TSX: SPF.UN
CALGARY, Aug. 10 /CNW/ -
<<
- Q2 Distributable Cash Flow per trust unit before strategic review
costs increased 5% from the prior year period (decrease of 13%
including strategic review costs).
- Improved operating distributable cash flow reflects good performance
at Superior Propane, JWA, Winroc and SEM, partially offset by weak
results from ERCO's North American sodium chlorate business.
- New credit facilities closed providing enhanced debt repayment and
covenant flexibility.
- Results of Strategic Review announced on July 10, 2006 focusing on
stability of distributions and growth in our existing businesses.
- August 2006 regular distribution declared of $0.13 per unit or $1.56
annualized.
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Three Months Ended Six Months Ended
(millions of dollars, except June 30 June 30
per trust unit amounts) 2006 2005 2006 2005
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Financial
Operating distributable cash flow
Superior Propane 10.4 9.5 48.0 53.7
ERCO Worldwide 16.5 21.8 34.9 43.8
JW Aluminum ("JWA") 10.3 - 19.7 -
Winroc 7.0 6.8 14.8 11.2
Superior Energy Management
("SEM") 2.7 1.4 4.4 3.0
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46.9 39.5 121.8 111.7
Corporate cost recovery (expense) 2.9 (1.8) (1.1) (3.2)
Strategic review costs (6.0) - (6.0) -
Interest (15.2) (7.8) (29.6) (14.9)
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Distributable cash flow (see
Management Discussion & Analysis) 28.6 29.9 85.1 93.6
Distributable cash flow per trust
unit, basic $0.33 $0.38 $1.00 $1.21
Distributable cash flow (before
strategic review costs) 34.6 29.9 91.1 93.6
Distributable cash flow per trust
unit (before strategic review
costs), basic $0.40 $0.38 $1.07 $1.21
Average number of trust units
outstanding (millions) 85.5 77.7 85.5 77.1
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Operating
Propane retail sales volumes
(millions of litres) 270 286 718 771
Propane retail sales margin
(cents per litre) 15.1 15.4 15.5 16.1
Total chemical sales (thousands
of metric tonnes "MT") 200 175 411 339
Average chemical selling price
(dollar per MT) 492 537 487 544
Aluminum sales (millions of pounds) 88 - 170 -
Aluminum gross profit
(cents per pound) 16.8 - 16.9 -
Natural gas sold (millions of
gigajoules "GJ") 10 9 19 18
Natural gas sales margin
(cents per GJ) 53.0 36.6 51.1 37.8
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Q2 Highlights:
- Distributable cash flow per trust unit (before strategic review
costs) of $0.40, up 5% from Q2 last year due to a 16% increase in
distributable cash flow partially offset by a 10% increase in the
average number of trust units outstanding.
- Superior Propane results improved due to lower costs and improved
service fee revenue.
- ERCO Worldwide results impacted by lower sodium chlorate sales due to
weakness in the North American bleached pulp industry and the
appreciation of the Canadian dollar on sales denominated in United
States dollars.
- JWA results improve as operational problems in the first quarter were
corrected and sales remained strong.
- Winroc results benefit from its Ontario market expansion and
continued solid demand for its products and services.
- Corporate cost recovery of $2.9 million reflects a one time recovery
of executive trust unit compensation.
- Interest expense increased due to higher interest rates and financing
of 2005 growth capital expenditures.
>>
Cash Distribution Notice
------------------------
The Fund announced today its cash distribution for the month of August
2006 of $0.13 (13 cents) per trust unit, payable on September 15, 2006, to
Unitholders of record at the close of business on August 31, 2006. The ex-
distribution date will be August 29, 2006. For income tax purposes, the cash
distribution of $0.13 per trust unit is considered to be "other income". A
cash distribution summary since inception of the Fund, together with tax
information, is posted on our website at www.superiorplus.com.
Management's Discussion and Analysis of 2006 Second Quarter Results
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Forward Looking Statements
--------------------------
Except for the historical and present factual information, certain
statements contained herein are forward-looking. Such forward-looking
statements are not guarantees of future performance and involve a number of
known and unknown risks and uncertainties which may cause the actual results
of the Superior Plus Income Fund (the "Fund") or Superior Plus Inc.
("Superior") in future periods to differ materially from any projections
expressed or implied by such forward-looking statements and therefore should
not be unduly relied upon. Any forward-looking statements are made as of the
date hereof and neither the Fund nor Superior undertakes any obligation to
publicly update or revise such statements to reflect new information,
subsequent events or otherwise.
Distributable Cash Flow and Other Non-GAAP Measures
---------------------------------------------------
Distributable cash flow of the Fund available for distribution to
Unitholders, is equal to cash generated from operations before natural gas
customer acquisition costs and changes in working capital, less amortization
of natural gas customer acquisition costs and maintenance capital
expenditures. Maintenance capital expenditures are equal to capital
expenditures incurred to 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 acquisition and divestitures and is used by Superior to calculate its debt
covenants and other credit information. Superior's calculation of EBITDA may
differ from similar calculations used by comparable entities.
The following should be read in conjunction with the Fund's Interim
Consolidated Financial Statements contained herein, along with the Management
Discussion and Analysis and Consolidated Financial Statements for the year
ended December 31, 2005, and the Fund's First Quarter Report for the period
ended March 31, 2006.
Strategic Review
On April 24th, the Fund announced the initiation of a strategic review.
The process was undertaken in response to the weak first quarter results of
Superior Propane predominantly caused by record warm weather this winter,
anticipated weakness in the operating results of ERCO Worldwide over the
medium term due to the impact of the rapid rise in the Canadian dollar and
significant increases in electricity prices on certain of ERCO's operations
and customers, as well as the reduction of the Fund's monthly distribution and
the weakness of the unit price.
On July 10, 2006, the Fund announced the results of its Strategic Review
developed to maximize unitholder value and provide a road map for achieving
long-term goals, including the following:
<<
- Superior will continue as a diversified income trust with a focus on
stability of distributions with value growth driven from its existing
businesses.
- Superior sees good opportunities to grow its businesses for value
over the medium to long term and does not intend to expand into new
businesses.
- Superior will dispose of JW Aluminum ("JWA") and use the proceeds to
reduce debt levels and focus on its Canadian based businesses. RBC
Capital Markets and TD Securities have been engaged to assist in the
disposition process.
- Superior will provide enhanced visibility, transparency and
accountability of its businesses to investors.
- Superior will lower its average senior debt levels to 1.5 to 2.0
times EBITDA and average total debt levels to 2.5 to 3.0 times
EBITDA.
- Superior will reduce its target payout ratio such that distributions
will be between 85% and 90% of distributable cash flow.
- Superior will refocus its corporate office on the execution of each
business unit's strategic plan.
With respect to ERCO Worldwide, Superior will:
- Close the Bruderheim sodium chlorate facility, removing 80,000 tonnes
of capacity from the North American market;
- Secure a new electricity contract for the Valdosta sodium chlorate
facility that is economic or, in the alternative, reduce production
from this facility;
- Continue to evaluate the economic feasibility of the conversion of
the Port Edwards chloralkali facility to membrane technology; and
- Evaluate other operational and strategic opportunities to maximize
the value of its investment.
>>
The Board of Directors appointed Grant Billing as Chairman and Chief
Executive Officer, replacing Geoff Mackey as President and Chief Executive
Officer. As well, Mark Schweitzer, Executive Vice-President and Chief
Financial Officer will be leaving Superior on November 1, 2006, following a
recruitment process for his replacement.
Second Quarter and Year to Date Results
Second quarter distributable cash flow (before strategic review costs)
was $34.6 million ($28.6 million after strategic review costs), an increase of
$4.7 million (16%) from the prior year period. Operating distributable cash
flow increased by $7.4 million due to the contribution from JWA acquired on
October 19, 2005, and improved results from Superior Propane, Winroc and SEM.
This was partially offset by lower results from ERCO Worldwide. Interest costs
increased by $7.4 million due to increased debt levels incurred to finance
growth capital investments made during 2005 in addition to higher interest
rates. Corporate costs decreased due to the recovery of executive trust unit
compensation.
Distributable cash flow per trust unit (before strategic review costs)
was $0.40 in the second quarter ($0.33 after strategic review costs), an
increase of $0.02 (5%) from the prior year quarter due to a 16% increase in
distributable cash flow and a 10% increase in the average number of trust
units outstanding. The increase in the number of trust units outstanding is
due to trust units issued to partially finance the acquisition of JWA and the
conversion of Debentures and Warrants into trust units during 2005.
Distributable cash flow (before strategic review costs) for the six month
period ended June 30, 2006 reached $91.1 million ($85.1 million after
strategic review costs), a decrease of $2.5 million (3%) from the prior year
period. The addition of JWA and improved results from Winroc and SEM were more
than offset by lower results at 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.
Interest costs increased for the same reasons as in the second quarter.
Distributable cash flow per trust unit (before strategic review costs) was
$1.07 ($1.00 after strategic review costs), down $0.14 per trust unit (12%)
from the prior year period, due to the 3% decrease in distributable cash flow
and an 11% increase in the number of trust units outstanding.
Net loss for the second quarter was $152.8 million, a decrease of
$171.7 million from the prior year quarter net earnings due to non-cash
impairment charges recorded at ERCO of $170.8 million, net of tax. See Note 3
to the Interim Consolidated Financial Statements and the "ERCO Worldwide"
section of this Management Discussion and Analysis for further details. The
remaining changes in net earnings (loss) for the second quarter compared to
the prior year quarter are due to similar reasons that contributed to the
changes in distributable cash flow. Net loss for the six months ended June 30,
2006 was $119.0 million, a decrease of $179.4 million from the prior year
quarter. The primary reasons for the change are for the same reasons
identified in the analysis of distributable cash flow for the first six
months.
