1.2 million compared to the prior year
quarter. These results reflect SEM's continued trend of increasing gross
profit through growth in its lower-volume, higher-margin residential and small
commercial customer base. Residential and small commercial customer volumes
comprised approximately 25% of total sales volumes in the fourth quarter (2005
fourth quarter - 14%) and contributed to a 44% increase in gross profit
margins over the prior year period. Operating, administration and selling
costs of $3.2 million were $0.7 million higher than 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
December 31, 2006 was 42 months (December 31, 2005 - 42 months).
Discontinued Operations - JW Aluminum
In July, the Fund announced as part of its strategic plan, its decision to
sell JWA in order to focus on its Canadian businesses and to reduce debt. As a
result, JWA was sold on December 7, 2006 for net proceeds of $354.7 million.
JWA's financial statements have been classified as a discontinued operation in
the Fund's Consolidated Financial Statements effective July 1, 2006 as a
result of the sales process.
Condensed operating distributable cash flow results for the three and
twelve months ended December 31, 2006 are provided below:
-------------------------------------------------------------------------
October 1 - October 19 - January 1 -
(millions of dollars except per December 7, December 31, December 7,
pound amounts) 2006(1) 2005(2) 2006(1)
-------------------------------------------------------------------------
cents cents cents
/lb /lb /lb
Gross profit 13.1 21.8 12.5 17.6 58.7 18.5
Less: Cash operating,
administration and tax costs (4.2) (7.0) (3.4) (4.8) (17.0) (5.4)
-------------------------------------------------------------------------
Cash generated from operations
before changes in net working
capital 8.9 14.8 9.1 12.8 41.7 13.1
Maintenance capital
expenditures, net (0.8) (1.3) (0.5) (0.7) (2.8) (0.9)
-------------------------------------------------------------------------
Operating distributable cash
flow 8.1 13.5 8.6 12.1 38.9 12.2
Aluminum sold (millions of pounds) 60 71 317
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) JWA was sold on December 7, 2006 (See Note 3 to the Interim
Consolidated Financial Statements).
(2) JWA was acquired on October 19, 2005 (See Note 4 to the Interim
Consolidated Financial Statements).
Operating distributable cash flow for the period October 1, 2006 to
December 7, 2006 was $8.1 million, compared to $8.6 million for the prior year
period of October 19, 2005 to December 31, 2005. These results reflect the
Fund's effective ownership period. As a result of the sale of JWA on December
7, 2006, the 2007 financial results of the Fund will have no contribution from
JWA.
Corporate
Corporate costs for the fourth quarter were $2.4 million, comparable to
the prior year quarter.
Interest expense on revolving term bank credits and term loans was
$11.4 million for the fourth quarter, an increase of $3.7 million from the
prior year quarter. Higher interest costs reflect increased floating interest
rates, average debt levels for the quarter were consistent with the prior year
quarter. See "Strategic Plan Costs" and "Liquidity and Capital Resources"
discussion for further details.
Interest on convertible debentures was $5.0 million for the fourth
quarter, an increase of $0.2 million from the prior year quarter. The increase
in convertible debenture interest expense is the result of the issuance of
$75.0 million, 5.85% convertible debentures in October 2005, offset partially
by the conversion of $0.9 million, 8% convertible debentures since December
31, 2005.
Cash income and withholding taxes of $3.6 million were incurred with
respect to continuing operations in the United States in the fourth quarter
(2005 - $3.4 million) and have been charged to the businesses from which the
taxable income was derived. In Canada, cash capital taxes were NIL in the
fourth quarter (2005 - $0.8 million). The decrease in Canadian cash taxes is
due to the Fund's conversion to a trust-on-partnership structure on September
30, 2006.
On October 31, 2006, the Government of Canada announced proposed changes
that would result in the taxation of "specified investment flow-throughs",
which include income trusts. For Superior the proposed changes would take
effect in 2011, if implemented. Due to the uncertainty with respect to the
proposed changes, the Fund has not completed a full assessment of the
potential implications that these proposed changes may have. Superior
currently has approximately $400 million in tax pools. These tax pools may be
impacted by adjustments to reduce tax at the partnership level and/or
adjustments for additional capital outlays.
Strategic Plan Costs
Costs associated with the implementation of Superior's strategic plan were
$5.3 million in the fourth quarter ($19.7 million year to date) and were
comprised of the following:
-------------------------------------------------------------------------
Three Months Ended Year Ended
December 31 December 31
2006 2006
-------------------------------------------------------------------------
Operating and administrative expenses:
Employee severance and retention $3.1 $11.0
Partnership reorganization costs 0.4 1.9
ERCO - Bruderheim closure costs 2.4 4.1
Advisory and other (0.6) 0.7
Write off of deferred financing costs - 2.0
-------------------------------------------------------------------------
Total Strategic Plan Costs $5.3 $19.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Strategic plan costs for 2007 are expected to range from $1.5 million to
$6.5 million. The range in estimated strategic plan costs is due to the
uncertainty of the costs associated with ERCO's closure of its Bruderheim,
Alberta sodium chlorate facility. The remainder of the costs relate to
employee retention programs, to be completed on or before May 1, 2007.
Liquidity and Capital Resources
As at December 31, 2006, revolving term bank credits and term loan
borrowings by Superior totaled $346.7 million ($441.7 million including
accounts receivable securitization), a decrease of 46% (41% including accounts
receivable securitization) from December 31, 2005 levels, due principally to
the sale of JW Aluminum on December 7, 2006. As at December 31, 2006,
$429.7 million was available under Superior's credit facilities and is
considered to be sufficient to meet Superior's net working capital funding
requirements and expected growth capital expenditures.
As at December 31, 2006, subordinated convertible debentures issued by the
Fund totaled $313.9 million (including current portion of $8.1 million), a
decrease of $0.4 million from December 31, 2005 due principally to the
conversion of Series 1 and 2, 8% convertible debentures into trust units.
Consolidated net working capital from continuing operations was
$178.9 million as at December 31, 2006, a decrease of $5.3 million as compared
to the prior year. The decrease in net working capital is due to lower net
working capital at Propane and Winroc as a result of reduced inventory levels,
offset in part, by higher net working capital at ERCO Worldwide due to the
start-up of the Chilean operations. See Note 14 to the Interim Consolidated
Financial Statements for segmented net working capital by division, net of the
accounts receivable sales program.
As at December 31, 2006, Superior's senior debt and total debt to EBITDA
are 1.9 and 3.4 times, respectively after taking into account the impact of
the off-balance sheet receivable sales program amounts, the impact of cash on
hand, the disposition of JWA and the impact of the start-up of ERCO's Chilean
operations. Senior debt and total debt to EBITDA are 2.1 times and 3.7 times,
respectively when calculated in accordance with Superior's senior banking
agreements. These ratios are well within the requirements contained in
Superior's senior debt covenants which restrict its ability to pay
distributions to the Fund's Unitholders if Senior Debt to EBITDA exceeds 3.0
times.
In response to Superior's strategic review announcement on July 10, 2006,
Standard and Poor's and Dominion Bond Rating Service confirmed their April 24,
2006 ratings, pending the completion of a full credit review. On April 24,
2006, Standard and Poor's confirmed Superior's BBB- secured 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.
Unitholders' Capital
The weighted average number of trust units outstanding during the fourth
quarter was 85.5 million trust units, consistent with the prior year quarter.
