TSX: SPF.UN
CALGARY, Sept. 29 /CNW/ - Superior Plus Income Fund (the "Fund")
announced today that Superior Plus Inc., through its wholly-owned US
subsidiary, has entered into an agreement to purchase all of the issued and
outstanding shares of JW Aluminum Holding Company ("JWA"), for a purchase
price of US $350 million (approximately Cdn. $412 million) on a debt free
basis, subject to certain adjustments. Closing of the acquisition is subject
to normal commercial closing conditions. JWA is a manufacturer of specialty,
flat-rolled aluminum products, primarily serving the heating, ventilation and
air conditioning ("HVAC"), building and construction, and flexible packaging
end-use markets in the United States. Closing is anticipated to be completed
in October, 2005.
Benefits of the Proposed Acquisition
The transaction is expected to be immediately accretive to the Fund's
cash distributions per trust unit and the Fund has, conditional upon
completion of the acquisition, raised its monthly cash distribution by 2.5%
from $0.20 to $0.205 per trust unit, or from $2.40 to $2.46 on an annualized
basis, effective for the first monthly distribution declared following the
closing of the acquisition.
The acquisition is expected to provide Superior Plus with further
business diversification and an additional platform for value growth. JWA's
business is well established and demonstrates the following strong
fundamentals, which are consistent with the Fund's acquisition criteria and
objectives:
- strong competitive position in the specialty flat-rolled aluminum
fabrication industry with a diversified portfolio of products and
end-use customers;
- no direct exposure to aluminum commodity price risk;
- history of stable and growing operating cash flow with a significant
amount of production capacity subject to annual contractual sales
commitments;
- history of low and predictable maintenance capital requirements;
- strong operating management who will continue to manage the business;
and
- significant growth potential through both organic and acquisition
growth opportunities.
In commenting on the acquisition, Geoff Mackey, President and CEO of
Superior Plus, stated, "JWA meets all of the Fund's acquisition criteria and
we are excited to have another strong platform and strong management team to
create long-term value and growth. JWA generates stable cash flow, supported
by its strong competitive position in its specialty markets and its "margin-
over-metal" pricing which eliminates direct primary aluminum commodity price
exposure. Manufacturing flexibility with three plants in the south-eastern
United States reduces operational risk and enhances customer service
capabilities. JWA's management team has significant industry experience and
has demonstrated the ability to profitably grow the business".
The table below details the composition of the Fund's operating
distributable cash flow by operating division for the six month period ended
June 30, 2005, before the acquisition of JWA and after giving effect to the
acquisition of JWA, illustrating the added diversification that the Fund
expects to achieve through the acquisition of JWA.
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Operating
Operating distributable
distributable cash flow(1)
cash flow(1) contribution
contribution after giving
prior to the effect to the
acquisition acquisition
Operating Division of JWA of JWA
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Superior Propane 48% 40%
ERCO Worldwide 39% 33%
JW Aluminum - 17%
Winroc 10% 8%
Superior Energy Management 3% 2%
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Total 100% 100%
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(1) See Non-GAAP Measures
About JW Aluminum
With facilities in Mt. Holly, South Carolina, Russellville, Arkansas and
St. Louis, Missouri, JWA's 772 employees use primary and scrap aluminum to
fabricate fin stock for the HVAC market, building sheet for use in the
construction and building markets, and converter foil used predominantly in
the food packaging, pharmaceutical and general industrial markets. JWA charges
its customers the cost of primary aluminum plus a conversion fee, which covers
fabrication, transportation and profit, thereby eliminating direct commodity
price risk and providing an opportunity to increase margins by utilizing less
expensive scrap aluminum in its fabrication processes. Over its 25 year
operation, JWA has grown its annual processing capacity from 40 million pounds
of aluminum at inception to 372 million pounds upon completion of the 72
million pound expansion of its Russellville facility. The expansion is
substantially complete. During the year ended December 31, 2004, JWA sold
280.3 million pounds of flat-rolled aluminum products to its over 300
customers in the United States resulting in annual net sales of US $333.5
million.
Diversified Business Operations
JWA is a leader in its specialty markets and focuses on products in which
its size and operating flexibility provide clear advantages over both larger
integrated producers and smaller single product competitors. Its major product
lines consist of fin stock for the HVAC market, building sheet for multiple
uses in the building and construction end-use market, and converter foil used
primarily in the production of flexible packaging for consumer products and
industrial applications. In addition, JWA fabricates other products, which
include automotive sheet, cable wrap for a variety of telecommunications
applications and lithographic sheets for use in the printing industry. None of
JWA's competitors participate in all of these end-use markets. No single
customer accounts for more than 7.5% of its sales with its top 10 customers
comprising approximately 45% of 2004 sales.