Outlook
For the remainder of 2006, we anticipate distributable cash flow per
trust unit to be lower than 2005 as lower results from ERCO and increased
interest and strategic review costs are anticipated to outpace a full period
contribution from JWA. Divisional distributable cash flow guidance for 2006
and 2007 is the same as was provided in the July 10, 2006 Strategic Review
announcement. For the full year 2006, consolidated distributable cash flow
before strategic review costs is expected to be between $1.90 per trust unit
and $2.10 per trust unit ($1.80 to $2.00 per trust unit after strategic review
costs).
For 2007, we anticipate distributable cash flow per trust unit to decline
to $1.60 to $1.80 per trust unit as lower results at ERCO and the sale of JWA
are anticipated to be partially offset by lower interest costs and stable to
modestly improved results from Superior's other businesses.
<<
Distributable Cash Flow(1)
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Three Months Ended Six Months Ended
June 30 June 30
2006 2005 2006 2005
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Cash generated from operations
before natural gas customer
acquisition costs and changes
in working capital 33.0 32.7 94.1 99.6
Add: Management internalization
costs 1.3 1.3 1.3 1.3
Less: Maintenance capital
expenditures, net (5.0) (3.5) (8.9) (6.2)
Amortization of natural gas
customer acquisition costs (0.7) (0.6) (1.4) (1.1)
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Distributable cash flow 28.6 29.9 85.1 93.6
Distributable cash flow
(reinvested) funded from debt 9.4 16.7 3.8 (1.1)
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Distributed cash flow 38.0 46.6 88.9 92.5
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Distributable cash flow per
trust unit, basic(2) $ 0.33 $ 0.38 $ 1.00 $ 1.21
Distributable cash flow per
trust unit, diluted(3) $ 0.33 $ 0.38 $ 1.00 $ 1.17
Distributable cash flow per trust
unit (before $6.0 million of
Strategic Review Costs), basic(2) $ 0.40 $ 0.38 $ 1.07 $ 1.21
Distributable cash flow per trust
unit (before $6.0 million of
Strategic Review Costs),
diluted(3) $ 0.40 $ 0.38 $ 1.07 $ 1.17
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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 June 30, 2006 is 85.5 million (2005 - 77.7 million) and
for the six months ended June 30, 2006 is 85.5 million (2005 -
77.1 million).
(3) For the quarter and six months ended June 30, 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 5.5 million trust units (83.2 million total trust units
on a diluted basis) with a resulting impact on distributable cash
flow of $2.0 million ($31.9 million total on a diluted basis). For
the prior six months ended June 30, 2005, the dilutive impact of the
convertible debentures, trust unit options and trust unit warrants
was 6.0 million trust units (83.1 million total trust units on a
diluted basis) with a resulting impact on distributable cash flow of
$3.7 million ($97.3 million total on a diluted basis).
Segmented Distributable Cash Flow(1)
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For the three Total
months ended Superior Corp- Consol-
June 30, 2006 Propane ERCO JWA(2) Winroc SEM orate idated
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Net earnings (loss) 3.6 (167.0) 4.1 5.7 1.8 (1.0) (152.8)
Add:
Amortization of
property, plant
and equipment,
intangible assets
and convertible
debenture costs 4.7 12.9 9.4 1.3 - 0.6 28.9
Future income
tax expense
(recovery) 2.4 (46.7) (2.5) 2.6 0.9 (19.2) (62.5)
Management
internalization
costs - - - - - 1.3 1.3
Impairment of
property, plant
and equipment,
and goodwill(3) - 218.7 - - - - 218.7
Less:
Maintenance
capital
expenditures,
net (0.3) (1.4) (0.7) (2.6) - - (5.0)
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Distributable
cash flow 10.4 16.5 10.3 7.0 2.7 (18.3) 28.6
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For the three Total
months ended Superior Corp- Consol-
June 30, 2005 Propane ERCO JWA(2) Winroc SEM orate idated
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Net earnings 3.3 6.2 - 5.1 0.9 3.4 18.9
Add:
Amortization of
property, plant
and equipment,
intangible assets
and convertible
debenture
issue costs 5.2 13.8 - 0.9 - 0.3 20.2
Future income
tax expense
(recovery) 1.9 2.9 - 2.3 0.5 (15.2) (7.6)
Trust unit
incentive
plan recovery - - - - - 0.6 0.6
Management
internalization
costs - - - - - 1.3 1.3
Less:
Maintenance
capital
expenditures,
net (0.9) (1.1) - (1.5) - - (3.5)
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Distributable
cash flow 9.5 21.8 - 6.8 1.4 (9.6) 29.9
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For the six Total
months ended Superior Corp- Consol-
June 30, 2006 Propane ERCO JWA(2) Winroc SEM orate idated
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Net earnings
(loss) 24.0 (164.5) 7.2 11.4 2.8 0.1 (119.0)
Add:
Amortization of
property, plant
and equipment,
intangible assets
and convertible
debenture
issue costs 9.6 29.8 19.1 2.1 - 1.2 61.8
Future income
tax expense
(recovery) 14.4 (45.5) (5.2) 5.2 1.6 (38.1) (67.6)
Trust unit
incentive plan
recovery - - - - - (1.2) (1.2)
Management
internalization
costs - - - - - 1.3 1.3
Impairment of
property, plant
and equipment,
and goodwill(3) - 218.7 - - - - 218.7
Less:
Maintenance
capital
expenditures,
net - (3.6) (1.4) (3.9) - - (8.9)
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Distributable
cash flow 48.0 34.9 19.7 14.8 4.4 (36.7) 85.1
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For the six Total
months ended Superior Corp- Consol-
June 30, 2005 Propane ERCO JWA(2) Winroc SEM orate idated
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Net earnings 28.0 12.5 - 8.7 1.7 9.5 60.4
Add:
Amortization of
property, plant
and equipment,
intangible assets
and convertible
debenture
issue costs 10.4 27.3 - 1.5 - 0.6 39.8
Future income
tax expense
(recovery) 16.7 6.0 - 3.8 1.3 (29.8) (2.0)
Trust unit
incentive plan
expense - - - - - 0.3 0.3
Management
internalization
costs - - - - - 1.3 1.3
Less:
Maintenance
capital
expenditures,
net (1.4) (2.0) - (2.8) - - (6.2)
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Distributable
cash flow 53.7 43.8 - 11.2 3.0 (18.1) 93.6
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(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, and maintenance capital expenditures.
(2) JWA was acquired October 19, 2005. On July 10, 2006, the Fund
announced its intention to sell JWA. See "Strategic Review" section
of this Management Discussion and Analysis.
(3) See Note 3 to the Interim Consolidated Financial Statements.
Superior Propane
Superior Propane generated operating distributable cash flow of
$10.4 million in the second quarter, an increase of $0.9 million from the
prior year quarter due to higher other services gross profit and reduced
operating expenses, offset by reduced propane gross profits. Condensed
operating results for the three and six months periods ended June 30, 2006 and
2005 are provided in the following table:
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(millions of
dollars except
per litre Three Months Ended June 30 Six Months Ended June 30
amounts) 2006 2005 2006 2005
-------------------------------------------------------------------------
cents/ cents/ cents/ cents/
litre litre litre litre
----- ----- ----- -----
Gross Profit
Propane sales 40.7 15.1 44.1 15.4 111.2 15.5 124.2 16.1
Other services 14.3 5.3 12.1 4.2 29.3 4.1 24.6 3.2
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Total Gross Profit 55.0 20.4 56.2 19.6 140.5 19.6 148.8 19.3
Less:
Cash operating,
admin & cash
tax costs (44.3) (16.4) (45.8) (16.0) (92.5) (12.9) (93.7) (12.2)
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Cash generated
from operations
before changes
in net working
capital 10.7 4.0 10.4 3.6 48.0 6.7 55.1 7.1
Maintenance
capital
expenditures,
net (0.3) (0.1) (0.9) (0.3) - - (1.4) (0.2)
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Operating
distributable
cash flow 10.4 3.9 9.5 3.3 48.0 6.7 53.7 6.9
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Propane retail
volumes sold
(millions of
litres) 270 286 718 771
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Propane sales gross profit of $40.7 million, was down $3.4 million (8%)
from the prior year quarter, as sales volumes declined by 16 million litres
(6%) and sales margins decreased by 0.3 cents per litre (2%). Residential and
commercial volumes declined by 8 million litres (10%) as temperatures were 11%
warmer on average across Canada (19% warmer than the last 5 year comparable
period average). Volumes were also negatively impacted by customer
conservation in response to a 15% increase in average wholesale propane costs
over the prior year quarter. Industrial sales volumes increased 1 million
litres (1%), as higher oilfield and refined fuel sales volumes were offset by
lower industrial mine shaft heating volumes. Auto propane volumes declined by
7 million litres (14%), consistent with decline trends in this end-use market.
Propane sales margins averaged 15.1 cents per litre, down 0.3 cents per litre
(2%) principally due to the sale of the Energy Transportation primary
transportation fleet operations in the fourth quarter of 2005, offset by the
impact of improved margin management. In conjunction with the sale of Energy
Transportation, a seven year transportation service agreement was entered into
which is anticipated to be cash neutral going forward. Other services gross
profit was $14.3 million for the second quarter, an increase of $2.2 million
(18%) over the prior year quarter, as an increased contribution from the
Superior Gas Liquids wholesale operations and increased delivery fee income,
offset reduced profitability from the fixed-price heating program as hedging
costs increased in the aftermath of the gulf coast hurricane in the third
quarter of 2005.