As at December 31, 2006 and December 31, 2005, the following trust units,
and securities convertible into trust units, were outstanding:
-------------------------------------------------------------------------
December 31, 2006 December 31, 2005
Convertible Trust Convertible Trust
(millions) Securities Units Securities 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 @ $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 December 31, 2006, there were 1,086,000 trust unit options
outstanding (December 31, 2005 - 1,177,000 trust units) with a weighted
average exercise price of $22.69 per trust unit (2005 - $22.82 per trust
unit). The number of trust units issued upon exercise of the trust unit
options is equal to the growth in the value of the options at the time the
options are exercised, (represented by the market price less the exercise
price) times the number of options exercised, divided by the current trust
unit market price.
Distributions Paid to Unitholders
Distributions paid to Unitholders in the fourth quarter were $33.4 million
or $0.39 per trust unit, compared to $52.1 million or $0.61 per trust unit in
the fourth quarter of 2005. Distributable cash flow exceeded distributions
paid to Unitholders by $16.9 million in the fourth quarter (2005 Q4 - $7.9
million) resulting in a payout ratio of 60% before strategic plan costs and
66% (2005 Q4 - 87%) after strategic plan costs.
For the twelve months ended December 31, 2006, distributions paid to
Unitholders were $155.7 million or $1.82 per trust unit compared to
$192.0 million or $2.41 per trust unit in the prior year, a decrease of 24%.
The Fund paid out 86% before strategic plan costs and 97% after strategic plan
costs in 2006, compared to 103% in 2005, resulting in undistributed
distributable cash flow in 2006 of $24.7 million before strategic plan costs
and $5.0 million after strategic plan costs, which was reinvested in the
business, compared to $5.0 million in excess distributions which were funded
from debt in 2005. The decrease in distributions paid is the result of a
change in the Fund's monthly distribution level from $.205 per trust unit to
$0.185 per trust unit effective with the March 2006 monthly distribution and a
reduction to $0.13 per trust unit ($1.56 on an annualized basis) effective
with the May 2006 monthly distribution.
Foreign Currency Hedging
SEM and Superior Propane contract a portion of their fixed price natural
gas and propane purchases (sales) in US dollars and enter into forward US
dollar purchase contracts to create an effective Canadian dollar fixed price
purchase cost. ERCO Worldwide enters into US dollar forward sales contracts on
an ongoing basis to mitigate the impact of foreign exchange fluctuations on
sales margins on production from its Canadian plants that is sold in US
dollars. Interest expense on Superior's US dollar debt is also used to
mitigate the impact of foreign exchange fluctuations on its US dollar
distributable cash flow. Superior's US dollar debt acts as a balance sheet
hedge against its US dollar net assets. Superior hedges its net US dollar
future cash flows with external third party contracts after first matching
internally SEM's and Superior Propane's forward US dollar purchase (sale)
requirements against ERCO Worldwide's US dollar revenues where possible.
As at December 31, 2006, SEM and Superior Propane had hedged approximately
100% of their US dollar natural gas and propane purchase (sale) obligations
and ERCO Worldwide had hedged 85% and 34% of its estimated US dollar exposure
for the remainder of 2007 and 2008, as shown in the table below.
-------------------------------------------------------------------------
(US$ millions) 2007 2008 2009 2010 2011 2012 Total
-------------------------------------------------------------------------
SEM - US $ forward
purchases 131.1 118.3 111.1 61.9 5.4 - 427.8
Superior Propane -
US $ forward
purchases (sales) (13.8) - - - - - (13.8)
ERCO - US $
forward sales (89.6) (15.9) - - - - (105.5)
-------------------------------------------------------------------------
Net US $ forward
purchases 27.7 102.4 111.1 61.9 5.4 - 308.5
-------------------------------------------------------------------------
SEM - Average US $
forward purchase
rate 1.22 1.22 1.21 1.16 1.11 - 1.21
Superior Propane -
Average US $
forward rate 1.12 - - - - - 1.12
ERCO - Average
US $ forward
sales rate 1.22 1.20 - - - - 1.21
-------------------------------------------------------------------------
Net average
external US$/Cdn$
exchange rate 1.21 1.22 1.21 1.16 1.11 - 1.21
-------------------------------------------------------------------------
Restatement of Accrued Pension Asset
As described in Note 10 to the Interim Consolidated Financial Statements,
the Fund has determined that Superior Propane's accrued pension asset should
be accounted for in accordance with CICA Handbook 3461, Employee Future
Benefits. Previously the Fund had determined that the adoption of this
standard was inconsequential. Accordingly, it has retroactively restated its
2005 consolidated financial statements.
The impact for 2005 was to increase total assets by $25.9 million to
$2,373.6 million, reflecting the previously unrecorded pension asset. The
opening deficit was reduced by $27.6 million. Net earning for the three months
ended December 31, 2005 were reduced by $0.5 million and for the twelve months
ended December 31, 2005 by $1.7 million. There was no impact on the
consolidated statement of cash flows. Net earnings (loss) per trust unit for
the three months ended December 31, 2005 was unchanged, for the twelve months
ended December 31, 2005 was reduced by $0.02 per trust unit.
Quarterly Financial and Operating Information
-------------------------------------------------------------------------
(millions of dollars 2006 2005
except per trust Quarters Quarters
unit amounts) Fourth Third Second First Fourth Third Second First
(1) (1) (1) (1) (1) (1) (1)
-------------------------------------------------------------------------
Propane sales
volumes (millions
of litres) 407 261 270 448 420 277 286 485
Chemical sales
volumes
(thousands of
metric tonnes) 191 190 183 192 205 203 170 164
Natural gas sales
volumes (millions
of GJs) 10 11 10 9 9 9 9 9
Gross profit 174.1 143.5 141.2 172.1 173.0 149.6 137.2 163.8
Asset impairments,
net of tax - 56.3 170.8 - - - - -
Net earnings
(loss) from
continuing
operations 25.3 46.3 (157.4) 30.2 18.1 23.6 18.5 41.1
Net earnings
(loss) 38.1 1.1 (153.3) 33.3 3.1 23.6 18.5 41.1
Per basic trust
unit from
continuing
operations $0.30 $0.54 ($1.84) $0.35 $0.22 $0.30 $0.24 $0.54
Per diluted trust
unit from
continuing
operations $0.30 $0.54 ($1.84) $0.35 $0.22 $0.30 $0.24 $0.52
Per basic trust
unit $0.45 $0.01 ($1.79) $0.39 $0.25 $0.30 $0.24 $0.54
Per diluted trust
unit $0.45 $0.01 ($1.79) $0.39 $0.25 $0.30 $0.24 $0.52
Distributable
cash flow 50.3 25.3 28.6 56.5 60.0 33.4 29.9 63.7
Per basic trust
unit $0.59 $0.30 $0.33 $0.66 $0.70 $0.42 $0.38 $0.83
Per diluted trust
unit $0.59 $0.30 $0.33 $0.66 $0.67 $0.42 $0.38 $0.79
Net working
capital(2) 178.9 237.9 294.8 310.6 269.1 106.0 54.0 61.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Restated for the impact of the Superior Propane defined pension
asset, see Note 10 of the Interim Consolidated Financial Statements.
(2) Net working capital reflects amounts as at the quarter end and is
comprised of cash and cash equivalents, accounts receivable and
inventories, less accounts payable and accrued liabilities.