Set forth below is a summary of the sales volumes of JWA during its last
two financial years and the six months ended June 30, 2005.
Six Months Year Ended
Ended December 31
June 30, 2005 2004 2003
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Fin Stock 40% 35% 38%
Building Sheet 26% 29% 40%
Converter Foil 16% 16% 1%
Other Products 18% 20% 21%
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Total 100% 100% 100%
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Total sales volumes (millions
of pounds) 165.5 280.3 228.6
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Financial Highlights
The chart below sets forth certain financial data which illustrates the
historical financial performance of JWA for the years ended December 31, 2004
and 2003, and the six-month period ended June 30, 2005.
Six Months Year Ended
(US $ in millions except per Ended December 31
pound sales) June 30, 2005 2004 2003
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Net Sales 223.3 333.5 224.9
Cost of Goods Sold 194.3 295.4 194.6
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Gross Profit 29.0 38.1 30.3
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Gross Profit per Pound of Sales US $0.175 US $0.136 US $0.133
Selling, General &
Administrative 3.5 8.5 7.3
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EBITDA(1) 25.5 29.6 23.0
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EBITDA per Pound of Sales(1) US $0.154 US $0.106 US $0.102
Maintenance Capital
Expenditures(1) 1.4 3.9 4.6
Growth Capital Expenditures(1) 11.9 30.2 4.6
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Notes:
(1) See "Non-GAAP Measures"
JWA has steadily increased its sales volumes in 14 out of the last 15
years, which, combined with stable margins and a competitive cost structure,
has resulted in similar growth patterns in its profitability.
To meet increasing demands from its customers, and to expand its product
line into the converter foil market, JWA acquired the Russellville and
St. Louis plants from Alcoa Inc. in April 2004, and shortly thereafter started
a project to expand the Russellville plant. JWA's sales volumes in 2004
reached 280.3 million pounds, an increase of 23% over 2003, due principally to
the acquisition of the Russellville and St. Louis plants, comprising 60
million pounds of annual capacity. EBITDA generated by JWA in 2004, reached
US $29.6 million, an increase of 29% over 2003, due to the increase in sales
volumes and improved average margins, which were in turn, partially offset by
selling, general and administrative costs associated with integrating the
Russellville and St. Louis plants. Maintenance capital expenditures were
US $3.9 million in 2004 and were comparable to 2003 expenditures.
For the six months ended June 30, 2005, sales volumes reached 165.5
million pounds, an increase of 28% over the comparable period in 2004. Sales
volumes from the Russellville and St. Louis plants contributed more than half
of the increase. After acquiring the Russellville facility, JWA initiated a
US $26.4 million expansion project at that site which, when completed in the
third quarter of 2005, will increase the annual production capacity of this
facility by 72 million pounds. Incremental production from this expansion
project contributed the remaining increase in sales volume compared to the
prior year. EBITDA generated by JWA during the six months ended June 30, 2005
reached US $25.5 million, an increase of 85% over the comparable period in
2004, due to the increase in sales volumes and improved average margins, which
were in turn, partially offset by start-up costs as production at Russellville
began to increase. EBITDA per pound of sales increased 45% and 44% over the
2004 year and the first six months of 2004, respectively.
Currently, JWA's sales and production volumes are substantially at its
annual capacity level of 372 million pounds, representing a 33% and 12%
increase in volumes over 2004 and the annualized volumes for the first six
months of 2005, respectively. This increase in sales volumes, combined with
the increasing trend in EBITDA per pound of sales driven by the anticipated
continued strength in customer demand and improved operating efficiencies
anticipated with the completion of the Russellville expansion, is expected by
management of Superior to significantly increase the level of EBITDA generated
by JWA over prior period levels. Upon completion of the acquisition, it is
anticipated that JWA will be subject to cash taxes estimated to be
approximately 17% of EBITDA. Maintenance capital expenditures are expected to
increase from prior period levels, consistent with the increase in production
capacity.
Management of JWA are currently evaluating additional growth
opportunities, including an additional capacity expansion of the Russellville
plant, acquisition opportunities within the industry and the introduction of
new value added products.