Volume and Gross Profit by End-Use Market Segment
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Three Months Ended June 30
2006 2005
---------------------------------------
Gross Gross
End-Use Applications: Volume(1) Profit(2) Volume(1) Profit(2)
---------------------------------------
Residential 22 7.8 26 8.8
Commercial 50 9.8 54 10.7
Agricultural 10 1.1 12 1.2
Industrial 145 16.5 144 17.4
Automotive 43 5.5 50 6.0
Other Services - 14.3 - 12.1
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270 55.0 286 56.2
---------------------------------------
Average Margin(3) 15.1 15.4
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Six Months Ended June 30
2006 2005
---------------------------------------
Gross Gross
End-Use Applications: Volume(1) Profit(2) Volume(1) Profit(2)
---------------------------------------
Residential 87 30.1 102 33.6
Commercial 161 31.5 178 34.5
Agricultural 38 3.7 46 4.8
Industrial 357 36.6 358 40.5
Automotive 75 9.3 87 10.8
Other Services - 29.3 - 24.6
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718 140.5 771 148.8
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Average Margin(3) 15.5 16.1
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(1) Volume of retail propane sold (millions of litres)
(2) Millions of dollars
(3) Average retail propane sale margin (cents per litre)
Volume and Gross Profit by Region
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Three Months Ended June 30
2006 2005
---------------------------------------
Gross Gross
Regions: Volume(1) Profit(2) Volume(1) Profit(2)
---------------------------------------
Atlantic 21 6.6 24 7.0
Quebec 48 9.8 51 10.8
Ontario 61 14.7 66 14.7
Sask/Man 29 4.6 33 4.8
AB/NWT 58 8.6 60 9.6
BC/YK 53 10.7 52 9.3
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270 55.0 286 56.2
---------------------------------------
Average Margin(3) 15.1 15.4
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Six Months Ended June 30
2006 2005
---------------------------------------
Gross Gross
Regions: Volume(1) Profit(2) Volume(1) Profit(2)
---------------------------------------
Atlantic 54 15.9 62 17.3
Quebec 121 22.1 133 26.0
Ontario 165 40.4 184 42.3
Sask/Man 99 13.2 114 14.4
AB/NWT 166 27.2 159 26.3
BC/YK 113 21.7 119 22.5
---------------------------------------
718 140.5 771 148.8
---------------------------------------
Average Margin(3) 15.5 16.1
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(1) Volume of retail propane sold (millions of litres)
(2) Millions of dollars
(3) Average retail propane sale margin (cents per litre)
Cash operating, administrative and capital tax costs of $44.3 million,
decreased by $1.5 million (3%) from the prior year quarter, due to the
reduction of operating costs associated with the sale of Energy Transportation
and cost reduction initiatives implemented in the first quarter of 2006.
Offsetting these cost reductions were higher fuel and truck maintenance costs.
Net maintenance capital spending for the quarter totaled $0.3 million and was
comprised of expenditures of $0.6 million and proceeds of $0.3 million from
the sale of surplus tanks and cylinders, resulting in an improvement of
$0.6 million as compared to the prior year quarter.
Superior Propane continues to implement its plan for cost reductions,
revenue improvement and customer service enhancement with good progress
achieved in the second quarter. These initiatives, along with a return to a
normal winter weather pattern, are expected to improve results for 2007 with
operating distributable cash flow generated in the range of $95 million to
$100 million compared to between $90 million and $95 million for 2006.
ERCO Worldwide
ERCO Worldwide generated operating distributable cash flow in the second
quarter of $16.5 million, down $5.3 million (24%) from the prior year quarter
principally due to lower contributions from sodium chlorate operations,
partially offset by a full quarter contribution from the Port Edwards
chloralkali/potassium facility acquired in June 2005. Sodium chlorate
operations contributed approximately 69% of operating distributable cash flow
in the second quarter compared to 72% in the prior year quarter. Condensed
operating results for the three and six months ended June 30, 2006 and 2005
are provided below:
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(millions of dollars
except per metric Three Months Ended Six Months Ended
tonne ("MT") June 30 June 30
amounts) 2006 2005 2006 2005
-------------------------------------------------------------------------
$ per $ per $ per $ per
Revenue MT MT MT MT
Chemical 98.4 492 94.0 537 200.0 487 184.4 544
Technology 7.0 35 6.7 38 11.5 28 12.6 37
Cost of Sales
Chemical (52.7) (264) (49.1) (281)(106.6) (259) (96.5) (285)
Technology (4.5) (22) (3.7) (21) (6.9) (17) (6.5) (19)
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Gross Profit 48.2 241 47.9 273 98.0 239 94.0 277
Less:
Cash operating,
administrative
& tax costs (30.3) (152) (25.0) (143) (59.5) (145) (48.2) (142)
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Cash generated
from operations
before changes
in net working
capital 17.9 89 22.9 130 38.5 94 45.8 135
Maintenance
capital
expenditures (1.4) (7) (1.1) (6) (3.6) (9) (2.0) (6)
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Operating
distributable
cash flow 16.5 82 21.8 124 34.9 85 43.8 129
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Chemical volumes
sold (thousands
of MTs) 200 175 411 339
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>>
Chemical sales gross profit of $45.7 million, increased by $0.8 million
over the prior year quarter. Total chemical sales volumes reached 200,000
tonnes in the quarter, an increase of 14% over the prior year period
reflecting the full quarter ownership of the Port Edwards potassium
chloralkali facility, offset by a decline in sodium chlorate sales. Lower
sodium chlorate sales volumes reflect the closure of a number of bleached pulp
mills in North America over the past year due to increased, low cost, offshore
production. Sodium chlorate sales volumes comprised 61% of chemical sales
volumes (79% in the prior year quarter). Average chemical sales prices of $492
per tonne declined by 8% from the prior year period due to changes in the
sales mix resulting from the increase in sales of lower value chloralkali
products and the impact of a 9% appreciation (after hedging) in the Canadian
dollar on US dollar denominated sales. Chloralkali prices continued above
historic levels with a return to more balanced conditions expected going
forward. Chemical cost of sales averaged $264 per tonne, down 6% from the
prior year period due to the increased production of lower cost chloralkali
products. Technology gross profit of $2.5 million in the second quarter
declined by $0.5 million from the prior year period due to normal course
royalty license expirations.
Cash operating, administration and tax costs were $30.3 million, an
increase of $5.3 million over the prior year quarter, due primarily to the
full quarter addition of Port Edwards operating costs and United States income
taxes of $1.0 million. Maintenance capital expenditures of $1.4 million were
comparable to the prior year quarter.
Growth capital expenditures of $17.7 million were incurred in the quarter
and were principally focused on the construction of the new 55,000 tonne
sodium chlorate plant in Chile. Cumulative project expenditures of
$58.2 million have been incurred with remaining costs of approximately
$10 million expected (5% over original construction budget). Start up
commenced in August with full commercial production anticipated by November
2006.
On July 10th, Superior announced as part of its strategic plan, that ERCO
would close its 80,000 tonne sodium chlorate plant in Bruderheim, Alberta by
year end. In addition, ERCO will either mothball its 100,000 tonne sodium
chlorate plant in Valdosta, Georgia or operate it as a swing production
facility, pending the outcome of negotiations to enter into a new electricity
supply agreement effective January 2007, when electricity costs are expected
to materially increase. Non-cash impairment charges aggregating $218.7 million
($170.8 million net of tax) have been recorded in the second quarter as a
result of these decisions (See Note 3 to the Interim Consolidated Financial
Statements). The Bruderheim facility has been impacted by 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 existing fixed price power supply agreement at Bruderheim will be
transferred to ERCO's Grande Prairie, Alberta sodium chlorate facility and
will provide competitive rates until its expiry in 2017. Cash closure costs
are estimated to be approximately $2 million in 2006 with additional costs of
$3 million to $5 million expected to be incurred over the next two years as
the plant is decommissioned. ERCO plans to service its customer requirements
from its remaining five lower cost sodium chlorate facilities in North
America, thereby enhancing its profitability.
ERCO is evaluating the economic feasibility of converting its Port
Edwards, Wisconsin potassium/chloralkali facility from a mercury based process
to membrane technology at a cost of approximately $75 million. The project
would be expected to provide significant improvement in process efficiency and
capacity. If the project does not proceed, environmental compliance
expenditures of approximately $12 million are anticipated to meet government
regulations which become effective January 1, 2007. ERCO has applied for a
time extension from the government authorities which it expects to receive, so
that it can complete its project evaluation. A project decision is expected by
the end of 2006, with expenditures expected to be incurred in 2007 and 2008.
Overall in 2006, we expect ERCO's operating distributable cash flow to be
between $70 million and $75 million and for 2007, between $60 million and
$65 million.
