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Press release from Marketwire

Superior Plus Corp. Announces Improved 2011 Annual Results and 2011 Fourth Quarter Results

Thursday, February 16, 2012

Superior Plus Corp. Announces Improved 2011 Annual Results and 2011 Fourth Quarter Results17:30 EST Thursday, February 16, 2012CALGARY, ALBERTA--(Marketwire - Feb. 16, 2012) - Superior Plus Corp. (TSX:SPB)Fourth Quarter Highlights-- For the year ended December 31, 2011, Superior generated adjusted operating cash flow (AOCF) per share of $1.65, a 7% increase over the prior year and consistent with the previously provided financial outlook for 2011 of AOCF per share of $1.55 to $1.90. -- AOCF per share for the fourth quarter was $0.58, consistent with the prior year quarter, as improved EBITDA from operations was offset by higher interest costs and an increase in the number of average shares outstanding. -- Warmer than average temperatures resulted in reduced heating based sales volumes, resulting in an approximate $0.04 to $0.05 per share decrease to Superior's fourth quarter results. -- Superior is updating its financial outlook for 2012 AOCF to $1.45 to $1.80 per share from the previous range of $1.55 to $1.90. The revised outlook is due to lower 2011 actual results, a weaker than anticipated start to the 2012 heating season due to unseasonably warm temperatures throughout Canada and the Northeast U.S. and certain anticipated restructuring costs in the Construction Products Distribution business. See "2012 Financial Outlook" for additional details. -- On November 14, 2011, Luc Desjardins joined Superior as President and Chief Executive Officer. Mr. Desjardins brings a proven track record of improving business performance and has spent his first three months with Superior familiarizing himself with Superior's business operations and employees. See "President's Message" for additional details on Mr. Desjardins initial assessment of Superior and his views on the future direction and strategy of Superior. -- Superior's total debt to EBITDA was 5.1X as at December 31, 2011, compared to 5.2X at September 30, 2011 and 6.0X at December 31, 2010. Superior continues to focus on reducing its total debt and improving its EBITDA to reduce its total debt to EBITDA ratio to its targeted range of 3.5X to 4.0X. Fourth Quarter Financial Summary (1)---------------------------------------------------------------------------- Three months ended Year ended December 31, December 31, (millions of dollars except per share amounts) 2011 2010 2011 2010 ----------------------------------------------------------------------------Revenue 1,043.4 1,011.2 3,925.6 3,537.4 Gross profit 234.6 224.7 827.5 780.6 ----------------------------------------------------------------------------EBITDA from operations (2) 87.9 81.6 273.0 243.0 Interest (19.4) (16.9) (79.2) (68.9)Cash income tax recovery (expense) (1.4) 0.1 (1.5) (0.8)Corporate costs (3.3) (2.3) (11.9) (10.4)----------------------------------------------------------------------------Adjusted operating cash flow (2) 63.8 62.5 180.4 162.9 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Adjusted operating cash flow per share, basic and diluted (2)(3)(4) $0.58 $0.58 $1.65 $1.54 ----------------------------------------------------------------------------Dividends paid per share $0.20 $0.405 $1.17 $1.62 --------------------------------------------------------------------------------------------------------------------------------------------------------(1) Superior's 2010 financial results have been restated in accordance with International Financial Reporting Standards (IFRS). See Superior's Fourth Quarter Financial Discussion and Analysis for additional details.(2) EBITDA from operations and adjusted operating cash flow are key performance measures used by management to evaluate the performance of Superior. These measures are defined under "Non-IFRS Financial Measures" in Superior's 2011 Fourth Quarter Financial Discussion and Analysis.(3) The weighted average number of shares outstanding for the three months ended December 31, 2011 is 110.4 million (2010 - 107.4 million) and for the year ended December 31, 2011 is 109.2 million (2010 - 105.6 million).(4) For the three and twelve months ended December 31, 2011 and 2010, there were no dilutive instruments.Segmented Information---------------------------------------------------------------------------- Three months ended Year ended December 31, December 31,(millions of dollars) 2011 2010 2011 2010----------------------------------------------------------------------------EBITDA from operations: Energy Services 46.5 45.1 133.6 114.7 Specialty Chemicals 34.5 28.6 115.2 101.5 Construction Products Distribution 6.9 7.9 24.2 26.8---------------------------------------------------------------------------- 87.9 81.6 273.0 243.0--------------------------------------------------------------------------------------------------------------------------------------------------------Energy Services-- Energy Services EBITDA from operations for the fourth quarter was $46.5 million compared to $45.1 million in the prior year quarter, as improved results at the fixed-price energy services business were partially offset by reduced contributions from the Canadian propane and U.S. refined fuels business. -- The Canadian propane business generated gross profit of $62.3 million in the fourth quarter compared to $63.7 million in the prior year quarter. Canadian propane distribution sales volumes were 4 million litres or 1% lower than the prior year quarter, as an increase in industrial volumes was partially offset by volume reductions in all other lines of business. The increase in industrial volumes is due to strong oil field and mining volumes which has been a consistent trend throughout 2011. -- Heating related volumes, particularly residential and commercial volumes within the Canadian propane business, were negatively impacted by unseasonably warm weather throughout Canada in the fourth quarter. Average weather, as measured by degree days, for the fourth quarter was 5% warmer than the prior year and 6% warmer than the 5-year average. There were no significant regional weather variations, as average weather in Eastern and Western Canada was consistent with the overall average weather statistics. -- Canadian propane average sales margins were 16.9 cents per litre in the fourth quarter compared to 17.1 cents per litre in the prior year quarter. The decrease in average sales margins was due to sales mix, as volumes in the current quarter consisted of a higher proportion of lower margin industrial volumes. -- The U.S. refined fuels business generated gross profits of $37.9 million in the fourth quarter compared to $41.1 million in the prior year quarter. The reduction in gross profits is due principally to a 12% or 59 million litre reduction in sales volumes. -- Sales volumes in the U.S. refined fuels business were significantly impacted by unseasonably warm weather. Average weather, as measured by degree days, was 19% warmer than the prior year quarter and 13% warmer than the 5-year average, which negatively impacted residential and commercial heating volumes. -- U.S. refined fuels average sales margins were 8.6 cents per litre in the quarter, compared to 8.2 cents per litre in the prior year quarter. Average sales margins benefitted from margin management initiatives and a lower proportion of low margin commercial sales volumes. -- The fixed-price energy services business generated gross profits of $10.3 million compared to $7.9 million in the prior year quarter. Higher natural gas gross profits came from improved margins on contract renewals, increased transportation revenues and lower load balancing costs. -- The supply portfolio management business generated gross profits of $6.4 million in the fourth quarter compared to $7.4 million in the comparative period, the reduction in gross profit is due to reduced market trading opportunities throughout the quarter, due principally to the warmer than average weather as noted previously. -- Operating expenses were $83.3 million in the quarter compared to $86.9 million in the prior year quarter. The decrease in operating expenses is due to reduced risk reserve funding requirements within the fixed-price energy services business and reduced operating costs within the U.S. refined fuels business. Operating costs within the Canadian propane business were consistent with the prior year quarter. -- Superior expects business conditions in 2012 for its Energy Services business will be similar to 2011, with the exception of a reduced contribution from its fixed-price energy services business. The fixed- price energy services business profitability will moderate as it is expected that there will be fewer renewals of residential customers at favourable margins. Additionally, weather, is anticipated to be consistent with the 5-year average with the exception of the unseasonably warm weather experienced in January 2012. Specialty Chemicals-- EBITDA from operations for the fourth quarter was $34.5 million compared to $28.6 million in the prior year quarter due to improved chemical sales volumes and higher average realized selling prices. The fourth