Segmented Distributable Cash Flow(1)
-------------------------------------------------------------------------
Discon-
For the three tinued
months ended Opera- Total
December 31, Superior Corp- tions- Consol-
2006 Propane ERCO Winroc SEM orate JWA(2) idated
-------------------------------------------------------------------------
Net earnings
(loss) from
continuing
operations 23.3 10.6 10.3 2.9 (21.8) - 25.3
Add:
Amortization of
property, plant
and equipment,
intangible
assets and
convertible
debenture issue
costs 6.2 13.1 1.1 - 0.6 - 21.0
Future income tax
expense
(recovery) - (3.2) - - 0.3 - (2.9)
Superior Propane
non-cash pension
expense 0.6 - - - - - 0.6
Distributable
cash from
discontinued
operations - - - - - 8.1 8.1
Less:
Maintenance
capital
expenditures,
net 2.0 (3.1) (0.7) - - - (1.8)
-------------------------------------------------------------------------
Distributable
cash flow 32.1 17.4 10.7 2.9 (20.9) 8.1 50.3
Strategic plan
costs 0.5 2.6 - 0.1 2.1 - 5.3
-------------------------------------------------------------------------
Distributable cash
flow before
strategic plan
costs 32.6 20.0 10.7 3.0 (18.8) 8.1 55.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Discon-
For the three tinued
months ended Opera- Total
December 31, Superior Corp- tions- Consol-
2005 Propane ERCO Winroc SEM orate JWA(2) idated
-------------------------------------------------------------------------
Net earnings
(loss) from
continuing
operations 18.3 (7.8) 5.7 1.4 0.5 - 18.1
Add:
Amortization of
property, plant
and equipment,
intangible
assets and
convertible
debenture issue
costs 2.3 40.8 0.7 - 0.6 - 44.4
Future income tax
expense
(recovery) 8.9 (5.3) 3.3 0.4 (15.0) - (7.7)
Trust unit
incentive plan
recovery - - - - (1.3) - (1.3)
Superior Propane
non-cash pension
expense(4) 0.5 - - - - - 0.5
Distributable
cash from
discontinued
operations - - - - - 8.6 8.6
Less:
Maintenance
capital
expenditures,
net 1.9 (3.5) (1.0) - - - (2.6)
-------------------------------------------------------------------------
Distributable cash
flow 31.9 24.2 8.7 1.8 (15.2) 8.6 60.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Discon-
For the year tinued
ended Opera- Total
December 31, Superior Corp- tions- Consol-
2006 Propane ERCO Winroc SEM orate JWA(2) idated
-------------------------------------------------------------------------
Net earnings
(loss) from
continuing
operations 115.8 (59.3) 46.0 12.6 (170.7) - (55.6)
Add:
Amortization of
property, plant
and equipment,
intangible
assets and
convertible
debenture issue
costs 20.4 52.6 4.1 - 2.3 - 79.4
Future income
tax expense
(recovery) (49.2) (133.9) (8.9) (2.6) 85.4 - (109.2)
Trust unit
incentive plan
recovery - - - - (1.2) - (1.2)
Management
internalization
costs - - - - 1.3 - 1.3
Superior Propane
non-cash
pension expense 2.2 - - - - - 2.2
Impairment of
property, plant
and equipment,
and goodwill(3) - 218.7 - - - - 218.7
Distributable
cash from
discontinued
operations - - - - - 38.9 38.9
Less:
Maintenance
capital
expenditures,
net 0.3 (7.5) (6.6) - - - (13.8)
-------------------------------------------------------------------------
Distributable cash
flow 89.5 70.6 34.6 10.0 (82.9) 38.9 160.7
Strategic plan
costs 1.1 5.1 - 0.3 13.2 - 19.7
-------------------------------------------------------------------------
Distributable cash
flow before
strategic plan
costs 90.6 75.7 34.6 10.3 (69.7) 38.9 180.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Discon-
For the year tinued
ended Opera- Total
December 31, Superior Corp- tions- Consol-
2005 Propane ERCO Winroc SEM orate JWA(2) idated
-------------------------------------------------------------------------
Net earnings
from continuing
operations 49.4 7.4 22.1 3.4 19.0 - 101.3
Add:
Amortization of
property, plant
and equipment,
intangible
assets and
convertible
debenture issue
costs 17.9 92.5 3.0 - 1.7 - 115.1
Future income
tax expense
(recovery) 28.0 1.3 10.7 1.9 (61.8) - (19.9)
Trust unit
incentive
plan recovery - - - - (4.6) - (4.6)
Management
internalization
costs - - - - 1.3 - 1.3
Superior Propane
non-cash
pension
expense(4) 1.7 - - - - - 1.7
Distributable
cash from
discontinued
operations - - - - - 8.6 8.6
Less:
Maintenance
capital
expenditures,
net (2.8) (8.1) (5.6) - - - (16.5)
-------------------------------------------------------------------------
Distributable cash
flow 94.2 93.1 30.2 5.3 (44.4) 8.6 187.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) See the Interim Consolidated Financial Statements for net earnings
(loss), amortization of property, plant and equipment, intangible
assets and convertible debenture issue costs, future income tax
expense (recovery), trust unit incentive plan expense (recovery),
management internalization costs, impairment of property, plant and
equipment and goodwill, non-cash pension expense, and maintenance
capital expenditures.
(2) See Note 3 to the Interim Consolidated Financial Statements.
(3) See Note 5 to the Interim Consolidated Financial Statements.
(4) Restated for the impact of the Superior Propane defined pension
asset, see Note 10 of the Interim Consolidated Financial Statements.