JW Aluminum
JWA contributed $10.3 million of operating distributable cash flow to
Superior's second quarter results. For comparison purposes only, the 2005
prior year period results are also provided below and are not included in the
Interim Consolidated Financial Statements, as JWA was acquired on October 19,
2005. Prior year quarter results do not include cash taxes due to differences
in JWA's capital structure prior to being acquired by Superior. The condensed
operating results for the three and six months ended June 30, 2006 are
provided below:
<<
-------------------------------------------------------------------------
(millions of
dollars except
per pound Three Months Ended June 30 Six Months Ended June 30
amounts) 2006 2005 2006 2005
-------------------------------------------------------------------------
cents/ cents/ cents/ cents/
lb lb lb lb
----- ----- ----- -----
Gross Profit 14.8 16.8 17.9 21.6 28.8 16.9 35.9 21.6
Less:
Cash operating,
administrative (2.6) (3.0) (2.0) (2.4) (5.1) (3.0) (4.3) (2.6)
Cash taxes (1.2) (1.4) - - (2.6) (1.5) - -
-------------------------------------------------------------------------
Cash generated
from operations
before changes
in net working
capital 11.0 12.4 15.9 19.2 21.1 12.4 31.6 19.0
Maintenance capital
expenditures, net (0.7) (0.8) (0.6) (0.7) (1.4) (0.8) (1.5) (0.9)
-------------------------------------------------------------------------
Operating
distributable
cash flow 10.3 11.6 15.3 18.5 19.7 11.6 30.1 18.1
-------------------------------------------------------------------------
Aluminum pounds
sold (millions
of pounds) 88 83 170 166
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three Months Ended Six Months Ended
Sales volume by June 30 June 30
product 2006 2005 2006 2005
-------------------------------------------------------------------------
Fin Stock 47% 44% 48% 40%
Building Sheet 23% 25% 22% 25%
Convertor Foil 16% 15% 16% 17%
Other Products 14% 16% 14% 18%
-------------------------------------------------------------------------
100% 100% 100% 100%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>
Gross profit for the second quarter was $14.8 million or 16.8 cents per
pound, down $3.1 million (17%) or 4.8 cents per pound (22%) as compared to the
prior year quarter. The decrease in gross profit is primarily due to the
unexpected plant downtime experienced in the first quarter at the Mount Holly
and St. Louis plants which resulted in a flow through of higher manufacturing
costs in the second quarter. Gross profit compared to the prior year quarter
were negatively impacted by the absence of unusually high margins on building
sheet obtained in the prior year. JWA's product mix continued to shift towards
fin stock sales used in the production of air conditioning and heat transfer
equipment, as the implementation in the United States of increased minimum
energy efficiency regulations in 2006 is requiring manufacturers to use
increased aluminum fin stock content per air conditioning unit. Sales volumes
were 88 million pounds in the second quarter, 5 million pounds (6%) higher
than the prior year quarter due to the completion of the Russellville Phase I
expansion, and 6 million pounds (7%) higher than the first quarter due to the
resolution of the plant downtime experienced in the first quarter. Demand for
JWA's principal products remains strong. Maintenance capital expenditures of
$0.7 million incurred in the second quarter were consistent with the prior
year quarter. The appreciation of the Canadian dollar over the prior year
quarter resulted in a $1.1 million (1.3 cents/lb) reduction in the translation
of second quarter operating distributable cash flow which is denominated in
United States dollars.
For the full year 2006, operating distributable cash flow is anticipated
to be between $39.0 million and $41.0 million.
On July 10, 2006, Superior announced that as part of the implementation
of its strategic plan, it intends to sell JWA and use the proceeds to reduce
debt levels.
Winroc
Winroc generated operating distributable cash flow of $7.0 million, an
increase of $0.2 million (3%) over the prior year quarter due to continued
strong results from Winroc's Western Canadian operations. Condensed operating
results for the three and six months ended June 30, 2006 and 2005 are provided
below:
<<
-------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
(millions of dollars) 2006 2005 2006 2005
-------------------------------------------------------------------------
Distribution sales gross profit 31.5 28.7 62.8 49.6
Direct sales gross profit 1.2 1.0 2.3 1.8
-------------------------------------------------------------------------
Gross Profit 32.7 29.7 65.1 51.4
Less: Cash operating, administrative
& cash tax costs (23.1) (21.4) (46.4) (37.4)
-------------------------------------------------------------------------
Cash generated from operations
before changes in net working
capital 9.6 8.3 18.7 14.0
Capital expenditures, net (2.6) (1.5) (3.9) (2.8)
-------------------------------------------------------------------------
Operating distributable cash flow 7.0 6.8 14.8 11.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>
Distribution sales gross profit reached $31.5 million in the second
quarter, an increase of $2.8 million (10%) compared to the prior year quarter.
Higher sales volumes contributed to improved gross profit performance as
drywall sales volumes, which are an indicator of overall sales volumes,
increased by 3%. The growth in sales volumes is the result of strong demand in
Western Canada and a full quarter ownership of Leon's Insulation Inc., which
services the Greater Toronto Area and was acquired on April 11, 2005.
Distribution sales margins were consistent with the prior year quarter. Cash
operating and administrative costs were $1.7 million (8%) higher than the
prior year quarter due to higher variable costs associated with the growth in
sales volumes, increased fuel costs and increased cash taxes on earnings
generated in the United States. Maintenance capital expenditures were
$2.6 million in the quarter, an increase of $1.1 million due to continued
growth in the business.
Operating distributable cash flow is anticipated to be between
$30.0 million and $35.0 million for 2006 and 2007, assuming no new
acquisitions.
Superior Energy Management ("SEM")
SEM's condensed operating results for the three and six months ended
June 30, 2006 and 2005 are provided below:
<<
-------------------------------------------------------------------------
(millions of dollars
except per
gigajoule Three Months Ended June 30 Six Months Ended June 30
("GJ") amounts) 2006 2005 2006 2005
-------------------------------------------------------------------------
cents cents cents cents
per GJ per GJ per GJ per GJ
------ ------ ------ ------
Gross profit 5.3 53.0 3.4 36.6 9.7 51.1 6.8 37.8
Less: Cash
operating, admin.
& selling costs (2.6) (26.0) (2.0) (21.5) (5.3) (27.9) (3.8) (21.1)
-------------------------------------------------------------------------
Operating
distributable
cash flow 2.7 27.0 1.4 15.1 4.4 23.2 3.0 16.7
-------------------------------------------------------------------------
Natural gas sold
(millions of GJs) 10 9 19 18
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>
SEM generated operating distributable cash flow of $2.7 million in the
second quarter, an increase of $1.3 million (93%) compared to the prior year
quarter. Gross profit increased due to continued growth in contracted volumes
of higher margin residential and small commercial segments which more than
replaced lower margin, floating price sales to commercial/industrial customers
in the prior year quarter. Residential and small commercial growth continued
in the second quarter, contributing approximately 19% of total sales volumes
(June 30, 2005 - 10%). Operating, administration and selling costs increased
by $0.6 million (30%) over the prior year quarter due to higher amortization
of customer acquisition costs, customer servicing costs and overhead costs
attributable to the growth in SEM's customer base. The majority of fixed-price
sales contracts entered into during the quarter were for a five year term. The
average remaining term of SEM's sales contracts at June 30, 2006 was 44 months
(June 30, 2005 - 37 months).
Strong growth momentum at attractive margins is anticipated to continue,
resulting in expected operating distributable cash flow of between
$10.0 million to $12.0 million in 2006, increasing to $12.0 million to
$15.0 million in 2007.
Corporate
Corporate costs for the second quarter were a net recovery of
$2.9 million, compared to a cost of $1.8 million in the prior year quarter.
One time recoveries of executive trust unit related compensation and bonus
expense totaling $5.3 million were recorded as a result of the decline in the
market price of the Fund's trust units during the second quarter. Net of these
recoveries, corporate costs were $2.4 million for the quarter, an increase of
$1.1 million over the prior year quarter due to costs associated with
Superior's conversion to a trust on partnership structure and costs associated
with Superior's C-SOX compliance project.
Costs associated with Superior's strategic review were $6.0 million for
the second quarter consisting of severance, employee retention and advisor
costs.
Interest expense on revolving term bank credits and term loans was
$10.1 million, an increase of $4.4 million from the prior year quarter. The
increase in interest expense is due to higher floating interest rates and
higher debt levels incurred to finance acquisitions during 2005, and increased
net working capital levels at JWA and Superior Propane.
Interest on convertible debentures was $5.1 million, an increase of
$3.0 million from the prior year quarter. The increase in convertible
debenture interest expense is the result of the issuance of $175.0 million,
5.75% convertible debentures in June 2005 and $75.0 million, 5.85% convertible
debentures in October 2005, offset partially by the conversion of
$7.2 million, 8% convertible debentures into 0.4 million trust units since
June 30, 2005.
Cash income and withholding taxes of $3.3 million were incurred with
respect to operations in the United States in the second quarter (2005 - Nil)
and have been charged to the businesses from which the taxable income was
derived. In Canada, cash taxes were limited to federal and provincial capital
taxes of $0.4 million, marginally lower than the prior year quarter due to the
reduction of capital tax rates. Canadian income taxes were fully deferred.
Capital taxes have been allocated to Superior's four business segments
operating in Canada based on net capital deployed. Upon Superior's conversion
to a trust on partnership structure, Superior will not be subject to Canadian
capital and income taxes.
Liquidity and Capital Resources
As at June 30, 2006, revolving term bank credits and term loans totaled
$707.5 million, an increase of $82.7 million from December 31, 2005 levels.
The majority of the increase is due to the $65.0 million reduction of the off-
balance sheet accounts receivable securitization program which was funded from
proceeds of the $200.0 million, 5.5% Medium Term Notes issued during the first
quarter. The remaining $17.7 million increase in debt is due to financing
growth capital of $19.2 million, changes in working capital requirements and
the non-cash impact of exchange rates on U.S. dollar denominated debt. As at
June 30, 2006, Superior had available undrawn revolving term bank lines of
$126.5 million.
Consolidated net working capital was $293.8 million as at June 30, 2006,
an increase of $44.6 million from December 31, 2005. The increase in net
working capital levels is the result of Superior reducing its accounts
receivable securitization program by $65.0 million to $35.0 million as at
June 30, 2006 (December 31, 2005 - $100.0 million), which brought the
associated accounts receivable back on to the balance sheet. Higher propane
inventory procured by Superior Propane to resource its 2006/2007 fixed price
heating customer offering, as well as higher net working capital levels at JWA
due to increased aluminum price levels also contributed to higher net working
capital, and more than offset seasonal declines in Superior Propane's accounts
receivable. Superior Propane's net working capital requirements peak
seasonally in the first quarter and then decline in the second and third
quarters before building again in the fall, consistent with the seasonal
demand profile of its heating end-use customers. See Note 12 to the Interim
Consolidated Financial Statements for segmented working capital balances, net
of the accounts receivable sales program.