quarter also included a $3.7 million insurance settlement related to downtime and repair costs at the Buckingham, Quebec facility which experienced temporary production line issues earlier in the year. -- Chloralkali sales volumes benefited from the incremental contribution of the Port Edwards chloralkali facility which was operating at higher operating rates throughout the current year quarter compared to the prior year quarter due to ongoing strong demand. The facility expansion was completed in the fourth quarter of 2009 and continued process debottlenecking has supported operating levels modestly above the original design capacity. Additionally, average realized selling prices were higher than the prior year quarter due to improved sales mix and strong supply demand fundamentals. -- Sodium chlorate gross profits were higher than the prior year quarter due to higher average realized selling prices and the insurance settlement benefit, which more than offset a 6% or 7,000 tonne reduction in sales volumes. -- Sodium chlorate sales volumes were lower than the prior year quarter due to customer plant shut-downs for maintenance and customer production curtailments, principally in North America, in response to a softening in the price for pulp. These reductions were partially offset by improved offshore sales volumes. -- Operating expenses were higher than the prior year due to general inflationary increases and the impact of foreign currency on U.S.- denominated expenses and working capital revaluation. -- Superior expects business conditions in 2012 for its Specialty Chemicals business will be similar to 2011. Superior continues to see a stable market for sodium chlorate as a result of the current market for pulp. Superior also expects continued strength in chloralkali sales volumes and pricing due to strong North American supply demand fundamentals. Construction Products Distribution-- EBITDA from operations for the fourth quarter was $6.9 million compared to $7.9 million in the prior year quarter. -- Construction Products Distribution's results were $1.0 million lower than the prior year quarter as higher operating costs more than offset improved gross profit. -- Gross profits were $3.8 million higher than the prior year quarter as a result of improved sales volumes and improved gross margins. Volumes benefited from the introduction of the full interiors product line into select U.S. markets that were previously acoustical ceiling focused. Gross margins as a percentage of sales were higher than the prior year due to ongoing focus on margin management through supplier negotiations and a modestly improved overall operating environment relative to the prior year quarter. -- Operating expenses were $4.8 million higher than the prior year. The increase in operating expenses is due to higher sales volumes, inflationary increases on wages and other operating costs and higher Canadian equivalent on U.S.-denominated costs as a result of a weaker Canadian dollar. Additionally, the current year quarter includes restructuring costs associated with the closure of two operating branches. -- The Construction Products Distribution business continues to review all aspects of operations to optimize its cost structure and improve margins where possible. -- Superior expects business conditions in 2012 for its Construction Products Distribution business to be similar to 2011. EBITDA from operations is anticipated to be lower than in 2011 due to anticipated costs associated with further restructuring activities and ongoing adverse market conditions in both the residential and commercial segments in both Canada and the U.S. Superior does not anticipate significant improvements in the end-use markets in the near term. Corporate Related-- Total interest expense for the fourth quarter was $19.4 million compared to $16.9 million in the prior year quarter. Interest expense was higher in the current year quarter due to higher average debt levels and higher average effective interest rates. -- Corporate costs were $3.3 million in the current quarter, a $1.0 million increase over the prior year quarter due to costs associated with the recruitment of Superior's new President and CEO and the retirement of Superior's prior CEO. -- Superior's dividend re-investment program (DRIP) generated proceeds of $5.5 million during the fourth quarter ($28.9 million year-to-date). Proceeds from the DRIP will be used to reduce existing debt levels. The DRIP provides Superior's shareholders with the opportunity to reinvest their cash dividends in the future growth of the business at a 5% discount to the market price of Superior's common shares. -- Superior's total debt (including convertible debentures) to Compliance EBITDA was 5.1X as at December 31, 2011, compared to 5.2X as at September 30, 2011 and 6.0X as at December 31, 2010. Superior continues to make progress on reducing its total leverage through a combination of improved EBITDA and debt reduction. -- On October 4, 2011, Superior completed the issue of $75.0 million, 7.50% convertible debentures which mature on October 31, 2016. -- On November 7, 2011 and December 15, 2011, Superior redeemed in total, $125.0 million of its then existing $175.0 million convertible debenture issue which is due on December 31, 2012, leaving $49.95 million of the remaining 2012 debenture to be repaid in 2012. Superior maintains the flexibility from a liquidity and financial covenant perspective to repay the remaining balance during 2012 with its existing syndicated credit facility. -- To ensure the fair treatment of all Superior shareholders in connection with any take-over bid for the outstanding common shares, Superior has adopted a shareholder rights plan. See "Adoption of Shareholder Rights Plan" for additional details. President's MessageSince commencing the role of President and Chief Executive Officer on November 14, 2011, I have been intently focused on obtaining a ground floor or grass roots understanding of Superior's businesses and its people. Based on my past experiences, it is vitally important to understand a business and its people in order to effectively manage and direct that business. Based on the limited time I have spent interacting with Superior's businesses and people, I am extremely encouraged by what I have experienced to date. Superior's businesses are well positioned in their respective markets, have excellent opportunities looking forward and a dedicated and talented group of employees who are committed to ensuring the long-term success of Superior. All of which, in my view, are necessary to create long-term success for all of Superior's stakeholders.Although my time with Superior in 2011 was brief, 2011 proved to be a difficult year for many companies, Superior included. Ongoing uncertainty in the global economy, the European sovereign debt crisis and concerns regarding the U.S. economy and U.S. sovereign debt have created continued volatility in world and North American capital markets, making the management of any business more difficult then ever. In 2011, due to a combination of business performance and volatility in capital markets, Superior made the difficult decision to reduce its monthly dividend from $0.135 per share to $0.05 per share. These decisions were not made lightly and not without careful consideration of the impact on Superior's shareholders and other stakeholders, but ultimately were viewed as a necessary step to ensure the long-term success of Superior. Superior understands the impact this had on our shareholders, and while it was a difficult decision, it was necessary to ensure Superior maintained the financial flexibility to execute its long-term strategy. Superior will continue to work hard with the goal that all of our stakeholders are rewarded for their commitment to Superior.My primary goal and vision for Superior is to build best in class businesses throughout the entire organization. As a result of the current economic environment, it is extremely important we continue to improve and review all aspects of our business for improvements on an ongoing basis. I am a strong believer in continuous improvement, as it is the corner stone to build and maintain a best in class organization. Building a best in class organization and realizing the full benefits of, is a long-term objective, but one that we have already begun. As part of transforming Superior into a best in class organization, the President of each business and their respective teams have identified a number of significant business and process improvement opportunities which are currently being assessed in detail. Although I am confident that these process improvement opportunities will result in significant improvements in the medium and long-term, it is not yet possible to provide an estimate of the impact and the timing of completion for these opportunities. The transformation to a best in class organization will be a difficult and challenging process but I want to assure our shareholders that it is an undertaking Superior is committed to seeing to completion, the potential benefits are too great to ignore. Superior must and will remain committed to becoming a best in class organization across all of its businesses.Luc Desjardins, President