SUPERIOR PLUS INCOME FUND
Consolidated Balance Sheets
December 31 December 31
(unaudited, millions of dollars) 2006 2005
-------------------------------------------------------------------------
(Restated
Assets Note 10)
Current Assets
Cash and cash equivalents 33.6 19.9
Accounts receivable and other (Note 6) 246.1 250.4
Inventories 142.8 146.3
Current assets of discontinued operations (Note 3) - 132.8
-------------------------------------------------------------------------
422.5 549.4
Property, plant and equipment 571.1 708.3
Other deferred 25.9 22.3
Intangible assets 31.5 37.0
Goodwill (Note 5) 452.4 541.3
Accrued pension asset (Note 9 and 10) 23.7 25.9
Future income tax asset (Note 11) 9.8 -
Long term assets of discontinued operations (Note 3) - 489.4
-------------------------------------------------------------------------
1,536.9 2,373.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and Unitholders' Equity
Current Liabilities
Accounts payable and accrued liabilities 243.6 232.4
Current portion of term loans and convertible
debentures (Note 7 and 8) 10.8 2.0
Distributions and interest payable
to Unitholders and Debentureholders 17.9 25.0
Current liabilities of discontinued
operations (Note 3) - 47.9
-------------------------------------------------------------------------
272.3 307.3
Revolving term bank credits and term
loans (Note 7) 344.0 642.7
Convertible unsecured subordinated
debentures (Note 8) 305.8 314.3
Future employee benefits (Note 9) 19.2 17.7
Future income tax liability (Note 11) - 100.6
Future income tax liability of discontinued
operations (Note 3) - 162.2
-------------------------------------------------------------------------
Total Liabilities 941.3 1,544.8
Unitholders' Equity
Unitholders' capital (Note 12) 1,340.8 1,338.3
Deficit (745.3) (508.8)
Currency translation account 0.1 (0.7)
-------------------------------------------------------------------------
Total Unitholders' Equity 595.6 828.8
-------------------------------------------------------------------------
1,536.9 2,373.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(See Notes to the Interim Consolidated Financial Statements)
SUPERIOR PLUS INCOME FUND
Consolidated Statements of Net Earnings (Loss) and Deficit
-------------------------------------------------------------------------
(unaudited, millions Three Months Ended Years Ended
of dollars except per December 31 December 31
trust unit amounts) 2006 2005 2006 2005
-------------------------------------------------------------------------
(Restated (Restated
Note 10) Note 10)
Revenues 592.8 585.0 2,264.3 2,059.2
Cost of products sold 418.7 412.0 1,633.4 1,435.6
-------------------------------------------------------------------------
Gross profit 174.1 173.0 630.9 623.6
-------------------------------------------------------------------------
Expenses
Operating and
administrative 112.1 102.7 423.8 382.1
Amortization of
property, plant
and equipment 19.1 42.4 72.0 108.0
Amortization of
intangible assets 1.3 1.4 5.1 5.4
Interest on
revolving term bank
credits and term
loans 11.4 7.7 43.1 22.8
Interest on
convertible
unsecured
subordinated
debentures 5.0 4.8 20.2 12.9
Amortization of
convertible
debenture issue
costs 0.6 0.6 2.3 1.7
Management
internalization
costs - - 1.3 1.3
Impairment of
property, plant
and equipment and
goodwill (Note 5) - - 218.7 -
Income tax recovery
of Superior (Note 11) (0.7) (4.7) (100.0) (11.9)
-------------------------------------------------------------------------
148.8 154.9 686.5 522.3
-------------------------------------------------------------------------
Net earnings (loss)
from continuing
operations 25.3 18.1 (55.6) 101.3
Net earnings (loss)
from discontinued
operations (Note 3) 12.8 3.1 (25.2) 3.1
-------------------------------------------------------------------------
Net Earnings (Loss) 38.1 21.2 (80.8) 104.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Deficit, Beginning of
Period (750.0) (477.9) (508.8) (421.2)
Net earnings (loss) 38.1 21.2 (80.8) 104.4
Distributions to
Unitholders (33.4) (52.1) (155.7) (192.0)
-------------------------------------------------------------------------
Deficit, End of Period (745.3) (508.8) (745.3) (508.8)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net earnings (loss)
per trust unit from
continuing operations,
basic (Note 13) $0.30 $0.22 ($0.65) $1.27
Net earnings (loss)
per trust unit from
continuing operations,
diluted (Note 13) $0.30 $0.22 ($0.65) $1.26
Net earnings (loss) per
trust unit from
discontinued
operations,
basic (Note 13) $0.15 $0.03 ($0.29) 0.04
Net earnings (loss) per
trust unit from
discontinued
operations,
diluted (Note 13) $0.15 $0.03 ($0.29) 0.04
Net earnings (loss) per
trust unit,
basic (Note 13) $0.45 $0.25 ($0.94) 1.31
Net earnings (loss) per
trust unit,
diluted (Note 13) $0.45 $0.25 ($0.94) 1.30
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(See Notes to the Interim Consolidated Financial Statements)
SUPERIOR PLUS INCOME FUND
Consolidated Statements of Cash Flows
-------------------------------------------------------------------------
Three Months Ended Years Ended
(unaudited, millions December 31 December 31
of dollars) 2006 2005 2006 2005
-------------------------------------------------------------------------
(Restated (Restated
Operating Activities Note 10) Note 10)
Net earnings (loss)
from continuing
operations 25.3 18.1 (55.6) 101.3
Items not affecting
cash:
Amortization of
property, plant and
equipment,
intangible assets
and convertible
debenture issue
costs 21.0 44.4 79.4 115.1
Amortization of
natural gas customer
acquisition costs 0.9 0.7 3.2 2.4
Trust unit incentive
plan compensation
recovery - (1.3) (1.2) (4.6)
Pension expense 0.6 0.5 2.2 1.7
Impairment of
property, plant and
equipment and
goodwill (Note 5) - - 218.7 -
Future income tax
recovery of
Superior (2.9) (7.7) (109.2) (19.9)
-------------------------------------------------------------------------
Cash generated from
continuing operations
before natural gas
customer acquisition
costs and changes in
working capital 44.9 54.7 137.5 196.0
Natural gas customer
acquisition costs (1.4) (2.2) (8.4) (7.0)
Decrease (increase) in
non-cash operating
working capital items (29.6) (79.7) 22.6 (44.9)
-------------------------------------------------------------------------
Cash flows from
operating activities
of continuing
operations 13.9 (27.2) 151.7 144.1
-------------------------------------------------------------------------
Investing Activities
Maintenance capital
expenditures, net (1.8) (2.6) (13.8) (16.5)
Other capital
expenditures, net (1.8) (16.6) (53.0) (38.3)
Acquisitions (Note 4) - (405.4) - (471.2)
Proceeds on sale of
JW Aluminum
Company (Note 3) 354.7 - 354.7 -
-------------------------------------------------------------------------
Cash flows from
investing activities 351.1 (424.6) 287.9 (526.0)
-------------------------------------------------------------------------
Financing Activities
Revolving term bank
credits and term
loans (342.8) 113.3 (122.7) 19.2
Issuance of Medium
Term Notes - - 197.2 -
Repayment of Medium
Term Notes - - (197.2) -
Proceeds (repayment)
of JW Aluminum
Company acquisition
credit facility - 170.8 (167.8) 170.8
Net proceeds
(repayment) of
accounts receivable
sales Program(Note 6) 15.1 14.0 (5.0) -
Net proceeds from
issue of 5.75%
Series I
convertible
unsecured
subordinated
debentures - - - 167.6
Net proceeds from
issue of trust
units, to finance
JW Aluminum Company
acquisition - 151.4 - 151.4
Net proceeds from
issue of 5.85%
Series 1
convertible
unsecured
subordinated
debentures, to
finance JWA - 71.8 - 71.8
Receipt of management
internalization
loans receivable 0.3 - 2.1 1.3
Proceeds from
exercise of trust
unit warrants - - 0.2 16.5
Distributions to
Unitholders (33.4) (52.1) (155.7) (192.0)
-------------------------------------------------------------------------
Cash flows from
financing activities (360.8) 469.2 (448.2) 406.6
-------------------------------------------------------------------------
Net increase
(decrease) in cash
from continuing
operations 4.2 17.4 (9.3) 24.7
Net increase (decrease)
in cash from
discontinued
operations (Note 3) 8.0 (7.1) 23.0 (7.1)
Cash and cash
equivalents beginning
of period 21.4 9.6 19.9 2.3
-------------------------------------------------------------------------
Cash and cash
equivalents end of
period 33.6 19.9 33.6 19.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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"), its wholly owned
subsidiaries, Superior Plus LP ("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, except as noted in Note
10. These interim 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 between the
Fund, the Fund's subsidiaries, 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 December 31, 2006 and December 31, 2005 and
the consolidated results of its operations for the three and twelve
months ended December 31, 2006 and 2005.
(b) Business Segments
Superior operates four continuing 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 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 14). JW
Aluminum Company ("JWA" or "JW Aluminum"), a manufacturer of specialty
flat-rolled aluminum products, has been sold and classified as a
discontinued operation. (See Note 3).