JWA Management
JWA has a strong management team, led by the President and CEO, Don
Kassing, with an average of over 26 years of relevant industry experience.
Superior Plus intends to operate the business of JWA as a new division, which
will be managed by JWA's current management team. JWA management are studying
a variety of potential opportunities to continue their track record of
profitable growth by further improving the scale of operations, product
diversification and market presence.
"JWA's focus on customer service, high quality products and in-house
product development capabilities that allow for customer specific solutions,
provide a competitive advantage over the larger aluminum producers who tend to
focus on high volume, low margin products. With visible expansion
opportunities at existing facilities, opportunities for consolidation, and
potential to expand into additional specialty markets, the business is well
positioned for future growth and continued success", said Mr. Mackey.
Financing of the Transaction
In conjunction with the acquisition, the Fund has entered into a bought
deal agreement with a syndicate of underwriters co-led by Scotia Capital Inc.
and RBC Capital Markets to issue 6,215,000 subscription receipts (the
"Subscription Receipts") by the Fund at $25.75 per Subscription Receipt for
proceeds of approximately $160 million and $75 million principal amount of
5.85% extendible convertible unsecured subordinated debentures (the
"Debentures").
Each Subscription Receipt will entitle the holder thereof to receive,
without payment of additional consideration, one trust unit upon completion of
the acquisition of JWA. The gross proceeds from the sale of the Subscription
Receipts will be held by an escrow agent and invested in short term
obligations issued or guaranteed by the Government of Canada (or other
approved investments) pending completion of the acquisition of JWA. Upon
completion of the acquisition of JWA, the escrowed funds will be released to
the Fund. If the closing of the acquisition of JWA occurs after October 31,
2005, but on or before 5:00 p.m. (Calgary time) on November 29, 2005, holders
of Subscription Receipts of record on the date the acquisition of JWA closes
will, in addition, be entitled to receive a payment equivalent to the
distribution that is expected to be paid by the Fund on November 15, 2005 to
Unitholders of record on October 31, 2005. If the acquisition of JWA fails to
close by 5:00 p.m. (Calgary time) on November 29, 2005, or the stock purchase
agreement is terminated at an earlier time, the escrow agent will return to
the holders of Subscription Receipts an amount equal to the offering price
therefor and their pro rata entitlements to interest earned on such amount.
The Debentures will be convertible, at the option of the holder, into
fully paid trust units of the Fund at a conversion price of $31.25 per trust
unit, being a rate of 32.0 trust units per $1,000 principal amount of
Debentures. The maturity date (the "Maturity Date") for the Debentures will
initially be on November 29, 2005 (the "Initial Maturity Date"). Upon the
closing of the acquisition of JWA, the Maturity Date of the Debentures will be
automatically extended from the Initial Maturity Date to October 31, 2015 (the
"Final Maturity Date"). In the event that the acquisition of JWA is not
completed on or before 5:00 p.m. (Calgary time) on November 29, 2005, the
Debentures will mature on the Initial Maturity Date.
The issue is expected to close on or about October 19, 2005 and is
subject to obtaining required regulatory approvals. The underwriting syndicate
consists of Scotia Capital Inc., RBC Dominion Securities Inc., CIBC World
Markets Inc., National Bank Financial Inc., TD Securities Inc., HSBC
Securities (Canada) Inc. and Canaccord Capital Corporation.
The net proceeds of the offering of approximately $223.5 million will be
used to finance a portion of the purchase price of the proposed acquisition of
JWA. Superior Plus has entered into a US $365 million senior secured, non-
revolving acquisition credit facility with a two-year term, underwritten by
the Bank of Nova Scotia, which will be used to finance the remainder of the
purchase price.
Conference Call
Superior Plus will be conducting a conference call and webcast for
investors, analysts, brokers and media representatives to discuss the
acquisition of JWA at 10:00 a.m. EST (8:00 a.m. MST) on Thursday, September
29, 2005. To participate in the call dial: 1-800-814-4857. A recording of the
call will be available for replay until midnight, October 4, 2005 by dialing:
877-289-8525 and entering pass code 21154473 followed by the number sign 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.
Additional Information
Additional information respecting JWA and its business can be found in
the Fund's material change report dated September 29, 2005.
The Fund will be filing its final short form prospectus relating to the
offering with the Canadian securities regulatory authorities. The prospectus
and the documents incorporated by reference therein, including the above noted
material change report dated September 29, 2005, will be available for viewing
on the SEDAR website at www.sedar.com. Printed copies of the final prospectus
will be available from the underwriters of the offering.