and Chief Executive Officer2012 Financial OutlookSuperior's expects 2012 AOCF per share of $1.45 to $1.80, compared to the 2012 financial outlook provided in the third quarter of 2011 of $1.55 to $1.90 AOCF per share.Luc Desjardins, Superior's President and Chief Executive Officer stated "Superior expects the business environment for its markets and customers to be similar to 2011, which should translate to consolidated results for 2012 that are consistent with 2011. The reduction in the 2012 outlook from the outlook provided in the third quarter is due to the impact of results experienced in the fourth quarter of 2011 and the impact of warmer than average temperatures experienced in Canada and the Northeastern U.S. at the beginning of the 2012 heating season. As highlighted in my President's message, I am deeply committed to the continuous improvement project which began in early 2012 for the entire Superior organization with the goal of building best in class practices throughout the entire organization. The potential benefit and implementation costs of these projects are not reflected in Superior's current 2012 financial outlook. While I remain confident that these projects will provide benefits in 2013 and beyond to Superior, it is still too early to provide estimates of the benefits and costs associated with them."Debt Management Update (1)Superior remains committed to reducing its total debt and its total debt leverage ratios. An update to the anticipated total debt and total debt leverage ratios as at December 31, 2012, based on the updated 2012 financial outlook is detailed in the chart below.---------------------------------------------------------------------------- (Millions of (Per Share) dollars)----------------------------------------------------------------------------2012 financial outlook AOCF per share - mid- point (2) $1.62 181.4 Maintenance capital expenditures (0.21) 23.5 Capital lease obligation repayments (0.16) 17.9 ----------------------------------------------------------------------------Cash flow available for dividends and debt repayment before growth capital $1.25 140.0 One-time environmental expenditures at Port Edward's (0.10) 11.2 Other growth capital expenditures (0.09) 10.1 Proceeds from dividend reinvestment program 0.12 13.4 ----------------------------------------------------------------------------Estimated 2012 free cash flow available for dividend and debt repayment $1.18 132.1 Dividends (annualized) $(0.60) (67.2)----------------------------------------------------------------------------Cash flow available for debt repayment $0.58 64.9 Estimated total debt to EBTIDA as at December 31, 2012 4.6X - 4.8X 4.6X - 4.8X --------------------------------------------------------------------------------------------------------------------------------------------------------Dividends (annualized) $0.60 67.2 Calculated payout ratio after all capital expenditures 52% 52%--------------------------------------------------------------------------------------------------------------------------------------------------------(1) All amounts per share unless otherwise indicated.(2) See "2012 Financial Outlook" in Superior's 2011 fourth quarter Financial Discussion and Analysis for additional details including assumptions, definitions and risk factors.For additional details on the assumptions underlying the 2012 financial outlook, see Superior's 2011 Fourth Quarter Financial Discussion and Analysis.2011 Detailed Fourth Quarter ResultsSuperior's 2011 Fourth Quarter Financial Discussion and Analysis is attached and is also available on Superior's website at: www.superiorplus.com under the Investor Relations section.Conference CallSuperior will be conducting a conference call and webcast for investors, analysts, brokers and media representatives to discuss the 2011 Fourth Quarter Results at 8:30 a.m. MDT on Friday, February 17, 2012. To participate in the call, dial: 1-866-226-1792. An archived recording of the call will be available for replay until midnight, Saturday, March 17, 2012. To access the recording, dial: 1-800-408-3053 and enter pass code 2588135 followed by the # key. Internet users can listen to the call live, or as an archived call, on Superior's website at: www.superiorplus.com.Adoption of Shareholder Rights PlanThe Board of Directors of Superior has adopted a shareholder rights plan (the "Rights Plan") effective February 16, 2012. The Rights Plan was adopted in an effort to ensure the fair treatment of all Superior shareholders in connection with any take-over bid for the outstanding common shares of Superior. The Rights Plan will provide shareholders and the Board with adequate time to properly evaluate and assess a take-over bid or corporate transaction if, as and when such circumstances arise without facing undue pressure or coercion. The Rights Plan also provides the Board with additional time to, if appropriate, explore alternative transactions in order to maximize shareholder value.The Rights Plan is similar to the type of rights plans adopted by other Canadian corporations and Superior believes it is consistent with certain published institutional investor guidelines. The Rights Plan is not being adopted in response to any proposed takeover bid for Superior and the Corporation is not aware of any transaction by any party that would trigger the provisions of the Rights Plan at this time. The Rights Plan is not intended to prevent take-over bids. Under the Rights Plan, a bid that, among other things, is made to all shareholders on identical terms and conditions and that is open for at least 60 days may constitute a "Permitted Bid".Under the Rights Plan, the Corporation has issued one right (a "Right") for no consideration in respect of each outstanding common share of the Corporation to all holders of record at the close of business on February 16, 2012 and will issue one Right (which will be represented by the common share certificates until the rights become exercisable) in respect of all common shares issued by Superior during the term of the Rights Plan. Subject to the terms of the Rights Plan and to certain exceptions provided therein, the Rights will become exercisable (other than by any acquiring person and its joint actors) to acquire common shares at a substantial discount to market value in the event any person, together with joint actors, acquires or announces its intention to acquire 20% or more of Superior's outstanding common shares without complying with the "Permitted Bid" provisions of the Rights Plan or without the Rights Plan be waived in accordance with its terms.The Rights Plan has been conditionally approved by the Toronto Stock Exchange. Superior expects to seek shareholder approval and ratification of the Plan at its upcoming annual and special meeting of the shareholders to be held on May 2, 2012. A complete copy of the Rights Plan is available on SEDAR at www.sedar.com.Forward Looking InformationCertain information included herein is forward-looking, within the meaning of applicable Canadian securities laws. Forward-looking information includes, without limitation, statements regarding the future financial position and debt repayment, business strategy, market conditions, budgets, litigation, projected costs, capital expenditures, financial results, adjusted operating cash flow, EBITDA from operations, taxes and plans and objectives of or involving Superior and Superior Plus LP. Forward-looking information is often, but not always, identified by the use of words such as "anticipate", "believe", "expect", "plan", "intend", "forecast", "target", "project", "guidance", "may", "will", "should", "could", "estimate", "predict" or similar words suggesting future outcomes or language suggesting an outlook. Forward-looking information in this press release, including the attached 2011 Fourth Quarter Financial Discussion and Analysis, includes but is not limited to, consolidated and business segment outlooks, product production, expected EBITDA from operations, expected AOCF, expected AOCF per share, expected leverage ratios and debt repayment, debt management summary, future capital expenditures, future economic conditions, tax horizon, future income taxes, exchange rates, dividend strategy, commodity prices and costs, development plans and programs, effects of operational and technological improvements, impact of accounts receivable collection delays, demand for chemicals including sodium chlorate, business strategy and objectives, payout ratio, future dividend payments, future cash flows, anticipated taxes, benefits and synergies resulting from corporate and asset acquisitions, expected life of facilities and statements regarding the future financial position of Superior and Superior Plus LP. Superior believes the expectations reflected in such forward-looking information 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 information is based on various assumptions. Those assumptions are based on information currently available to Superior, including information obtained from third party industry analysts and other third party sources, the historic performance of Superior's businesses, and such assumptions include anticipated financial performance, current business