As at June 30, 2006, subordinated convertible debentures totaled
$313.6 million, a decrease of $0.7 million from December 31, 2005 due to the
conversion of Series 1 and 2, 8% convertible debentures into trust units.
As at June 30, 2006, Superior's senior debt (including off-balance sheet
accounts receivable sales program amounts) was 2.7 times EBITDA for the last
12 month period on a proforma basis adjusted for the acquisition of JWA,
calculated in accordance with its debt covenants (2.4 times at December 31,
2005). Superior's senior debt covenants restrict its ability to pay
distributions to the Fund's Unitholders if Senior Debt to EBITDA exceeds 3.0
times. Including the Fund's subordinated convertible debentures, the Fund's
total leverage ratio was 3.8 times compared to 3.5 times at December 31, 2005.
Proceeds from the contemplated sale of JWA will be used to repay debt and is
expected to reduce average annual senior debt levels to approximately 1.7
times EBITDA and average annual total debt levels to approximately 3.0 times.
On July 10, 2006, Superior announced as part of its strategic plan that
it had entered into an underwriting agreement to arrange a $150.0 million, 2-
year bank credit facility and that the Fund had entered into an agreement to
arrange a $100.0 million, 18-month bank credit facility. The arrangement of
these new credit facilities was completed on August 8, 2006, and has been used
in combination with available committed bank credit facilities to retire the
$200.0 million Medium Term Notes, providing enhanced covenant and debt
repayment flexibility. Deferred Medium Term Notes financing costs of
$2.1 million will be expensed in the third quarter as a result of this
repayment. After giving effect to the arrangement of the new credit facilities
and repayment of the Medium Term Notes, Superior had $176.5 million of
available undrawn credit facilities at June 30, 2006.
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- 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.
A full credit review is expected to be completed during the third quarter of
2006.
Unitholders' Capital
The weighted average number of trust units outstanding during the second
quarter was 85.5 million trust units, an increase of 10% (7.8 million trust
units) over the prior year period due to 6.2 million trust units issued during
2005 to partially finance the acquisition of JWA on October 19, 2005, the
issue of 0.8 million trust units resulting from the exercise of trust unit
warrants with the remainder of the increase due to the issue of trust units as
a result of Debenture conversions described previously.
As at June 30, 2006 and December 31, 2005, the following trust units, and
securities convertible into trust units, were outstanding:
<<
-------------------------------------------------------------------------
June 30, 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 (at) $20
per trust unit until May 2008) 2.3 2.3 2.3 2.3
-------------------------------------------------------------------------
Trust units outstanding, and
issuable upon conversion of
Debenture and Warrant securities 98.6 98.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>
As at June 30, 2006, there were 1,160,334 trust unit options outstanding
(December 31, 2005 - 1,177,000 trust units) with a weighted average exercise
price of $21.42 per trust unit. The number of trust units issued upon exercise
of the trust unit options is equal to the growth in the value of the options
at the time the options are exercised, (represented by the market price less
the exercise price) times the number of options exercised, divided by the
current trust unit market price.
As part of its Strategic Review announcement on July 10, the Fund is
proposing a reorganization pursuant to which its business operations will be
conducted through a partnership and related subsidiaries of the partnership
rather than through Superior and related subsidiaries. This "trust over
partnership" structure maximizes value and distributable cash flow to
Unitholders and has been adopted by a number of income trusts. Implementation
of the reorganization will require Unitholder approval at a Special Meeting of
Unitholders to be held on September 28, 2006. The reorganization will be
conditional upon receipt of a satisfactory tax ruling from the Canada Revenue
Agency, which ruling has been applied for by the Fund, as well as consents
from third parties and other regulatory approvals, which are expected to be
received in due course.
Distributions Paid to Unitholders
Distributions paid to Unitholders in the second quarter were
$38.0 million or $0.444 per trust unit, compared to $46.6 million or $0.60 per
trust unit paid in the second quarter of 2005. Distributions paid to
Unitholders exceeded distributable cash flow by $9.4 million in the second
quarter (2005 Q2 - $16.7 million) resulting in a payout ratio of 133% (2005 Q2
- 156%). Distributable cash flow declines in the second and third quarters due
to the seasonal decline in Superior Propane's heating demand.
Distributions paid to Unitholders for the six months ended June 30, 2006
were $88.9 million or $1.04 per trust unit, compared to $92.5 million or $1.20
per trust unit for the six months ended June 30, 2005. Distributions paid to
Unitholders exceeded distributable cash flow by $3.8 million for the six
months ended June 30, 2006 (2005 - ($1.1) million) resulting in a payout ratio
of 104% (2005 - 99%).
The Fund reduced its monthly distribution rate from $0.205 per trust unit
to $0.185 effective with the March 2006 distribution and further reduced the
distribution to $0.13 effective with the May 2006 distribution. The Fund
targets a payout of between 85% to 90% of its distributable cash flow on an
ongoing basis.
Foreign Currency Hedging
SEM and Superior Propane contract a portion of their fixed price natural
gas and propane purchases in US dollars and enter into forward US dollar
purchase contracts to create an effective Canadian dollar fixed price purchase
cost. ERCO Worldwide enters into US dollar forward sales contracts on an
ongoing basis to mitigate the impact of foreign exchange fluctuations on sales
margins on production from its Canadian plants that is sold in US dollars.
Interest expense on Superior's US dollar debt is also used to mitigate the
impact of foreign exchange fluctuations on its US dollar distributable cash
flow. Superior's US dollar debt acts as a balance sheet hedge against its US
dollar net assets. Superior hedges its net US dollar future cash flows with
external third party contracts after first matching internally SEM's and
Superior Propane's forward US dollar purchase requirements against ERCO
Worldwide's US dollar revenues where possible.
As at June 30, 2006, SEM and Superior Propane had hedged approximately
100% of their US dollar natural gas and propane purchase obligations and ERCO
Worldwide had hedged 85%, 64%, and 11% of its estimated US dollar revenue
stream for the remainder of 2006, 2007, and 2008 respectively, as shown in the
table below. (See Note 11) to the Interim Consolidated Financial Statements).
<<
-------------------------------------------------------------------------
(US$ millions) 2006 2007 2008 2009 2010 2011 Total
-------------------------------------------------------------------------
SEM - US $ forward
purchases 75.6 128.3 118.1 111.0 61.8 5.0 499.8
Superior Propane - US $
forward sales 4.0 (15.2) - - - - (11.2)
ERCO - US $ forward
sales (56.7) (76.4) (12.6) - - - (145.7)
-------------------------------------------------------------------------
Net US $ forward
purchases 22.9 36.7 105.5 111.0 61.8 5.0 342.9
-------------------------------------------------------------------------
SEM - Average US $
forward purchase rate 1.25 1.22 1.22 1.21 1.16 1.11 1.21
Superior Propane - Average
US $ forward rate 1.12 1.11 - - - - 1.11
ERCO - Average US $
forward sales rate 1.28 1.23 1.23 - - - 1.25
-------------------------------------------------------------------------
Net average external
US$/Cdn$ exchange rate 1.27 1.22 1.22 1.21 1.16 1.11 1.22
-------------------------------------------------------------------------
Quarterly Financial and Operating Information
-------------------------------------------------------------------------
(millions of
dollars except 2006 Quarters 2005 Quarters 2004 Quarters
per trust unit
amounts) Second First Fourth Third Second First Fourth Third
-------------------------------------------------------------------------
Propane sales
volumes (millions
of litres) 270 448 420 277 286 485 438 290
Chemical sales
volumes (thousands
of metric tonnes) 200 211 225 224 175 164 170 163
Aluminum sales
volumes(2)
(millions of
pounds) 88 81 71 - - - - -
Natural gas sales
volumes (millions
of GJs) 10 9 9 9 9 9 7 7
Gross profit 156.0 186.1 185.5 149.6 137.2 163.8 155.2 130.2
Asset impairments,
net of tax 170.8 - - - - - - -
Net earnings
(loss) (152.8) 33.8 21.7 24.0 18.9 41.5 33.5 20.8
Per basic trust
unit ($1.79) $0.40 $0.25 $0.30 $0.24 $0.54 $0.45 $0.28
Per diluted
trust unit ($1.79) $0.40 $0.25 $0.30 $0.24 $0.52 $0.44 $0.27
Distributable
cash flow 28.6 56.5 60.0 33.4 29.9 63.7 55.8 36.7
Per basic trust
unit $0.33 $0.66 $0.70 $0.42 $0.38 $0.83 $0.74 $0.50
Per diluted trust
unit $0.33 $0.66 $0.67 $0.42 $0.38 $0.79 $0.70 $0.49
Net working
capital(1) 293.8 307.4 249.2 96.4 64.3 54.9 97.9 62.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Net working capital reflects amounts as at the quarter end and is
comprised of accounts receivable and inventories, less accounts
payable and accrued liabilities.
(2) JWA was acquired October 19, 2005. On July 10, 2006 the Fund
announced its intention to sell JWA. (See Note 13 to the Interim
Consolidated Financial Statements).
>>
Analyst Conference Call
Superior Plus will be conducting a conference call and webcast for
investors, analysts, brokers and media representatives to discuss the 2006
Second Quarter Results at 10:30 a.m. EST (8:30 a.m. MST) on Friday, August 11,
2006. To participate in the call, dial: 1-800-814-4861. An archived recording
of the call will be available for replay until midnight, August 18, 2006. To
access the recording, dial: 877-289-8525 and enter pass code 21195399 followed
by the No. key. Internet users can listen to the call live, or as an archived
call, on Superior's website at: www.superiorplus.com under the "Events and
Presentations" section.