About Superior Plus and the Fund
The Fund holds 100% of Superior Plus Inc., which has four other operating
divisions: Superior Propane is Canada's largest distributor of propane,
related products and services; ERCO Worldwide is a leading supplier of
chemicals and technology to the pulp and paper and water treatment industries
and the second largest producer of potassium products in North America; Winroc
is the seventh largest distributor of walls and ceilings construction products
in North America; and Superior Energy Management provides fixed price natural
gas supply services in Ontario and Quebec.
The Fund's trust units trade on the Toronto Stock Exchange (the "TSX")
under the trading symbol SPF.UN. There are 79.1 million trust units
outstanding. The Fund has $9.1 million principal amount of Series 1, and
$62.4 million of Series 2, 8%; and $175.0 million of 5.75% Convertible
Unsecured Subordinated Debentures outstanding, that trade on the TSX under the
trading symbols SPF.DB, SPF.DB.A, and SPF.DB.B, respectively.
Forward Looking Statements:
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Certain information included herein is forward-looking. Forward-looking
statements include, without limitation, statements regarding the future
financial position, business strategy, budgets, projected costs, capital
expenditures, financial results, taxes and plans and objectives of or
involving the Fund, Superior and potential acquisitions. Many of these
statements can be identified by looking for words such as "believe",
"expects", "expected", "will", "intends", "projects", "anticipates",
"estimates", "continues", or similar words. The Fund and Superior believe the
expectations reflected in such forward-looking statements are reasonable but
no assurance can be given that these expectations will prove to be correct and
such forward-looking statements should not be unduly relied upon.
Forward-looking statements are not guarantees of future performance and
involve a number of risks and uncertainties some of which are described in the
Fund's annual report, renewal annual information form and other continuous
disclosure documents. Such forward-looking statements necessarily involve
known and unknown risks and uncertainties, which may cause the Fund's or
Superior's actual performance and financial results in future periods to
differ materially from any projections of future performance or results
expressed or implied by such forward-looking statements. Any forward-looking
statements are made as of the date hereof and neither the Fund nor Superior
undertakes any obligation, except as required under applicable law, to
publicly update or revise such statements to reflect new information,
subsequent or otherwise.
Non-GAAP Measures:
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In this press release, the Fund uses the term "distributable cash flow"
to refer to the cash available for distribution to Unitholders. Distributable
cash flow of the Fund is equal to the cash generated from operations before
natural gas customer acquisition costs and changes in working capital, less
the amortization of natural gas customer acquisition costs and maintenance
capital expenditures. "Maintenance capital expenditures" are equal to capital
expenditures incurred to sustain the ongoing capacity of Superior's operations
and are deducted from the calculation of distributable cash flow. Acquisitions
and other capital expenditures incurred to expand the capacity of Superior's
operations or to increase its profitability, which are referred to in this
press release as "growth capital expenditures", are excluded from the
calculation of distributable cash flow. Neither of these measures have
standardized meanings prescribed by Canadian generally accepted accounting
principles ("GAAP") and may not be comparable to similar measures presented by
other issuers. See Note 1 to the interim consolidated financial statements for
the period ended June 30, 2005 of the Fund for 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 GAAP, and that distributable cash flow
cannot be assured. The Fund's calculation of distributable cash flow may
differ from similar calculations used by other issuers. The Fund also uses the
term "operating distributable cash flow" in this press release to refer to
distributable cash flow before corporate and interest expenses. This
performance measure is used to assess the performance or contribution of
Superior's operating divisions. This measure does not have a standardized
meaning prescribed by GAAP and may not be comparable to similar measures
presented by other issuers. The Fund also uses the term "EBITDA" in this press
release to refer to earnings from operations before interest, taxes,
depreciation and amortization and, in the case of JWA, before management fees
and loss on early extinguishment of debt. EBITDA is disclosed to assist
management and investors in determining the ability of Superior to generate
cash from its operations, which is a significant component of distributable
cash flow. This measure does not have a standardized meaning prescribed by
GAAP and may not be comparable to similar measures presented by other issuers.
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This news release shall not constitute an offer to sell or the
solicitation of an offer to buy the Debentures or Subscription Receipts
in any jurisdiction. The Debentures and Subscription Receipts offered
pursuant to the offering will not be and have not been registered under
the United States Securities Act of 1933 and may not be offered or sold
in the United States.
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