and economic trends, the amount of future dividends paid by Superior, business prospects, availability and utilization of tax basis, regulatory developments, currency, exchange and interest rates, trading data, cost estimates, our ability to obtain financing on acceptable terms, and the other assumptions set forth under the "Outlook" sections contained in the attached 2011 Fourth Quarter Financial Discussion and Analysis. Readers are cautioned that the preceding list of assumptions is not exhaustive.Forward-looking information is not a guarantee of future performance. By its very nature, forward-looking information involves inherent risks and uncertainties, both general and specific, and risks that predictions, forecasts, projections and other forward-looking information will not be achieved, some of which are described herein and in the attached 2011 Fourth Quarter Financial Discussion and Analysis. Such risks and uncertainties may cause Superior's or Superior Plus LP'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 information. We caution readers not to place undue reliance on this information as a number of important factors could cause the actual results to differ materially from the beliefs, plans, objectives, expectations and anticipations, estimates and intentions expressed in such forward-looking information. These risks and uncertainties include but are not limited to the risks referred to under the section entitled "Risk Factors to Superior", in the attached 2011 Fourth Quarter Financial Discussion and Analysis, the risks associated with the availability and amount of the tax basis and the risks identified in Superior's 2010 Annual Information Form under the heading "Risk Factors". Superior's 2010 Annual Information Form is available at www.sedar.com and from Superior's website at www.superiorplus.com.Readers are cautioned that the foregoing list of factors that may affect future results is not exhaustive. When relying on our forward-looking information to make decisions with respect to Superior, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Forward-looking information is provided for the purpose of providing information about management's expectations and plans about the future. Reliance on such information may not be appropriate for other purposes, such as making investment decisions. Any forward-looking information is made as of the date hereof and, except as required by law, Superior does not undertake any obligation to publicly update or revise such information to reflect new information, subsequent or otherwise. For more information about Superior, visit our website at www.superiorplus.com.Financial Discussion of 2011 Fourth Quarter and 2011 Year End ResultsFebruary 16, 2012The following Financial Discussion is a review of the financial performance and position of Superior Plus Corp. (Superior) as at December 31, 2011 and for the three and twelve months ended December 31, 2011 and 2010. The information in this Financial Discussion is current to February 16, 2012. This Financial Discussion should be read in conjunction with Superior's audited consolidated financial statements and notes to those statements as at December 31, 2011, its December 31, 2011 Financial Discussion and its unaudited condensed consolidated financial statements as at and for the three and twelve months ended December 31, 2011.On January 1, 2011, Superior adopted International Financial Reporting Standards (IFRS) for Canadian publicly accountable enterprises. Prior to the adoption of IFRS, Superior followed Canadian Generally Accepted Accounting Principles (GAAP). While IFRS has many similarities to GAAP, some of our accounting policies have changed as a result of our transition to IFRS. The most significant accounting policy changes that have had an impact on the results of our operations are discussed within the applicable sections of this Financial Discussion, and in more detail in the Adoption of IFRS section of this Financial Discussion. Superior unaudited condensed consolidated financial statements as at December 31, 2011 and the three and twelve months ended December 31, 2011 and 2010 were prepared in accordance with IFRS.The accompanying unaudited condensed consolidated financial statements of Superior have been prepared by and are the responsibility of Superior's management. Superior's unaudited condensed consolidated financial statements have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting as issued by the International Accounting Standards Board (IASB). Dollar amounts in this Financial Discussion are expressed in Canadian dollars and millions except where otherwise noted.Overview of SuperiorSuperior is a diversified business corporation. Superior holds 99.9% of Superior Plus LP (Superior LP), a limited partnership formed between Superior General Partner Inc. (Superior GP) as general partner and Superior as limited partner. Superior owns 100% of the shares of Superior GP and Superior GP hold 0.1% of Superior LP. The cash flow of Superior is solely dependent on the results of Superior LP and is derived from the allocation of Superior LP's income to Superior by means of partnership allocations. Superior, through its ownership of Superior LP and Superior GP, has three operating segments: the Energy Services segment which includes a Canadian propane distribution business, a U.S. refined fuels distribution business, a fixed-price energy services business and a supply portfolio management business; the Specialty Chemicals segment; and the Construction Products Distribution segment.Fourth Quarter ResultsSummary of Adjusted Operating Cash Flow (1)---------------------------------------------------------------------------- Three months ended Twelve months ended December 31, December 31, (millions of dollars except per share amounts) 2011 2010 2011 2010 ----------------------------------------------------------------------------EBITDA from operations: (2) Energy Services 46.5 45.1 133.6 114.7 Specialty Chemicals 34.5 28.6 115.2 101.5 Construction Products Distribution 6.9 7.9 24.2 26.8 ---------------------------------------------------------------------------- 87.9 81.6 273.0 243.0 Interest (19.4) (16.9) (79.2) (68.9)Cash income tax (expense) recovery (1.4) 0.1 (1.5) (0.8)Corporate costs (3.3) (2.3) (11.9) (10.4)----------------------------------------------------------------------------Adjusted operating cash flow(2) 63.8 62.5 180.4 162.9 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Adjusted operating cash flow per share (2), basic (3) and diluted (4) $0.58 $0.58 $1.65 $1.54 --------------------------------------------------------------------------------------------------------------------------------------------------------(1) Superior has restated its 2010 results in accordance with IFRS, see "Adoption of IFRS" for the impact of IFRS on Superior's 2010 results.(2) Earnings before interest, taxes, depreciation and amortization (EBITDA) and adjusted operating cash flow are not IFRS measures. See "Non-IFRS Financial Measures".(3) The weighted average number of shares outstanding for the three months ended December 31, 2011, is 110.4 million (2010 - 107.4 million) and for the twelve months ended December 31, 2011, is 109.2 million (2010 - 105.6 million).(4) For the three and twelve months ended December 31, 2011 and 2010, there were no dilutive instruments.Adjusted Operating Cash Flow Reconciled to Cash Flow from Operating Activities (1)---------------------------------------------------------------------------- Three months ended Twelve months ended December 31, December 31, (millions of dollars) 2011 2010 2011 2010 ----------------------------------------------------------------------------Net cash flow from (used in) operating activities 14.8 (42.8) 291.2 82.4 Add: Increase (decrease) in non-cash working capital 69.8 118.5 (30.1) 143.3 Other expenses - 3.3 - 6.6 Non cash interest expense 3.0 1.6 8.0 6.6 Less: Income taxes (expense) recovery (1.4) 0.1 (1.5) (0.8) Finance costs recognized in net earnings (20.7) (18.2) (85.5) (75.2) Gain on debenture redemption (1.7) - (1.7) - ----------------------------------------------------------------------------Adjusted operating cash flow 63.8 62.5 180.4 162.9 --------------------------------------------------------------------------------------------------------------------------------------------------------(1) See the Unaudited Condensed Consolidated Financial Statements for net cash flows from operating activities and changesin non-cash working capital.Fourth quarter adjusted operating cash flow was $63.8 million, an increase of $1.3 million or 2% from the prior year quarter. The increase in adjusted operating cash flow was due to higher operating results at Energy Services and Specialty Chemicals offset in part by higher interest and corporate costs. Adjusted operating cash flow of $0.58 per share was consistent with the prior year quarter due to a 2% increase in adjusted operating cash flow offset in part by a 3% increase in the weighted average number of shares outstanding. The average number of shares outstanding increased in 2011 as a result of shares issued from Superior's Dividend Reinvestment Program and Optional Share Purchase Plan (DRIP).Adjusted operating cash flow