<<
SUPERIOR PLUS INCOME FUND
Consolidated Balance Sheets
-------------------------------------------------------------------------
June 30 December 31
(unaudited, millions of dollars) 2006 2005
-------------------------------------------------------------------------
Assets
Current Assets
Accounts receivable (Note 5) 372.7 336.1
Inventories 178.7 193.4
-------------------------------------------------------------------------
551.4 529.5
Property, plant and equipment (Note 3) 1,005.6 1,167.6
Intangible assets 86.2 89.4
Goodwill (Note 3) 451.7 541.3
-------------------------------------------------------------------------
2,094.9 2,327.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and Unitholders' Equity
Current Liabilities
Accounts payable and accrued liabilities 257.6 280.3
Distributions and interest payable to
Unitholders and Debentureholders 12.9 25.0
Current portion of term loans (Note 6) 2.7 2.0
-------------------------------------------------------------------------
273.2 307.3
Revolving term bank credits and term loans (Note 6) 704.8 622.8
Convertible unsecured subordinated debentures
(Note 7) 313.6 314.3
Future employee benefits 18.5 17.7
Future income tax liability 188.3 262.8
-------------------------------------------------------------------------
Total Liabilities 1,498.4 1,524.9
Unitholders' Equity
Unitholders' capital (Note 8) 1,340.0 1,338.3
Retained earnings from operations 249.4 368.4
Accumulated distributions on trust unit equity (992.0) (903.1)
-------------------------------------------------------------------------
Deficit (742.6) (534.7)
Currency translation account (0.9) (0.7)
-------------------------------------------------------------------------
Total Unitholders' Equity 596.5 802.9
-------------------------------------------------------------------------
2,094.9 2,327.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Subsequent Events (Note 13)
(See Notes to the Interim Consolidated Financial Statements)
SUPERIOR PLUS INCOME FUND
Consolidated Statements of Net Earnings (Loss) and Deficit
-------------------------------------------------------------------------
Three Months Ended Six Months Ended
(unaudited, millions of dollars June 30 June 30
except per trust unit amounts) 2006 2005 2006 2005
-------------------------------------------------------------------------
Revenues 675.9 460.2 1,441.7 972.3
Cost of products sold 519.9 323.0 1,099.6 671.3
-------------------------------------------------------------------------
Gross profit 156.0 137.2 342.1 301.0
-------------------------------------------------------------------------
Expenses
Operating and administrative 103.5 95.7 209.8 184.8
Amortization of property,
plant and equipment 26.3 18.5 56.5 36.5
Amortization of intangible assets 2.0 1.4 4.1 2.7
Interest on revolving term
bank credits and term loans 10.1 5.7 19.5 10.9
Interest on convertible unsecured
subordinated debentures 5.1 2.1 10.1 4.0
Amortization of convertible
debenture issue costs 0.6 0.3 1.2 0.6
Management internalization costs
(Note 9) 1.3 1.3 1.3 1.3
Impairment of property, plant and
equipment and goodwill (Note 3) 218.7 - 218.7 -
Income tax recovery of Superior (58.8) (6.7) (60.1) (0.2)
-------------------------------------------------------------------------
308.8 118.3 461.1 240.6
-------------------------------------------------------------------------
Net Earnings (Loss) (152.8) 18.9 (119.0) 60.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Deficit, Beginning of Period (551.8) (453.2) (534.7) (448.8)
Net earnings (loss) (152.8) 18.9 (119.0) 60.4
Distributions to Unitholders (38.0) (46.6) (88.9) (92.5)
-------------------------------------------------------------------------
Deficit, End of Period (742.6) (480.9) (742.6) (480.9)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net earnings (loss) per trust
unit, basic (Note 10) ($1.79) $0.24 ($1.39) $0.78
Net earnings (loss) per trust
unit, diluted (Note 10) ($1.79) $0.24 ($1.39) $0.77
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(See Notes to the Interim Consolidated Financial Statements)
SUPERIOR PLUS INCOME FUND
Consolidated Statements of Cash Flows
-------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
(unaudited, millions of dollars) 2006 2005 2006 2005
-------------------------------------------------------------------------
Operating Activities
Net earnings (loss) (152.8) 18.9 (119.0) 60.4
Items not affecting cash:
Amortization of property, plant
and equipment, intangible
assets and convertible
debenture issue costs 28.9 20.2 61.8 39.8
Amortization of natural gas
customer acquisition costs 0.7 0.6 1.4 1.1
Trust unit incentive plan
compensation expense
(recovery) - 0.6 (1.2) 0.3
Impairment of property, plant
and equipment and goodwill
(Note 3) 218.7 - 218.7 -
Future income tax recovery
of Superior (62.5) (7.6) (67.6) (2.0)
-------------------------------------------------------------------------
Cash generated from operations
before natural gas customer
acquisition costs and changes
in working capital 33.0 32.7 94.1 99.6
Natural gas customer acquisition
costs capitalized (2.6) (2.0) (4.4) (3.4)
Decrease (increase) in non-cash
operating working capital items (1.2) 39.7 2.7 58.2
-------------------------------------------------------------------------
Cash flows from operating
activities 29.2 70.4 92.4 154.4
-------------------------------------------------------------------------
Investing Activities
Maintenance capital expenditures,
net (5.0) (3.5) (8.9) (6.2)
Other capital expenditures, net (19.2) (7.0) (41.6) (10.3)
Acquisitions (Note 4) - (51.1) - (65.8)
-------------------------------------------------------------------------
Cash flows from investing
activities (24.2) (61.6) (50.5) (82.3)
-------------------------------------------------------------------------
Financing Activities
Revolving term bank credits
and term loans 31.2 (96.6) 80.6 (144.0)
Net proceeds from issue of
Medium Term Notes - - 197.2 -
Repayment of JW Aluminum Company
acquisition credit facility - - (167.8) -
Net repayment of accounts
receivable sales program - (36.7) (65.0) (6.7)
Net proceeds from issue of 5.75%
Series I convertible unsecured
subordinated debentures (Note 7) - 167.5 - 167.5
Receipt of management
internalization loans
receivable (Note 9) 1.8 1.3 1.8 1.3
Distributions to Unitholders (38.0) (46.6) (88.9) (92.5)
Proceeds from exercise of
trust unit warrants - 2.3 0.2 2.3
-------------------------------------------------------------------------
Cash flows from financing
activities (5.0) (8.8) (41.9) (72.1)
-------------------------------------------------------------------------
Change in Cash - - - -
-------------------------------------------------------------------------
Cash at Beginning and
End of Period - - - -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(See Notes to the Interim Consolidated Financial Statements)
Notes to Interim Consolidated Financial Statements
(tabular amounts in millions of dollars, unless noted otherwise,
except per trust unit amounts)
1. Accounting Policies
(a) Basis of Presentation
The accompanying unaudited Interim Consolidated Financial Statements have
been prepared according to Canadian generally accepted accounting
principles ("GAAP"), applied on a consistent basis and include the
accounts of the Superior Plus Income Fund (the "Fund") and its wholly
owned subsidiary, Superior Plus Inc. ("Superior"), and Superior's
subsidiaries. These financial statements do not conform in all respects
to the note disclosure requirement of GAAP for annual financial
statements as certain information and disclosures included in the annual
financial statements notes have been condensed or omitted. The accounting
principles applied are consistent with those as set out in the Fund's
annual financial statements for the year ended December 31, 2005. These
financial statements and notes thereto should be read in conjunction with
the Fund's financial statements for the year ended December 31, 2005. All
significant transactions and balances (including Superior's Shareholder
Notes) between the Fund, Superior, and Superior's subsidiaries have been
eliminated on consolidation.
In the opinion of Management, the accompanying unaudited Interim
Consolidated Financial Statements include all adjustments (of a normal
recurring nature) necessary to present fairly the consolidated financial
position of the Fund as at June 30, 2006 and December 31, 2005 and the
consolidated results of its operations for the three and six months ended
June 30, 2006 and 2005.
(b) Business Segments
Superior operates five distinct business segments; the delivery of
propane and propane related services and accessories operating under the
Superior Propane trade name; the manufacture and sale of specialty
chemicals and related products and services operating under the ERCO
Worldwide trade name ("ERCO"); the manufacture and sale of specialty
flat-rolled aluminum products operating as JW Aluminum Company ("JWA" or
JW Aluminum"); the distribution of walls and ceilings construction
products operating under the Winroc trade name; and the sale of natural
gas under fixed-price term contracts operating under the Superior Energy
Management trade name ("SEM"). (See Note 12).
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. Asset Impairments
Superior has determined that the net book value of ERCO's sodium chlorate
facilities located in Bruderheim, Alberta and Valdosta, Georgia and
ERCO's goodwill are impaired. An aggregate impairment charge of
$218.7 million has been recorded in the second quarter of 2006
($170.8 million net of tax).
Superior concluded that ERCO's Bruderheim, Alberta sodium chlorate
facility, with a net book value of $73.4 million, was impaired. This was
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. As a result of
this analysis, a pre-tax impairment charge of $73.4 million
($47.7 million net of tax) was recorded during the quarter.
Superior performed a similar future cash flow analysis on ERCO's
Valdosta, Georgia sodium chlorate facility, with a net book value of
$55.9 million. ERCO's existing power supply agreement expires at the end
of 2006. Based on current negotiations for a new power supply agreement,
increased power costs would require that the plant be temporarily closed
until U.S. sodium chlorate prices improve or the facility will run as a
swing production facility when power prices are favourable. It was
determined that the facility was impaired and a pre-tax impairment charge
of $55.9 million ($33.7 million net of tax) was recorded during the
quarter.
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, totaling $89.4 million was impaired,
and as such an impairment charge of $89.4 million was recorded during the
quarter.
4. Acquisitions
The following acquisitions were completed by Superior in the three and
six month periods ended June 30, 2005:
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").