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. Disposition - JW Aluminum
In July of 2006, the Fund announced the results of its strategic review
designed to maximize Unitholder value which included the decision to sell
JWA in order to reduce debt levels and refocus its operations on its
existing Canadian businesses. Accordingly, effective July 1, 2006, JWA's
balance sheet, results of operations and cash flows have been classified
as discontinued operations on a retroactive basis. As a result of its
classification as a discontinued operation, amortization of JWA's
property, plant and equipment and intangible assets ceased on July 1,
2006.
In addition, during the third quarter, the assets and liabilities of JWA
were valued at the lower of cost or estimated net fair value, resulting
in an impairment charge of $56.3 million included in net loss from
discontinued operations.
On December 7, 2006, the Fund completed the sale of all the issued and
outstanding shares of JWA on a cash and debt free basis to Wellspring
Capital Management LLC, for total consideration of $354.7 million
(US $308.9 million ), net of $4.9 million (US $4.3 million ) in
disposition costs.
The results of discontinued operations presented in the consolidated
statements of net earnings (loss) were as follows:
-------------------------------------------------------------------------
Three Months Ended Years Ended
December 31 December 31
2006 2005 2006 2005
-------------------------------------------------------------------------
Revenue 110.2 112.2 573.3 112.2
Cost of product sold 97.1 99.7 514.6 99.7
-------------------------------------------------------------------------
Gross profit 13.1 12.5 58.7 12.5
-------------------------------------------------------------------------
Operating and administrative 2.4 2.2 9.5 2.2
Amortization of property,
plant, equipment,
and intangibles - 7.9 19.1 7.9
Impairment of property,
plant and equipment - - 56.3 -
Gain on sale of JWA (4.7) - (4.7) -
Income tax expense
(recovery) 2.6 (0.7) 3.7 (0.7)
-------------------------------------------------------------------------
Net earnings (loss) from
discontinued operations 12.8 3.1 (25.2) 3.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The balance sheet information for the discontinued operations was as
follows:
As at December 31 2006 2005
-------------------------------------------------------------------------
Assets
Accounts receivable - 85.7
Inventories - 47.1
-------------------------------------------------------------------------
- 132.8
Property, plant, equipment and intangibles, net - 489.4
-------------------------------------------------------------------------
- 622.2
Liabilities
Accounts payable and accrued liabilities - 47.9
Future income tax liability - 162.2
-------------------------------------------------------------------------
- 210.1
-------------------------------------------------------------------------
Net assets of (used in) discontinued operations - 412.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The cash flows from (used in) discontinued operations were as follows:
Three Months Ended Years Ended
December 31 December 31
2006 2005 2006 2005
-------------------------------------------------------------------------
Cash flows from
discontinued operations
before changes in
working capital 8.9 9.1 41.7 9.1
Decrease (increase) in
non-cash operating
working capital items 0.3 (13.8) (12.2) (13.8)
-------------------------------------------------------------------------
Cash flows from
discontinued operations 9.2 (4.7) 29.5 (4.7)
-------------------------------------------------------------------------
Maintenance capital
expenditures, net (0.8) (0.5) (2.8) (0.5)
Other capital
expenditures, net (0.4) (1.9) (3.7) (1.9)
-------------------------------------------------------------------------
Cash flows used in
investing activities (1.2) (2.4) (6.5) (2.4)
Cash flows from financing
activities - - - -
-------------------------------------------------------------------------
Cash flows from (used in)
discontinued operations 8.0 (7.1) 23.0 (7.1)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
4. Acquisitions
There were no acquisitions completed by Superior during 2006.
The following acquisitions were completed by Superior in during 2005:
On October 19, 2005, Superior acquired the shares of JW Aluminum Holding
Company, a leading manufacturer of specialty flat rolled aluminum
products in the United States, for consideration of $405.4 million
(US $344.2 million).
On June 7, 2005, ERCO acquired a chloralkali potassium business in Port
Edwards, Wisconsin for consideration of $22.4 million (the "Port Edwards"
acquisition).
On April 11, 2005, Winroc acquired the shares of Leon's Insulation Inc.
and associated entities (collectively "Leon's"), a distributor of
specialty walls and ceilings construction products for consideration of
$31.7 million of which $28.2 million was paid in cash (net of
$5.3 million in cash acquired). Deferred consideration bears interest at
the prime bank rate and is repayable over a five year period. Additional
consideration of up to $5.0 million is contingently payable over a period
of five years based upon Leon's achieving specified financial targets
($0.8 million paid in 2006), and are treated as additional consideration
as the amounts become payable, with a corresponding increase to goodwill.
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:
2005
-------------------------------------------------------------------------
ERCO's Superior
Acquisition Winroc's Propane's
Acquisition of Port Acquisition Acquisition
of JWA Edwards of Leon's of SGL Total
-------------------------------------------------------------------------
Cash consideration
paid 403.6 21.6 28.2 14.6 468.0
Transaction costs 1.8 0.8 0.5 0.1 3.2
-------------------------------------------------------------------------
Total cash
consideration 405.4 22.4 28.7 14.7 471.2
Notes payable
and deferred
consideration(1) - - 3.0 10.9 13.9
-------------------------------------------------------------------------
Total
consideration 405.4 22.4 31.7 25.6 485.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Property, plant
and equipment 468.9 22.1 3.1 - 494.1
Goodwill - - 16.2 22.7 38.9
Intangibles 31.0 - 2.0 1.3 34.3
Working capital,
net 71.1 3.2 10.4 1.6 86.3
Future income tax
liability (165.6) - - - (165.6)
Other
Liabilities - (2.9) - - (2.9)
-------------------------------------------------------------------------
405.4 22.4 31.7 25.6 485.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Deferred consideration are unsecured obligations and have been
included in revolving term bank credits and term loans on the Interim
Consolidated Balance Sheets.
5. Asset Impairments
Superior determined during 2006 that the net book value of ERCO's sodium
chlorate facilities located in Bruderheim, Alberta and Valdosta, Georgia
and ERCO's goodwill were impaired. An aggregate impairment charge of
$218.7 million was recorded in 2006 ($170.8 million net of tax) which was
equivalent to the pre-impairment net book value of the assets.
A pre-tax impairment charge of $73.4 million ($47.7 million net of tax)
was recorded with respect to ERCO's Bruderheim, Alberta sodium chlorate
facility, based on estimates of the future cash flows from the facility
which have been negatively impacted by high electrical prices, lower
sodium chlorate selling prices resulting from the appreciation of the
Canadian dollar on U.S. dollar denominated sales, and reduced demand for
sodium chlorate due to various bleached pulp mill closures in North
America.
A pre-tax impairment charge of $55.9 million ($33.7 million net of tax)
was recorded with respect to ERCO's Valdosta, Georgia sodium chlorate
facility based on estimates of the future cash flows from the facility
which have been negatively impacted by high electrical prices and reduced
demand for sodium chlorate due to various bleached pulp mill closures in
North America.
As part of Superior's assessment of ERCO's overall operations, the fair
value of ERCO was estimated using various valuation methods based on
current market assumptions surrounding the sodium chlorate industry which
has been negatively impacted by reduced demand for North American sodium
chlorate due to various pulp mill closures, the impact of the
appreciation of the Canadian dollar on ERCO's U.S. dollar denominated
sales and on the competitiveness of its Canadian pulp producer customer
base, and increased power costs. Based on the estimated fair values, it
was determined that ERCO's goodwill was impaired and as such an
impairment charge of $89.4 million was recorded.