for the twelve months ended December 31, 2011 was $180.4 million, an increase of $17.5 million or 11% compared to the prior year period. The increase in adjusted operating cash flow was due to increased EBITDA from operations of Energy Services and Specialty Chemicals offset in part by higher interest and corporate costs. Adjusted operating cash flow per share was $1.65 per share for the year ended December 31, 2011, an increase of $0.11 per share or 7% due to the increase in adjusted operating cash flow as noted above offset in part by a 3% increase in the weighted average number of shares outstanding. The average number of shares outstanding increased in 2011 as a result of shares issued from the DRIP.The net loss for the fourth quarter was $231.4 million, compared to net losses of $56.0 million in the prior year quarter. Net losses were impacted by higher operating costs, interest costs, impairment of intangible assets and goodwill, and lower unrealized gains on financial instruments in the current quarter. The change in the unrealized gains on financial instruments was due principally to lower gains in the current quarter on Superior's foreign currency financial derivatives compared to the prior year quarter as a result of fluctuations in the spot and forward price for U.S. dollars. The net loss for the quarter was impacted by a $300.6 million intangible assets and goodwill impairment charge to the Energy Services' segment and an asset write off of $3.4 million at U.S refined fuels due to flooding damage and an explosion at one of its branches. Revenues of $1,043.4 million were $32.2 million higher than the prior year quarter due principally to higher Energy Services revenue as a result of higher commodity prices along with higher Specialty Chemicals revenue due to increased pricing. Gross profit of $234.6 million was $9.9 million higher than the prior year quarter due principally to increased Specialty Chemicals gross profits on higher gross margins. Operating expenses of $188.7 million in the fourth quarter were $11.1 million higher than in the prior year, due to the full year contribution of Griffith Holdings Inc. (Griffith), increased depreciation expense and corporate costs. Total income tax for the fourth quarter was a recovery of $43.7 million compared to income tax expenses of $21.1 million in the prior year quarter. The income tax recovery in 2011 was primarily due to the impairment charges recorded to intangible assets and goodwill.The net loss for the twelve months ended December 31, 2011 was $302.6 million, compared to a net loss of $75.8 million in the prior year period. The net loss was impacted by higher operating costs, impairment of intangible assets and goodwill, higher unrealized losses on financial instruments and higher interest costs offset in part by higher gross profits. The net loss was primarily impacted by a $78.0 million in intangible assets and goodwill impairment charges due to continued weakness in Superior's Construction Products Distribution segment (see Note 8 to the Consolidated Financial Statements), a $300.6 million impairment change to U.S. Refined fuels and Canadian propane distribution's intangible assets and goodwill (see Note 8 to the Consolidated Financial Statements) and an asset write off of $3.4 million at U.S refined fuels due to flooding damage and a fire at one of its branches. The net loss was also impacted by $9.7 million in unrealized losses on financial instruments in the current period, compared to unrealized losses of $2.2 million in the prior year period. Consolidated revenues of $3,925.6 million in 2011 were $398.2 million higher than the prior year due principally to higher Energy Services revenue as a result of the full period contribution of the acquisition of Griffith, higher commodity prices and increased sales volumes and higher Specialty Chemicals revenue due to increased sales volumes and pricing. Gross profit of $827.5 million was $46.9 million higher than the prior year due to improved gross profit at Energy Services due to higher sales volumes and the contribution from the acquisition Griffith along with higher Specialty Chemicals gross profits. Operating expenses of $706.7 million in 2011 were $30.3 million higher than in the prior year, due to the full year contribution of Griffith, increased depreciation expense and corporate costs. The increase in depreciation expense was primarily due to increased amortization expense at Energy Services as a result of acquisitions completed during 2010 and 2011. Total interest expense of $85.5 million was $10.3 million higher than in the prior year due principally to higher average interest rates on convertible debentures and average debt levels throughout the year due to higher working capital requirements. Total income tax recovery was $50.4 million for 2011 compared to an expense of $6.5 million for 2010. Income taxes were impacted by a future income tax recovery associated with the impairment charges recorded to intangible assets and goodwill during 2011.Energy ServicesEnergy Services' condensed operating results for 2011 and 2010 are provided in the following table.---------------------------------------------------------------------------- Three months ended Twelve months ended December 31, December 31, (millions of dollars) 2011 2010 (2) 2011 2010 (2)----------------------------------------------------------------------------Revenue(1) 727.6 702.3 2,686.1 2,339.1 Cost of sales(1) (597.8) (571.1) (2,230.9) (1,904.2)----------------------------------------------------------------------------Gross profit 129.8 132.0 455.2 434.9 Less: Cash operating and administration costs(1) (83.3) (86.9) (321.6) (320.2)----------------------------------------------------------------------------EBITDA from operations 46.5 45.1 133.6 114.7 --------------------------------------------------------------------------------------------------------------------------------------------------------(1) In order to better reflect the results of its operations, Superior has reclassified certain amounts for purposes of this Financial Discussion to present its results as if it had accounted for various transactions as accounting hedges. See "Reconciliation of Divisional Segmented Revenue and Cost of Sales to EBITDA" for detailed amounts.(2) Superior has restated its 2010 results in accordance with IFRS. See "Adoption of IFRS" for the impact of IFRS on Superior's 2010 results.Revenues for the fourth quarter of 2011 were $727.6 million, an increase of $25.3 million from revenues of $702.3 million in 2010. The increase in revenues is primarily due to higher commodity prices. Total gross profit for the fourth quarter of 2011 was $129.8 million, a decrease of $2.2 million or 2% over the prior year quarter. The decrease in gross profit is due to lower gross margins and lower sale volumes within the Canadian propane, U.S. Refined Fuels and Supply portfolio management businesses. A summary and detailed review of gross profit is provided below.Gross Profit Detail---------------------------------------------------------------------------- Three months ended Twelve months ended December 31, December 31,(millions of dollars) 2011 2010 2011 2010----------------------------------------------------------------------------Canadian propane distribution 62.3 63.7 223.0 216.7U.S. refined fuels distribution 37.9 41.1 137.7 130.1Other services 12.9 11.9 42.3 43.1Supply portfolio management 6.4 7.4 15.1 15.9Fixed-price energy services 10.3 7.9 37.1 29.1----------------------------------------------------------------------------Total gross profit 129.8 132.0 455.2 434.9--------------------------------------------------------------------------------------------------------------------------------------------------------Canadian Propane DistributionCanadian propane distribution gross profit for the fourth quarter was $62.3 million, a decrease of $1.4 million or 2% from 2010, due to lower sales volumes and gross margins. Residential and commercial sales volumes decreased by 18 million litres or 14%, due to warmer weather, high commodity prices and customer conservation efforts. Average weather across Canada for the quarter, as measured by degree days, was 5% warmer than the prior year and 6% warmer than the five-year average. Industrial volumes increased by 19 million litres or 10%, due to an increased oilfield services demand and favourable contribution from sales initiatives. Automotive propane volumes declined by 3 million litres or 16%, due to the continued structural decline in this end-use market.Average propane sales margins for the fourth quarter decreased slightly to 16.9 cents per litre from 17.1 cents per litre in the prior year quarter. The decrease in average margins compared to the prior year quarter is principally due to sales mix as the current quarter included a higher proportion of lower margins sales volumes due to the warm weather.Canadian Propane Distribution Sales VolumesVolumes by End-Use Application(1) Volumes by Region(2) ---------------------------------------------------------------------------- Three months ended December 31, Three months ended December 31,(millions of (millions of litres) 2011 2010 litres) 2011 