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 June 7, 2005, ERCO acquired a chloralkali potassium business in Port
Edwards, Wisconsin for consideration of $22.4 million (the "Port Edwards"
acquisition).
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:
-------------------------------------------------------------------------
ERCO's Superior
Acquisition Winroc's Propane's
of Acquisition Acquisition Total
Port Edwards of Leon's of SGL Acquisitions
-------------------------------------------------------------------------
Cash consideration paid 21.6 28.2 14.6 64.4
Transaction costs 0.8 0.5 0.1 1.4
-------------------------------------------------------------------------
Total cash consideration 22.4 28.7 14.7 65.8
Deferred consideration(1) - 3.0 10.9 13.9
-------------------------------------------------------------------------
Total consideration 22.4 31.7 25.6 79.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Goodwill - 16.2 22.7 38.9
Non-compete agreements - 2.0 1.3 3.3
Working capital, net 3.2 10.4 1.6 15.2
Property, plant and
equipment 22.1 3.1 - 25.2
Other liabilities (2.9) - - (2.9)
-------------------------------------------------------------------------
22.4 31.7 25.6 79.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Notes payable and deferred consideration are unsecured obligations
and have been included in revolving term bank credits and term loans
on the Interim Consolidated Balance Sheets.
5. Accounts Receivable
Superior sells, with limited recourse, certain trade accounts receivable
on a revolving basis to an entity sponsored by a Canadian chartered bank.
The accounts receivable are sold at a discount to face value based on
prevailing money market rates. Superior has retained the servicing
responsibility for the accounts receivable sold and has therefore
recognized a servicing liability. The level of accounts receivable sold
under the program fluctuates seasonally with the level of accounts
receivable. At June 30, 2006 proceeds of $35.0 million (December 31, 2005
- $100.0 million) had been received.
6. Revolving Term Bank Credits and Term Loans
Maturity Effective Interest June 30 December
Dates Rates(5) 2006 31 2005
-------------------------------------------------------------------------
Revolving term bank
credits(1)
Floating BA rate plus
Bankers Acceptances applicable credit
("BA") 2008 spread 8.0 137.7
LIBOR Loans
(US$273.1 million; Floating LIBOR rate
2005 - plus applicable
US$95.3 million) 2008 credit spread 304.6 111.1
-------------------------------------------------------------------------
312.6 248.8
-------------------------------------------------------------------------
Other Debt
Notes payable 2009, Prime 7.4 8.0
2010
Deferred
consideration 2010 Non-interest bearing 9.0 11.3
Mortgage payable
(US$0.9 million;
2005 -
US$0.9 million) 2011 7.53% 1.1 1.1
-------------------------------------------------------------------------
17.5 20.4
-------------------------------------------------------------------------
Senior Secured Notes
JWA acquisition Floating LIBOR rate
credit facility plus applicable
(US$145.0 million)(2) 2007 credit spread - 169.1
Medium Term Notes(3) 2016 5.57% 199.0 -
Senior secured notes
subject to floating
interest rates
(US$85.0 million;
2005 - Floating LIBOR rate
US$85.0 million)(4) 2015 plus 1.7% 94.8 99.1
Senior secured notes
subject to fixed
interest rates
(US$75.0 million;
2005 - 2013,
US$75.0 million)(4) 2015 6.65% 83.6 87.4
-------------------------------------------------------------------------
377.4 355.6
-------------------------------------------------------------------------
Total revolving term
bank credits and loans 707.5 624.8
Less current maturities 2.7 2.0
-------------------------------------------------------------------------
Revolving term bank
credits and term loans 704.8 622.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Superior has revolving term credit capacity of $425.0 million. These
facilities are secured by a general charge over the assets of
Superior and certain of its subsidiaries.
(2) On October 19, 2005, Superior Plus US Holdings Inc. entered into a
secured non-revolving term bank facility for US$145.0 million
(Cdn$169.1 million at December 31, 2005) to partially finance the
acquisition of JWA. The facility 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.
(3) On March 3, 2006, Superior issued $200.0 million, 5.50% coupon,
Medium Term Notes which mature on March 3, 2016 with an effective
yield to maturity of 5.57%. These facilities are secured by a general
charge over the assets of Superior and certain of its subsidiaries.
On August 8, 2006, Superior repaid the Medium Term Notes from
borrowings under new $250.0 million secured bank credit facilities
having a maturity of up to two years, providing enhanced debt
repayment flexibility to facilitate the execution of the Strategic
Plan. (See Note 13).
(4) Senior Secured Notes (the "Notes") totaling US$160.0 million
(Cdn$178.4 million at June 30, 2006) are secured by a general charge
over the assets of Superior and certain of its subsidiaries.
Principal repayments begin in 2009. In conjunction with the issue of
the Notes, Superior swapped US$85.0 million (Cdn$94.8 million at June
30, 2006) of the fixed rate obligation into a US dollar floating rate
obligation.
(5) The fixed interest rate obligation on $100.0 million of the Fund's
Debentures (see Note 7) was swapped into a floating rate obligation.
7. 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:
Total
Unamortized 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
Fixed
distribution
rate 8.0% 8.0% 5.75% 5.85%
Conversion
price per
trust unit $16.00 $20.00 $36.00 $31.25
-------------------------------------------------------------------------
Debentures
outstanding
December 31,
2005 8.9 59.3 174.9 75.0 (3.8) 314.3
Conversion of
Debentures and
amortization
of discount
during 2006 (0.8) (0.1) - - 0.2 (0.7)
-------------------------------------------------------------------------
Debentures
outstanding
June 30, 2006 8.1 59.2 174.9 75.0 (3.6) 313.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Quoted market
value June 30,
2006 8.3 60.8 160.1 66.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The Debentures may be converted into trust units at the option of the
holder at any time prior to maturity and may be redeemed by the Fund in
certain circumstances. The Fund may elect to pay interest and principal
upon maturity or redemption by issuing trust units to a trustee in the
case of interest payments, and to the Debentureholders in the case of
payment of principal. The number of any trust units issued will be
determined based on market prices for the trust units at the time of
issuance.
8. 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 85.5 802.9
Conversion of Debentures -
(8% Series 1 - $0.8 million converted
at $16 per trust unit
8% Series 2 - $0.1 million converted
at $20 per trust unit) (Note 7) - 0.9
Exercise of trust unit warrants - 0.2
Trust unit incentive plan compensation recovery - (1.2)
Currency translation adjustment - (0.2)
Receipt of management internalization
loans receivable (Note 9) - 1.8
Net loss - (119.0)
Distributions to unitholders - (88.9)
-------------------------------------------------------------------------
Unitholders' equity, June 30, 2006 85.5 596.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Unitholders' capital and deficit as at June 30, 2006 and December 31,
2005 consists of the following components:
2006 2005
-------------------------------------------------------------------------
Unitholders' capital
Trust unit equity 1,335.2 1,332.3
Conversion feature on warrants
and convertible debentures 4.8 4.8
Contributed surplus - 1.2
-------------------------------------------------------------------------
1,340.0 1,338.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Deficit
Retained earnings from operations 249.4 368.4
Accumulated distributions on trust unit equity (992.0) (903.1)
-------------------------------------------------------------------------
(742.6) (534.7)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
At June 30, 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.
9. Management Internalization Transaction
On May 8, 2003, Superior completed the internalization of its management
and administration agreements. The internalization process resulted in
the elimination of management incentive and administration fees effective
January 1, 2003. The funds paid to the Manager and Administrator to
terminate the contracts were immediately re-invested into trust units and
warrants. As part of the internalization transaction, non-interest
bearing loans aggregating $6.5 million were advanced to the executive
officers and were used to fund the purchase of 0.325 million trust units
at $20 per trust unit. The loans are repayable over a four-year period in
the form of annual retention bonuses. The repayment in the second quarter
of 2006 was $1.8 million (2005 - $1.3 million). On an aggregate basis
$5.7 million in loans receivable have been repaid. The remaining loans
receivable of $0.8 million have not been recorded as an asset by
Superior, but have been deducted directly from equity.
10. Net Earnings (Loss) per Trust Unit
Three Months Ended Six Months Ended
June 30 June 30
2006 2005 2006 2005
-------------------------------------------------------------------------
Net earnings (loss) per trust
unit computation, basic
Net earnings (loss) (152.8) 18.9 (119.0) 60.4
Weighted average trust units
outstanding 85.5 77.7 85.5 77.1
-------------------------------------------------------------------------
Net earnings (loss) per trust
unit, basic ($1.79) $0.24 ($1.39) $0.78
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net earnings (loss) per trust
unit computation, diluted
-------------------------------------------------------------------------
Net earnings (loss) (152.8) 18.9 (119.0) 60.4
Dilutive effect of Debentures - 1.7 - 3.7
-------------------------------------------------------------------------
Net earnings (loss),
assuming dilution (152.8) 20.6 (119.0) 64.1
-------------------------------------------------------------------------
Weighted average trust
units outstanding 85.5 77.7 85.5 77.1
Dilutive effect of:
Debentures - 4.3 - 4.8
Trust unit options - 0.2 - 0.2
Trust unit warrants - 1.0 - 1.0
-------------------------------------------------------------------------
Weighted average trust units
outstanding, assuming dilution 85.5 83.2 85.5 83.1
-------------------------------------------------------------------------
Net earnings (loss) per
trust unit, diluted ($1.79) $0.24 ($1.39) $0.77
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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.
11. Commitments
As at June 30, 2006, Superior has entered into long-term forward
contracts to purchase US dollars in order to hedge US dollar out-flows of
SEM, net of in-flows of ERCO Worldwide as follows:
Net US $ Average
Purchases Conversion Rate
--------------- ---------------
2006 22.9 1.27
2007 36.7 1.22
2008 105.5 1.22
2009 111.0 1.21
2010 61.8 1.16
2011 and thereafter 5.0 1.11
As at June 30, 2006, the net mark-to-market loss on long-term foreign
currency forward contracts was $32.3 million.