6. Accounts Receivable and Other
Superior sells, with limited recourse, certain trade accounts receivable
on a revolving basis to an entity sponsored by a Canadian chartered bank.
The accounts receivable are sold at a discount to face value based on
prevailing money market rates. Superior has retained the servicing
responsibility for the accounts receivable sold and has therefore
recognized a servicing liability. The level of accounts receivable sold
under the program fluctuates seasonally with the level of accounts
receivable. At December 31, 2006 proceeds of $95.0 million (December 31,
2005 - $100.0 million) had been received.
Included in accounts receivable and other is $15.3 million (2005 -
$14.6 million) of prepaid expenses.
7. Revolving Term Bank Credits and Term Loans
Maturity Effective Interest December December
Dates Rates 31 2006 31 2005
-------------------------------------------------------------------------
Revolving term bank
credits(1)
Bankers Acceptances Floating BA rate plus
("BA")(2) 2008 applicable credit
spread 35.0 157.6
LIBOR Loans
(US$92.3 million; Floating LIBOR rate
2005 - US$95.3 million) 2008 plus applicable
credit spread 107.5 111.1
-------------------------------------------------------------------------
142.5 268.7
-------------------------------------------------------------------------
Other Debt
Notes payable 2009, 2010 Prime 7.4 8.0
Deferred consideration 2010 Non-interest bearing 9.2 11.3
Mortgage payable
(US$0.9 million; 2005
- US$0.9 million) 2011 7.53% 1.1 1.1
-------------------------------------------------------------------------
17.7 20.4
-------------------------------------------------------------------------
Senior Secured Notes
Senior secured notes
subject to floating
interest rates
(US$85.0 million;
2005 - US$85.0 million)(5) Floating LIBOR rate
2015 plus 1.7% 99.1 99.1
Senior secured notes
subject to fixed interest
rates (US$75.0 million;
2005 - US$75.0 million)(5)
2013, 2015 6.65% 87.4 87.4
JWA acquisition credit Floating LIBOR rate
facility plus credit
(US$145.0 million)(3) 2007 applicable spread - 169.1
Medium Term Notes(4) 2016 5.57% - -
-------------------------------------------------------------------------
186.5 355.6
-------------------------------------------------------------------------
Total revolving term bank credits and term loans 346.7 644.7
Less current maturities 2.7 2.0
-------------------------------------------------------------------------
Revolving term bank credits and term loans 344.0 642.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Superior and its wholly-owned subsidiaries, Superior Plus US Holdings
Inc. and Commercial e Industrial (Chile) Limitada have revolving term
bank credit borrowing capacity of $587.8 million. These facilities
are secured by a general charge over the assets of Superior and
certain of its subsidiaries.
(2) The prior year BA balance has been adjusted by $19.9 million
representing the reclassification to cash and cash equivalents.
(3) 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 was secured by a general charge over
the assets of Superior and certain of its subsidiaries. This facility
was repaid and cancelled in March 2006 from proceeds raised through
the issuance of Medium Term Notes.
(4) On March 3, 2006, Superior issued $200.0 million, 5.50% coupon,
Medium Term Notes maturing on March 3, 2016 with an effective yield
to maturity of 5.57%. These facilities are secured by a general
charge over the assets of Superior and certain of its subsidiaries.
On August 8, 2006, Superior repaid the Medium Term Notes from
borrowings under the revolving term credit facilities referred to in
footnote(1) above, providing enhanced debt repayment and covenant
flexibility.
(5) Senior Secured Notes (the "Notes") totaling US$160.0 million (CDN
$186.5 million at December 31, 2006 and December 31, 2005) are
secured by a general charge over the assets of Superior and certain
of its subsidiaries. Principal repayments begin in 2009. Management
has estimated the fair value of the Notes based on comparisions to
treasury instruments with similar maturity and interest rates. The
estimated fair value of the Notes at December 31, 2006 was CDN
$181.0 million (2005 - CDN $183.5 million). In conjunction with the
issue of the Notes, Superior swapped US$85.0 million
(CDN $99.1 million at December 31, 2006 and December 31, 2005) of the
fixed rate obligation into a US dollar floating rate obligation.
8. 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 Carrying
Series 1 Series 2 Series 1 Series 1 Discount Value
-------------------------------------------------------------------------
July 31, November December October
Maturity date 2007 1, 2008 31, 2012 31, 2015
Interest 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) - - 0.5 (0.4)
-------------------------------------------------------------------------
Debentures
outstanding
December 31,
2006 8.1 59.2 174.9 75.0 (3.3) 313.9
Current portion
of Debentures
outstanding 8.1 - - - - 8.1
-------------------------------------------------------------------------
Long term
portion of
Debentures
outstanding - 59.2 174.9 75.0 (3.5) 305.8
-------------------------------------------------------------------------
Quoted market
value December
31, 2006 8.2 60.8 157.5 66.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The fixed interest rate obligation on $100.0 million of the Fund's
Debentures was swapped into a floating rate obligation until July, 2007.
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.
9. Future Employee Benefits
Superior Propane and ERCO Worldwide have defined benefit ("DB") and
defined contribution ("DC") pension plans covering most employees. The
benefits provided under DB pension plans are based on the employees'
years of service and on the highest average earnings for a specified
number of consecutive years. Information about Superior's DB and other
post-retirement benefit plans as at December 31, 2006 and 2005 in
aggregate, is as follows:
Superior Propane
Pension ERCO Pension Total Other
Benefit Plans Benefit Plans Benefit Plans
2006 2005 2006 2005 2006 2005
-------------------------------------------------------------------------
Accrued benefit
obligation,
beginning
of year 56.0 52.9 56.9 50.2 25.9 17.3
Current service
cost 0.3 0.3 2.7 2.2 0.5 0.4
Past service
cost - - - - - -
Interest cost 2.9 3.1 3.1 3.0 1.4 1.1
Benefits paid (4.1) (4.0) (1.4) (1.9) (1.1) (1.1)
Actuarial
loss (gain) (1.2) 3.7 (0.4) 3.4 (0.4) 8.2
-------------------------------------------------------------------------
Accrued benefit
obligation,
end of year 53.9 56.0 60.9 56.9 26.3 25.9
-------------------------------------------------------------------------
Fair value of
plan assets,
beginning
of year 63.4 64.3 45.1 39.7 - -
Actual return
on plan assets 6.8 5.3 6.5 3.6 - -
Transfers to
defined
contribution
plan (2.5) (2.2) - - - -
Employer
contributions - - 3.0 3.7 1.1 1.1
Benefits paid (4.1) (4.0) (1.4) (1.9) (1.1) (1.1)
-------------------------------------------------------------------------
Fair value of
plan assets,
end of year 63.6 63.4 53.2 45.1 - -
-------------------------------------------------------------------------
Funded status
- plan surplus
(deficit) 9.7 7.4 (7.7) (11.8) (26.3) (25.9)
Unamortized net
actuarial loss 14.0 18.8 (0.2) 3.3 9.9 10.8
Unamortized past
service costs - - 0.6 0.9 - -
Unamortized
transitional
asset - (0.3) - - - -
-------------------------------------------------------------------------
Accrued net
pension asset 23.7 25.9
Accrued net
benefit
obligation (7.3) (7.6) (16.4) (15.1)
Current portion
of accrued net
benefit
obligation
recorded in
accounts payable
and accrued
liabilities (3.4) (3.9) (1.1) (1.1)
-------------------------------------------------------------------------
Long-term accrued
net benefit
obligation
(2006:
$19.2 million;
2005:
$17.7 million) (3.9) (3.7) (15.3) (14.0)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
10. Restatement of Accrued Pension Asset
Upon initial adoption of CICA Handbook 3461, Employee Future Benefits, on
January 1, 2000, the Fund determined that the impact of Superior
Propane's accrued pension asset was inconsequential to its financial
statements and this component of the pension was not recorded. The Fund
subsequently determined this component should be reflected in the
financial statements and accordingly, it has retroactively restated its
2005 consolidated financial statements to reflect the correction of this
accounting treatment.