2010----------------------------------------------------------------------------Residential 40 49 Western Canada 218 200Commercial 72 81 Eastern Canada 123 144Agricultural 31 33 Atlantic Canada 27 28Industrial 209 190 Automotive 16 19 ---------------------------------------------------------------------------- 368 372 368 372--------------------------------------------------------------------------------------------------------------------------------------------------------Volumes by End-Use Application(1) Volumes by Region(2) ---------------------------------------------------------------------------- Twelve months ended December 31, Twelve months ended December 31,(millions of (millions of litres) 2011 2010 litres) 2011 2010----------------------------------------------------------------------------Residential 128 135 Western Canada 738 670Commercial 262 258 Eastern Canada 460 467Agricultural 67 71 Atlantic Canada 107 98Industrial 769 678 Automotive 79 93 ---------------------------------------------------------------------------- 1,305 1,235 1,305 1,235--------------------------------------------------------------------------------------------------------------------------------------------------------(1) Regions: Western Canada region consists of British Columbia, Alberta, Saskatchewan, Manitoba, Northwest Ontario, Yukon and Northwest Territories; Eastern Canada region consists of Ontario (except for Northwest Ontario) and Quebec; and Atlantic Canada consists of New Brunswick, Newfoundland & Labrador, Nova Scotia and Prince Edward Island.U.S. Refined Fuels DistributionU.S. refined fuels gross profit for the fourth quarter was $37.9 million, a decrease of $3.2 million from the prior year quarter. The decrease in gross profit is due to lower sales volumes offset in part by higher gross margins. Sales volumes of 440 million litres, decreased by 59 million litres or 12% as compared to the prior year quarter. The decrease in sales volumes was primarily due to lower residential and commercial volumes as a result of significantly warmer weather, competitive pressures and the impact of high commodity prices on customer conservation. Weather as measured by heating degree days for the fourth quarter was 19% warmer than the prior year. Average U.S. refined fuels sales margins of 8.6 cents per litre increased from the 8.2 cents per litre in the prior year quarter. The increase in sales margins is due to margin management efforts and reduced lower margin sales volumes.U.S. Refined Fuels Distribution Sales VolumesVolumes by End-Use Application(1) Volumes by Region (2) ---------------------------------------------------------------------------- Three months ended December 31, Three months ended December 31,(millions of (millions of litres) 2011 2010 litres) 2011 2010----------------------------------------------------------------------------Residential Northeast United 90 115 States 440 499Commercial 218 256 Automotive 131 128 ---------------------------------------------------------------------------- 440 499 440 499--------------------------------------------------------------------------------------------------------------------------------------------------------Volumes by End-Use Application(1) Volumes by Region (2) ---------------------------------------------------------------------------- Twelve months ended December 31, Twelve months ended December 31,(millions of (millions of litres) 2011 2010 litres) 2011 2010----------------------------------------------------------------------------Residential Northeast United 336 340 States 1,741 1,702Commercial 892 907 Automotive 513 455 ---------------------------------------------------------------------------- 1,741 1,702 1,741 1,702--------------------------------------------------------------------------------------------------------------------------------------------------------(1) Volume: Volume of heating oil, propane, diesel and gasoline sold (millions of litres).(2) Regions: Northeast United States region consists of Pennsylvania, Connecticut, New York, and Rhode Island.Other ServicesOther services gross profit was $12.9 million in the fourth quarter, an increase of $1.0 million or 8% from the prior year quarter. The increase in other services gross profit is due to higher customer demand.Supply Portfolio ManagementSupply portfolio management gross profits were $6.4 million in the fourth quarter, a decrease of $1.0 million from the prior year quarter due to reduced market related opportunities, high commodity prices and lower sales volume.Fixed-Price Energy ServicesFixed-Price Energy Services Gross Profit---------------------------------------------------------------------------- Three months ended Three months ended December 31, 2011 December 31, 2010(millions of dollars except volume and Gross Gross per unit amounts) Profit Volume Per Unit Profit Volume Per Unit----------------------------------------------------------------------------Natural Gas (1) 170.0 103.2 8.5 5.0 GJ cents/GJ 6.5 6.3 GJ cents/GJElectricity (2) 1.08 1.05 1.8 166.6 KWh cents/KWh 1.4 133.3 KWh cents/KWh----------------------------------------------------------------------------Total 10.3 7.9 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Twelve months ended Twelve months ended December 31, 2011 December 31, 2010(millions of dollars except volume and Gross Gross per unit amounts) Profit Volume Per Unit Profit Volume Per Unit----------------------------------------------------------------------------Natural Gas (1) 146.9 91.2 31.0 21.1 GJ cents/GJ 25.0 27.4 GJ cents/GJElectricity (2) 1.01 1.12 6.1 606.3 KWh cents/KWh 4.1 366.6 KWh cents/KWh----------------------------------------------------------------------------Total 37.1 29.1 --------------------------------------------------------------------------------------------------------------------------------------------------------(1) Natural gas volumes and per unit amounts are expressed in millions of gigajoules (GJ).(2) Electricity volumes and per unit amounts are expressed in millions of kilowatt hours (KWh).Fixed-price energy services gross profit was $10.3 million in the fourth quarter, an increase of $2.4 million (30%) from $7.9 million in the prior year quarter. Natural gas gross profit was $8.5 million, an increase of $2.0 million from the prior year quarter due to higher margins offset in part by lower volumes. Gross profit per unit was 170.0 cents per gigajoule (GJ), an increase of 66.8 cents per GJ (65%) from the prior year quarter. The increase in natural gas gross margin was due to increased residential renewal margins, higher transportation revenue and lower charges associated with load balancing. Sales volumes of natural gas were 5.0 million GJ, 1.3 million GJ (21%) lower than the prior year quarter due a continued decline in residential volumes as a result of focusing marketing efforts towards the commercial segment, warm weather and continued low system price for natural gas. Electricity gross profit in the fourth quarter of 2011 was $1.8 million, an increase of $0.4 million or 29% from the prior year quarter due to the aggregation of additional commercial customers in the Ontario market and increased customer electricity usage. Fixed-price energy services continues to grow in the newly entered Pennsylvania electricity market due to launch of a residential electricity offering that is being sold to existing heating oil and propane customers.Operating costsCash operating and administrative costs were $83.3 million in fourth quarter of 2011, a decrease of $3.6 million or 6% from the prior year quarter. The decrease in expenses was primarily due to a $2.2 million reduction in Fixed-price energy services risk reserve allowance and lower sales and marketing expenses within the Fixed-price energy services business due to challenging market conditions offset in part by an inventory write down of $1.5 million within the Supply portfolio management business due to low year end propane prices. Operating costs for the other businesses were consistent with the prior year quarter.System UpgradeDuring the second quarter of 2010, Superior's Canadian propane distribution business upgraded their JD Edwards enterprise system to the most recent version in order to enhance efficiencies and core business functions. As a result of the system upgrade, Superior experienced complications with processing certain sales transactions and producing accurate invoices which delayed customer collections. The delay in customer collections has resulted in increased past due receivables which Superior has provided for through an increase to the allowance for doubtful accounts during the fourth quarter of 2011 of $1.8 million (Twelve months ended December 31, 2011 - $6.5 million). Early in the second quarter of 2011, Superior resolved the remaining technical issues associated with the system upgrade and the system is now fully operational. Superior will continue to focus on collecting the remaining past due receivable balances associated with the system upgrade.ImpairmentsDuring the fourth quarter, Energy Services performed a detailed impairment review of its intangible assets and goodwill. This calculation was performed as part of the annual impairment test and resulted in indications of impairment with the