12. Business Segments
Superior operates five distinct business segments; the delivery of
propane and propane related services and accessories operating under the
Superior Propane trade name; the manufacture and sale of specialty
chemicals and related products and services operating under the ERCO
Worldwide trade name ("ERCO"); the manufacture and sale of specialty flat
rolled aluminum products operating as JW Aluminum Company ("JWA" or "JW
Aluminum"); the distribution of walls and ceilings construction products
operating under the Winroc trade name; and the sale of natural gas under
fixed-price term contracts operating under the Superior Energy Management
trade name ("SEM"). Superior's corporate office arranges intersegment
foreign exchange contracts from time to time between its business
segments. Intersegment revenues and cost of sales pertaining to
intersegment foreign exchange gains and losses are eliminated under the
Corporate cost column.
For the three
months ended Total
June 30, Superior Corp- Consol-
2006 Propane ERCO JWA Winroc SEM orate idated
-------------------------------------------------------------------------
Revenues 191.0 105.4 160.5 136.4 83.4 (0.8) 675.9
Cost of products
sold 136.0 57.2 145.7 103.7 78.1 (0.8) 519.9
-------------------------------------------------------------------------
Gross profit 55.0 48.2 14.8 32.7 5.3 - 156.0
Expenses
Operating and
administrative 44.1 29.0 2.6 22.2 2.6 3.0 103.5
Amortization of
property, plant
and equipment 4.7 11.7 8.7 1.2 - - 26.3
Amortization of
intangible assets - 1.2 0.7 0.1 - - 2.0
Interest on
revolving term
bank credits
and term loans - - - - - 10.1 10.1
Interest on
convertible
unsecured
subordinated
debentures - - - - - 5.1 5.1
Amortization of
convertible
debenture
issue costs - - - - - 0.6 0.6
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 2.6 (45.4) (1.3) 3.5 0.9 (19.1) (58.8)
-------------------------------------------------------------------------
51.4 215.2 10.7 27.0 3.5 1.0 308.8
-------------------------------------------------------------------------
Net Earnings (Loss) 3.6 (167.0) 4.1 5.7 1.8 (1.0) (152.8)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the three
months ended Total
June 30, Superior Corp- Consol-
2005 Propane ERCO JWA(1) Winroc SEM orate idated
-------------------------------------------------------------------------
Revenues 162.1 100.7 - 128.1 70.1 (0.8) 460.2
Cost of products
sold 105.9 52.8 - 98.4 66.7 (0.8) 323.0
-------------------------------------------------------------------------
Gross profit 56.2 47.9 - 29.7 3.4 - 137.2
Expenses
Operating and
administrative 45.7 24.3 - 20.6 2.0 3.1 95.7
Amortization of
property, plant
and equipment 5.2 12.5 - 0.8 - - 18.5
Amortization of
intangible assets - 1.3 - 0.1 - - 1.4
Interest on term
bank credits
and term loans - - - - - 5.7 5.7
Interest on
convertible
unsecured
subordinated
debentures - - - - - 2.1 2.1
Amortization of
convertible
debenture
issue costs - - - - - 0.3 0.3
Management
internalization
costs - - - - - 1.3 1.3
Income tax expense
(recovery) of
Superior 2.0 3.6 - 3.1 0.5 (15.9) (6.7)
-------------------------------------------------------------------------
52.9 41.7 - 24.6 2.5 (3.4) 118.3
-------------------------------------------------------------------------
Net Earnings 3.3 6.2 - 5.1 0.9 3.4 18.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) JWA was acquired October 19, 2005. On July 10, 2006, the Fund
announced its intention to sell JWA. (See Note 13).
For the six
months ended Total
June 30, Superior Corp- Consol-
2006 Propane ERCO JWA Winroc SEM orate idated
-------------------------------------------------------------------------
Revenues 506.1 211.5 302.0 264.3 159.4 (1.6) 1,441.7
Cost of products
sold 365.6 113.5 273.2 199.2 149.7 (1.6) 1,099.6
-------------------------------------------------------------------------
Gross profit 140.5 98.0 28.8 65.1 9.7 - 342.1
Expenses
Operating and
administrative 92.0 57.5 5.1 44.4 5.3 5.5 209.8
Amortization of
property, plant
and equipment 9.6 27.4 17.6 1.9 - - 56.5
Amortization of
intangible assets - 2.4 1.5 0.2 - - 4.1
Interest on
revolving term
bank credits
and term loans - - - - - 19.5 19.5
Interest on
convertible
unsecured
subordinated
debentures - - - - - 10.1 10.1
Amortization of
convertible
debenture
issue costs - - - - - 1.2 1.2
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 14.9 (43.5) (2.6) 7.2 1.6 (37.7) (60.1)
-------------------------------------------------------------------------
116.5 262.5 21.6 53.7 6.9 (0.1) 461.1
-------------------------------------------------------------------------
Net Earnings
(Loss) 24.0 (164.5) 7.2 11.4 2.8 0.1 (119.0)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the six
months ended Total
June 30, Superior Corp- Consol-
2005 Propane ERCO JWA(1) Winroc SEM orate idated
-------------------------------------------------------------------------
Revenues 418.2 197.0 - 224.5 134.2 (1.6) 972.3
Cost of products
sold 269.4 103.0 - 173.1 127.4 (1.6) 671.3
-------------------------------------------------------------------------
Gross profit 148.8 94.0 - 51.4 6.8 - 301.0
Expenses
Operating and
administrative 93.3 47.0 - 36.2 3.8 4.5 184.8
Amortization of
property, plant
and equipment 10.4 24.7 - 1.4 - - 36.5
Amortization of
intangible assets - 2.6 - 0.1 - - 2.7
Interest on term
bank credits
and term loans - - - - - 10.9 10.9
Interest on
convertible
unsecured
subordinated
debentures - - - - - 4.0 4.0
Amortization of
convertible
debenture
issue costs - - - - - 0.6 0.6
Management
internalization
costs - - - - - 1.3 1.3
Income tax expense
(recovery) of
Superior 17.1 7.2 - 5.0 1.3 (30.8) (0.2)
-------------------------------------------------------------------------
120.8 81.5 - 42.7 5.1 (9.5) 240.6
-------------------------------------------------------------------------
Net Earnings 28.0 12.5 - 8.7 1.7 9.5 60.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) JWA was acquired October 19, 2005. On July 10, 2006, the Fund
announced its intention to sell JWA. (See Note 13).
Total Assets, Net Working Capital, Acquisitions and Other Capital
Expenditures
Total
Superior Corp- Consol-
Propane ERCO JWA(1) Winroc SEM orate idated
-------------------------------------------------------------------------
As at June 30, 2006
Net working
capital 99.3 26.6 99.8 67.1 4.3 (3.3) 293.8
Total assets 654.1 545.1 610.8 214.8 44.1 26.0 2,094.9
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As at December 31,
2005
Net working
capital 101.8 (3.1) 84.9 64.1 (8.3) 9.8 249.2
Total assets 695.2 738.8 622.2 194.8 42.9 33.9 2,327.8
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For the three
months ended
June 30, 2006
Acquisitions - - - - - - -
Other capital
expenditures,
net - 17.7 1.4 0.1 - - 19.2
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For the three
months ended
June 30, 2005
Acquisitions - 22.4 - 28.7 - - 51.1
Other capital
expenditures,
net 0.1 6.9 - - - - 7.0
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For the six
months ended
June 30, 2006
Acquisitions - - - - - - -
Other capital
expenditures,
net - 37.0 3.0 1.6 - - 41.6
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For the six
months ended
June 30, 2005
Acquisitions 14.7 22.4 - 28.7 - - 65.8
Other capital
expenditures,
net 0.1 10.2 - - - - 10.3
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(1) JWA was acquired October 19, 2005. On July 10, 2006, the Fund
announced its intention to sell JWA. (See Note 13).
Geographic Information Total
United Consol-
Canada States Other idated
-------------------------------------------------------------------------
Revenues for the three
months ended June 30, 2006 412.0 249.8 14.1 675.9
Revenues for the six months
ended June 30, 2006 930.2 485.9 25.6 1,441.7
Property, plant and equipment
as at June 30, 2006 495.5 456.9 53.2 1,005.6
Total assets as at June 30, 2006 1,279.8 744.5 70.6 2,094.9
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Revenues for the three months
ended June 30, 2005 365.1 89.0 6.1 460.2
Revenues for the six months
ended June 30, 2005 796.2 166.6 9.5 972.3
Property, plant and equipment
as at December 31, 2005 591.8 551.7 24.1 1,167.6
Total assets as at December 31,
2005 1,475.8 814.4 37.6 2,327.8
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13. Subsequent Events
On July 10, 2006, the Fund announced the results of its Strategic Review
including the following:
(A) Its intention to sell JW Aluminum in order to reduce debt levels and
refocus its operations on its existing Canadian businesses.
Commencing with the third quarter of 2006, JWA's operations will be
classified as discontinued operations.
(B) Its intention to close ERCO's Bruderheim, Alberta and temporarily
close or operate its Valdosta, Georgia sodium chlorate facility as a
swing production facility. (See Note 3).
(C) On August 8, 2006, Superior and the Fund entered into secured bank
credit facilities aggregating $250.0 million, which were used to
repay $200.0 million Medium Term Notes, providing enhanced covenant
and debt repayment flexibility.
(D) Its intention to reorganize its business operations into a trust-
over-partnership structure in order to achieve tax efficiencies and
maximize the cash available for distribution. A special meeting of
the unitholders has been scheduled for September 28, 2006 to approve
the reorganization.
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