The impact for 2005 was to increase total assets by $25.9 million to
$2,373.6 million, reflecting the previously unrecorded pension asset. The
opening deficit was reduced by $27.6 million. Net earning for the three
months ended December 31, 2005 were reduced by $0.5 million and for the
twelve months ended December 31, 2005 by $1.7 million. There was no
impact on the consolidated statement of cash flows. Net earnings (loss)
per trust unit for the three months ended December 31, 2005 was
unchanged, for the twelve months ended December 31, 2005 was reduced by
$0.02 per trust unit.
11. Income Taxes of Superior
The Fund is a Mutual Fund Trust for income tax purposes and is only
taxable on any taxable income not allocated to the Unitholders. During
2006 and 2005, the Fund has allocated all of its taxable income to the
Unitholders and accordingly no provision for income taxes was recorded at
the Fund level.
During the year, the Fund reorganized into a trust-over-partnership
structure. Prior to the internal reorganization, income tax expense had
consisted of current and future Canadian corporate income taxes, United
States income tax, United States non-resident withholding tax and Chilean
taxes. Coincident with the internal reorganization and the creation of a
flow-through structure under Canadian income tax laws, the Fund reversed
its accumulated future Canadian corporate income taxes of $33.2 million.
The Fund no longer recognizes future Canadian corporate income tax assets
or liabilities on temporary differences.
On October 31, 2006, the Government of Canada announced proposed changes
that would result in the taxation of "specified investment flow-
throughs", which includes income trusts. For Superior the proposed
changes would take effect in 2011, if implemented. The Fund has not
completed its assessment of the potential implications that these
proposed changes may have.
12. Unitholders' Equity
Authorized
The Fund may issue an unlimited number of trust units. Each trust unit
represents an equal undivided beneficial interest in any distributions
from the Fund and in the net assets in the event of termination or wind-
up of the Fund. All trust units are of the same class with equal rights
and privileges.
Issued Number
of Trust Units Unitholders'
(millions) Equity
-------------------------------------------------------------------------
Unitholders' equity, December 31, 2005 85.5 828.8
Conversion of Debentures -
(8% Series 1 - $0.8 million
converted @ $16 per trust unit
8% Series 2 - $0.1 million
converted @ $20 per trust unit) (Note 8) - 0.9
Exercise of trust unit warrants - 0.2
Trust unit incentive plan compensation recovery - (1.2)
Currency translation adjustment - 0.8
Receipt of management internalization
loans receivable - 2.6
Net loss - (80.8)
Distributions to unitholders - (155.7)
-------------------------------------------------------------------------
Unitholders' equity, December 31, 2006 85.5 595.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Unitholders' capital and deficit as at December 31, 2006 and December 31,
2005 consists of the following components:
2006 2005
-------------------------------------------------------------------------
Unitholders' capital
Trust unit equity 1,336.0 1,332.3
Conversion feature on warrants and
convertible debentures 4.8 4.8
Contributed surplus - 1.2
-------------------------------------------------------------------------
1,340.8 1,338.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Deficit
Retained earnings from operations 313.5 394.3
Accumulated distributions on trust unit equity (1,058.8) (903.1)
-------------------------------------------------------------------------
(745.3) (508.8)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
At December 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.
13. Net Earnings (Loss) per Trust Unit
Three Months Ended Years Ended
December 31 December 31
2006 2005 2006 2005
-------------------------------------------------------------------------
Net earnings (loss) per trust
unit computation, basic
Net earnings (loss) from
continuing operations 25.3 18.1 (55.6) 101.3
Net earnings (loss) from
discontinued operations 12.8 3.1 (25.2) 3.1
-------------------------------------------------------------------------
Net earnings (loss) 38.1 21.2 (80.8) 104.4
Weighted average trust units
outstanding 85.5 85.4 85.5 79.7
-------------------------------------------------------------------------
Net earnings (loss) from
continuing operations per trust
unit, basic $0.30 $0.22 ($0.65) $1.27
Net earnings (loss) from
discontinued operations per
trust unit, basic $0.15 $0.03 ($0.29) $0.04
Net earnings (loss) per trust
unit, basic $0.45 $0.25 ($0.94) $1.31
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net earnings (loss) per trust
unit computation, diluted
-------------------------------------------------------------------------
Net earnings (loss) 38.1 21.2 (80.8) 104.4
Dilutive effect of Debentures - 0.2 - 0.8
-------------------------------------------------------------------------
Net earnings (loss), assuming
dilution 38.1 21.4 (80.8) 105.2
-------------------------------------------------------------------------
Weighted average trust units
outstanding 85.5 85.4 85.5 79.7
Dilutive effect of:
Debentures - 0.6 - 0.6
Trust unit options - 0.1 - 0.1
Trust unit warrants - 0.3 - 0.8
-------------------------------------------------------------------------
Weighted average trust units
outstanding, assuming dilution 85.5 86.4 85.5 81.2
-------------------------------------------------------------------------
Net earnings (loss) from
continuing operations per
trust unit, diluted $0.30 $0.22 ($0.65) $1.26
Net earnings (loss) from
discontinued operations per
trust unit, diluted $0.15 $0.03 ($0.29) $0.04
Net earnings (loss) per trust
unit, diluted $0.45 $0.25 ($0.94) $1.30
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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.
14. Business Segments
Superior operates four continuing 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 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"). JW Aluminum Company
("JWA" or "JW Aluminum"), a manufacturer of specialty flat-rolled
aluminum products, has been classified as discontinued operations. (See
Note 3). Superior's corporate office arranges intersegment foreign
exchange contracts from time to time between its business segments.
Intersegment revenues and cost of sales pertaining to intersegment
foreign exchange gains and losses are eliminated under the Corporate cost
column.