Canadian propane distribution and U.S. Refined Fuels segments within Energy Services. As a result of a detailed cash flow evaluation, Energy Services recorded an impairment charge of $100.6 million to the intangible assets and goodwill of U.S. Refined Fuels and $200.0 million to the goodwill of Canadian propane distribution. Also during the third quarter, U.S. refined fuels incurred asset impairments of $3.4 million due to flooding in Montoursville, Pennsylvania which caused damage to building, tanks and equipment and due to a fire at one of its locations in Mumford, New York which also damaged buildings, tanks and equipment. These interruptions will not impact U.S. refined fuels operations and management is working with our insurance providers in order to get the facilities repaired.OutlookSuperior's expects business conditions in 2012 for its Energy Services segment to be similar to 2011, with the exception of a reduced contribution from its fixed-price energy services business. The fixed-price energy services business profitability will moderate as it is expected that there will be fewer renewals of residential customers at favourable margins. Additionally, weather, is anticipated to be consistent with the 5-year average with the exception of the unseasonably warm weather experienced in January 2012.In addition to the significant assumptions detailed above, refer to "Risk Factors to Superior" for a detailed review of significant business risks affecting the Energy Services' businesses.Specialty ChemicalsSpecialty Chemicals' condensed operating results for 2011 and 2010 are provided in the following table.----------------------------------------------------------------------------(millions of dollars except per metric tonne Three months ended Twelve months ended (MT) amounts) December 31, December 31, 2011 2010 (2) 2011 2010 (2) ---------------------------------------------------------------------------- $ per MT $ per MT $ per MT $ per MT Chemical Revenue(1) 138.4 740 128.0 663 529.1 685 481.1 655 Chemical Cost of Sales (1)(71.4) (382)(68.9) (357)(290.4) (376)(260.9) (355)----------------------------------------------------------------------------Chemical Gross Profit 67.0 358 59.1 306 238.7 309 220.2 300 Less: Cash operating and administrative costs(1) (32.5) (174)(30.5) (158)(123.5) (160)(118.7) (162)----------------------------------------------------------------------------EBITDA from operations 34.5 184 28.6 148 115.2 149 101.5 138 Chemical volumes sold (thousands of MTs) 187 193 772 735 (1) In order to better reflect the results of its operations, Superior has reclassified certain amounts for purposes of this Financial Discussion related to derivative financial instruments, non-cash amortization and foreign currency translation losses/gains related to U.S.-denominated working capital. See "Reconciliation of Divisional Segmented Revenue and Cost of Sales to EBITDA" for detailed amounts.(2) Superior has restated its 2010 results in accordance with IFRS, see "Adoption of IFRS" for the impact of IFRS on Superior's 2010 results.Chemical revenue for the fourth quarter of $138.4 million was $10.4 million or 8% higher than the prior year quarter primarily due to increased chloralkali/potassium sales volumes and higher sodium chlorate and chloralkali/potassium pricing. Fourth quarter gross profit of $67.0 million was $7.9 million higher than the prior year quarter due to increased sodium chlorate and chloralkali/potassium gross profits.. Sodium chlorate gross profits were higher than the prior year quarter due to increased realized pricing on contract renewals and higher realized gains on U.S. dollar foreign currency forward contracts. Sodium chlorate gross profits also increased due to the recognition of a $3.2 million gain from the receipt of a $3.7 million insurance settlement in connection with the Buckingham, Quebec insurance claim (See Note 7 to the Unaudited Condensed Consolidated Financial Statements for further details), the remaining $0.5 million was allocated to operating costs. Sodium chlorate sales volumes decreased by 7,000 tonnes or 6% compared to the prior year quarter due to customer shut downs for maintenance and production curtailments in both North America and Chile offset in part by increased demand from offshore customers. Chloralkali/potassium gross profits were higher than the prior year quarter as a result of increased sales volumes and higher gross margins. Chloralkali/potassium sales volumes increased by 3,500 tonnes or 5% compared to the prior year quarter due to continued strong demand and increased production at the Port Edwards, Wisconsin production facility. Gross margins were higher than the prior year quarter due to higher realized pricing primarily for caustic and hydrochloric acid throughout North America.Cash operating and administrative costs of $32.5 million were $2.0 million or 7% higher than the prior year quarter due to higher plant maintenance and employee compensation costs.OutlookSuperior expects business conditions in 2012 for its Specialty Chemicals segment will be similar to 2011. Superior continues to see a stable market for sodium chlorate as a result of the current market for pulp. Superior also expects continued strength in chloralkali sales volumes and pricing due to strong North American supply demand fundamentals.In addition to the significant assumptions detailed above, refer to "Risk Factors to Superior" for a detailed review of the significant business risks affecting Superior's Specialty Chemicals' segment.Construction Products DistributionConstruction Products Distribution's condensed operating results for 2011 and 2010 are provided in the following table.---------------------------------------------------------------------------- Three months ended Twelve months ended December 31, December 31, (millions of dollars) 2011 2010 (3) 2011 2010 (3)----------------------------------------------------------------------------Revenue Gypsum Specialty Distribution (GSD) revenue (1) (2) 115.6 119.1 479.9 485.3 Commercial and Industrial Insulation (C&I) revenue (2) 62.5 61.7 231.9 232.3 Cost of sales GSD cost of sales(2) (85.2) (91.6) (367.7) (374.9) C&I cost of sales(2) (45.2) (45.3) (169.4) (170.4)----------------------------------------------------------------------------Gross profit 47.7 43.9 174.7 172.3 Less: Cash operating and administrative costs (40.8) (36.0) (150.5) (145.5)----------------------------------------------------------------------------EBITDA from operations 6.9 7.9 24.2 26.8 --------------------------------------------------------------------------------------------------------------------------------------------------------(1) In order to better reflect the results of its operations, Superior has reclassified certain amounts for purposes of this Financial Discussion to present its results as if it had accounted for various transactions as accounting hedges. See "Reconciliation of Divisional Segmented Revenue and Cost of Sales to EBITDA" for detailed amounts.(2) Certain reclassifications of 2010 amounts have been made to conform to current presentation. Specifically, for the three and twelve months ended December 31, 2010, $119.1 million and $485.3 million have been reclassified to GSD revenue from distribution and direct sales revenue to provide comparative presentation of Construction Products Distribution's revenue, respectively. For the three and twelve months ended December 31, 2010, $61.7 million and $232.3 million have been reclassified to C&I revenue from distribution and direct sales revenue to provide comparative presentation of Construction Products Distribution revenue, respectively. For the three and twelve months ended December 31, 2010, $91.6 million and $374.9 million have been reclassified to GSD cost of sales from distribution and direct cost of sales to provide comparative presentation of Construction Products Distribution's cost of sales, respectively. For the three and twelve months ended December 31, 2010, $45.3 million and $170.4 million have been reclassified to C&I cost of sales from distribution and direct cost of sales to provide comparative presentation of Construction Products Distribution's cost of sales, respectively.