For the three
months ended Total
December 31, Superior Corp- Consol-
2006 Propane ERCO Winroc SEM orate idated
-------------------------------------------------------------------------
Revenues 279.9 115.4 118.8 78.8 (0.1) 592.8
Cost of products
sold 201.7 59.0 85.5 72.6 (0.1) 418.7
-------------------------------------------------------------------------
Gross profit 78.2 56.4 33.3 6.2 - 174.1
Expenses
Operating and
administ-
rative 48.8 35.0 20.6 3.3 4.4 112.1
Amortization
of property,
plant and
equipment 6.2 12.0 0.9 - - 19.1
Amortization of
intangible
assets - 1.1 0.2 - - 1.3
Interest on
revolving term
bank credits
and term loans - - - - 11.4 11.4
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 (0.1) (2.3) 1.3 - 0.4 (0.7)
-------------------------------------------------------------------------
54.9 45.8 23.0 3.3 21.8 148.8
-------------------------------------------------------------------------
Net earnings (loss)
from continuing
operations 23.3 10.6 10.3 2.9 (21.8) 25.3
Net earnings from
discontinued
operations
(Note 3) 12.8
-------------------------------------------------------------------------
Net Earnings 38.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the three
months ended Total
December 31, Superior Corp- Consol-
2005 Propane ERCO Winroc SEM orate idated
-------------------------------------------------------------------------
Revenues 262.4 117.1 126.1 80.3 (0.9) 585.0
Cost of
products sold 182.5 60.7 93.7 76.0 (0.9) 412.0
-------------------------------------------------------------------------
Gross profit 79.9 56.4 32.4 4.3 - 173.0
Expenses
Operating and
administ-
rative 50.2 27.9 21.3 2.5 0.8 102.7
Amortization
of property,
plant and
equipment 2.3 39.6 0.5 - - 42.4
Amortization of
intangible
assets - 1.2 0.2 - - 1.4
Interest on term
bank credits
and term loans - - - - 7.7 7.7
Interest on
convertible
unsecured
subordinated
debentures - - - - 4.8 4.8
Amortization of
convertible
debenture
issue costs - - - - 0.6 0.6
Income tax
expense
(recovery) of
Superior 9.1 (4.5) 4.7 0.4 (14.4) (4.7)
-------------------------------------------------------------------------
61.6 64.2 26.7 2.9 (0.5) 154.9
-------------------------------------------------------------------------
Net earnings (loss)
from continuing
operations 18.3 (7.8) 5.7 1.4 0.5 18.1
Net earnings from
discontinued
operations
(Note 3) 3.1
-------------------------------------------------------------------------
Net Earnings 21.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the
Year ended Total
December 31, Superior Corp- Consol-
2006 Propane ERCO Winroc SEM orate idated
-------------------------------------------------------------------------
Revenues 985.4 437.2 518.7 325.6 (2.6) 2,264.3
Cost of
products sold 712.5 233.1 386.5 303.9 (2.6) 1,633.4
-------------------------------------------------------------------------
Gross profit 272.9 204.1 132.2 21.7 - 630.9
Expenses
Operating and
administ-
rative 185.3 122.1 87.1 11.7 17.6 423.8
Amortization
of property,
plant and
equipment 20.4 47.9 3.7 - - 72.0
Amortization
of intangible
assets - 4.7 0.4 - - 5.1
Interest on
revolving
term bank
credits and
term loans - - - - 43.1 43.1
Interest on
convertible
unsecured
subordinated
debentures - - - - 20.2 20.2
Amortization of
convertible
debenture
issue costs - - - - 2.3 2.3
Management
internalization
costs - - - - 1.3 1.3
Impairment
of property,
plant, and
equipment
and goodwill - 218.7 - - - 218.7
Income tax
expense
(recovery) of
Superior (48.6) (130.0) (5.0) (2.6) 86.2 (100.0)
-------------------------------------------------------------------------
157.1 263.4 86.2 9.1 170.7 686.5
-------------------------------------------------------------------------
Net earnings (loss)
from continuing
operations 115.8 (59.3) 46.0 12.6 (170.7) (55.6)
Net loss from
discontinued
operations
(Note 3) (25.2)
-------------------------------------------------------------------------
Net Loss (80.8)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the
Year ended Total
December 31, Superior Corp- Consol-
2005 Propane ERCO Winroc SEM orate idated
-------------------------------------------------------------------------
Revenues 856.2 431.6 486.6 288.4 (3.6) 2,059.2
Cost of
products sold 571.8 224.7 368.8 273.9 (3.6) 1,435.6
-------------------------------------------------------------------------
Gross profit 284.4 206.9 117.8 14.5 - 623.6
Expenses
Operating and
administ-
rative 188.3 101.9 78.6 9.2 4.1 382.1
Amortization
of property,
plant and
equipment 17.9 87.4 2.7 - - 108.0
Amortization
of intangible
assets - 5.1 0.3 - - 5.4
Interest on
term bank
credits and
term loans - - - - 22.8 22.8
Interest on
convertible
unsecured
subordinated
debentures - - - - 12.9 12.9
Amortization of
convertible
debenture
issue costs - - - - 1.7 1.7
Management
internalization
costs - - - - 1.3 1.3
Income tax
expense
(recovery) of
Superior 28.8 5.1 14.1 1.9 (61.8) (11.9)
-------------------------------------------------------------------------
235.0 199.5 95.7 11.1 (19.0) 522.3
-------------------------------------------------------------------------
Net earnings from
continuing
operations 49.4 7.4 22.1 3.4 19.0 101.3
Net earnings from
discontinued
operations
(Note 3) 3.1
-------------------------------------------------------------------------
Net Earnings 104.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total Assets, Net Working Capital, Acquisitions and Other Capital
Expenditures
Discon-
tinued
Opera- Total
Superior Corp- tions Consol-
Propane ERCO Winroc SEM orate (Note 3) idated
-------------------------------------------------------------------------
As at December 31,
2006
Net working
capital 60.8 32.0 69.7 (2.6) 19.0 - 178.9
Total assets 679.5 566.4 202.8 46.7 41.5 - 1,536.9
-------------------------------------------------------------------------
As at December 31,
2005
Net working
capital 103.1 7.3 76.1 (8.3) 6.0 84.9 269.1
Total assets 722.4 749.2 206.8 42.9 30.1 622.2 2,373.6
-------------------------------------------------------------------------
For the three
months ended
December 31, 2006
Acquisitions
(dispositions) - - - - - (354.7) (354.7)
Other capital
expenditures,
net - 1.8 - - - 0.4 2.2
-------------------------------------------------------------------------
For the three
months ended
December 31, 2005
Acquisitions - - - - - 405.4 405.4
Other capital
expenditures,
net - 16.4 0.2 - - 1.9 18.5
-------------------------------------------------------------------------
For the year ended
December 31, 2006
Acquisitions
(dispositions) - - - - - (354.7) (354.7)
Other capital
expenditures,
net - 51.4 1.6 - - 3.7 56.7
-------------------------------------------------------------------------
For the year ended
December 31, 2005
Acquisitions 14.7 22.4 28.7 - - 405.4 471.2
Other capital
expenditures,
net 1.9 36.2 0.2 - - 1.9 40.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Geographic Information
Discont-
inued Total
United Operations Consoli-
Canada States Other (Note 3) dated
-------------------------------------------------------------------------
Revenues for the
three months ended
December 31, 2006 482.7 91.5 18.6 110.2 703.0
Revenues for the
year ended
December 31, 2006 1,824.0 392.5 47.8 573.3 2,837.6
Property, plant and
equipment as at
December 31, 2006 468.1 33.2 69.8 - 571.1
Total assets as at
December 31, 2006 1,305.4 148.5 83.0 - 1,536.9
-------------------------------------------------------------------------
Revenues for the
three months ended
December 31, 2005 481.4 93.6 10.0 112.2 697.2
Revenues for the
year ended
December 31, 2005 1,667.5 372.2 19.5 112.2 2,171.4
Property, plant and
equipment as at
December 31, 2005 591.8 92.4 24.1 459.3 1,167.6
Total assets as at
December 31, 2005 1,518.5 199.5 33.4 622.2 2,373.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
15. Comparative Figures
Certain reclassifications of prior period amounts have been made to
conform to current period presentations.