(3) Superior has restated its 2010 results in accordance with IFRS, see "Adoption of IFRS" for the impact of IFRS on Superior's 2010 results.GSD and C&I revenues of $178.1 million for the fourth quarter of 2011 were $2.7 million (1%) lower than the prior year quarter. The slight decrease in revenue was due to lower GSD revenue from some Canadian based regions offset in part by higher revenue from the expansion of the GSD product line into existing U.S. based branches and improved C&I revenues.Gross profits of $47.7 million in the fourth quarter were $3.8 million higher than the prior year quarter, due principally to the impact of higher margins in both GSD and C&I due to contribution from the U.S. GSD expansion and ongoing impact of the implementation of a strategic procurement strategy. Sales margins and average selling prices continue to be challenged as a result of ongoing competitive pressures, supplier price increases and slow economic activity.Cash operating and administration costs were $40.8 million in the fourth quarter, an increase of $4.8 million or 13% from the prior year quarter. The increase in expenses was primarily due to higher employee compensation costs, higher bad debt provisions and losses on the translation of U.S. denominated net working capital offset in part by lower restructuring costs. During the fourth quarter, restructuring charges were incurred in order to close two branches in Canada which were no longer economically viable. Construction Products Distribution will continue to assess the profitability of its branches going forward given the current operating environment.OutlookSuperior's expects business conditions in 2012 for its Construction Products Distribution business to be similar to 2011. EBITDA from operations is anticipated to be lower than in 2011 due to anticipated costs associated with further restructuring activities and ongoing tough market conditions in both the residential and commercial segments in both Canada and the U.S. Superior does not anticipate significant improvements in the end-use markets for some time.In addition to the Construction Products Distribution segment's significant assumptions detailed above, refer to "Risk Factors to Superior" for a detailed review of the significant business risks affecting Superior's Construction Products Distribution segment.Consolidated Capital Expenditure Summary---------------------------------------------------------------------------- Three months ended Twelve months ended December 31, December 31, (millions of dollars) 2011 2010 2011 2010 ----------------------------------------------------------------------------Efficiency, process improvement and growth related 5.4 10.7 16.3 23.9 Other capital 9.2 5.6 21.9 16.9 ---------------------------------------------------------------------------- 14.6 16.3 38.2 40.8 Acquisition of Griffith - (0.3) - 142.4 Acquisition of Burnaby Assets (Burnaby) - (0.1) - 17.7 Other acquisitions 1.4 5.8 15.1 6.1 Investment in finance leases - 10.3 - 10.3 Proceeds on disposition of capital (1.0) (0.3) (3.2) (2.8)----------------------------------------------------------------------------Total net capital expenditures 15.0 31.7 50.1 214.5 Investment in finance leases 7.6 3.8 15.7 13.9 ----------------------------------------------------------------------------Total expenditures 22.6 35.5 65.8 228.4 --------------------------------------------------------------------------------------------------------------------------------------------------------Efficiency, process improvement and growth related expenditures were $5.4 million in the fourth quarter compared to $10.7 million in the prior year quarter. These were incurred primarily in relation to Energy Services' purchases of rental assets and truck related expenditures and were lower than the prior year due to the completion of the Canadian Propane distribution system conversion in 2010. Other capital expenditures were $9.2 million in the fourth quarter compared to $5.6 million in the prior year quarter, consisting primarily of required maintenance and general capital across all of Superior's segments and increased due a significant project activity at Specialty Chemicals. During the fourth quarter U.S. refined fuels completed the acquisition of four small heating oil and propane distributors for $1.4 million. Proceeds on the disposal of capital were $1.0 million in the fourth quarter and consisted of Superior's disposition of surplus tanks, cylinders and other assets. During the fourth quarter Superior entered into new leases with capital equivalent value of $7.6 million primarily related to delivery vehicles for the Energy Services and Construction Products Distribution segments.Corporate and Interest CostsCorporate costs for the fourth quarter were $3.3 million, compared to $2.3 million in the prior year quarter. The increase in corporate costs was primarily due to $2.8 million in gains from the one-time unwind of some of Superior's foreign currency forward contracts in the prior year quarter. Corporate costs excluding the currency forward contract unwind were $1.8 million lower than the prior year quarter due to a $1.6 million decrease in employee long term incentive compensation costs and lower short term employee incentive costs offset in part by chief executive officer transition costs.Interest expense on borrowings for the fourth quarter was $10.6 million, a decrease of $0.6 million from the prior year quarter of $11.2 million due to lower average debt levels during the fourth quarter. See "Liquidity and Capital Resources" discussion for further details on the change in average debt levels.Interest on Superior's convertible unsecured subordinated debentures ("Debentures" which includes all series of convertible unsecured subordinated debentures) was $8.9 million for the fourth quarter of 2011, $3.0 million higher than the prior year quarter of $5.9 million. The increase in debenture interest is primarily due to the issuance of $75.0 million of 7.50% convertible debentures on October 4, 2011, and the full year impact of the $150.0 million, 6.00% convertible debentures on December 23, 2010 for general corporate purposes offset in part by the redemption of $125 million in 5.75% debentures due in December 2012 on November 7, 2011 and December 12, 2011.TaxationTotal income tax recovery for the fourth quarter was $43.7 million, and consists of $1.4 million in cash income tax recovery and $45.1 million in deferred income tax recovery, compared to a total income tax expense of $21.1 million in the prior year quarter, which consisted of $0.1 million in cash income tax recovery and a $21.2 million deferred income tax expense.Cash income tax expense for the fourth quarter was $1.4 million and consisted of income tax expense in the U.S. of $1.4 million (2010 Q4 - $0.1 million of U.S. cash tax recovery). Deferred income tax recovery for the fourth quarter was $45.1 million (2010 Q4 - $21.2 million deferred income tax expense), resulting in a corresponding net deferred income tax asset of $309.6 million as at December 31, 2011. Deferred income taxes for the fourth quarter were impacted by the impairment charges recorded to intangible assets and goodwill.2012 Financial OutlookSuperior outlook for cash flow from operations for 2012 has been reduced to between $1.45 and $1.80 per share, a slight decrease from Superior's previous financial outlook as provided in the 2011 third quarter Management's Discussion and Analysis of $1.55 to $1.90. The decrease in Superior's outlook is due to lower 2011 actual results and a weaker than anticipated start to the 2012 heating season due to unseasonably warm temperatures throughout Canada and the Northeast U.S. Superior's consolidated adjusted operating cash flow outlook is dependent on the operating results of its three operating segments.In addition to the operating results of Superior's three operating segments, significant assumptions underlying Superior's current 2012 outlook are:-- Economic growth in Canada and the U.S. is expected to be similar or modestly lower than 2011; -- Superior is expected to continue to attract capital and obtain financing on acceptable terms; -- The foreign currency exchange rate between the Canadian and U.S. dollar is expected to average par in 2012 on all unhedged foreign currency transactions; -- Financial and physical counterparties are expected to continue fulfilling their obligations to Superior; -- Regulatory authorities are not expected to impose any new regulations impacting Superior; -- Superior's average interest rate on floating-rate debt is expected to remain consistent with 2011 levels; and -- Canadian and U.S. based cash taxes are expected to be minimal in 2012 and have been based on existing statutory income tax rates. Energy Services-- Average temperatures across Canada and the Northeast U.S. are expected to be consistent with the recent five-year average except for January 2012; -- Total propane and U.S. refined fuels-related sales volumes in 2012 compared to 2011 are anticipated to increase due to economic improvement and sales and marketing initiatives; -- Wholesale propane, and U.S. refined fuels-related prices are not anticipated to significantly impact demand for propane, refined fuels and related services; -- Supply portfolio management market opportunities are expected to improve as compared to 2011 although growth is expected to be moderate; and -- Fixed price energy services is expected to be able to access sales channel agents on acceptable contract terms and expects gross profit to decrease as compared to 2011. The decrease in gross profit is primarily related to lower natural gas gross margins as transportation related gross profits and contribution from customer renewals begins to decrease. Total customer aggregation estimates are expected to be consistent with 2011. Specialty Chemicals-- Supply and demand fundamentals for sodium chlorate are expected to remain strong in 2012, resulting in increased sales volumes as compared to 2011. Pricing is expected to remain consistent or slightly improved as compared to 2011 levels; -- Chloralkali revenues and gross profits are expected to increase in 2012 due to higher sales volumes for caustic and hydrochloric acid product lines combined with improved pricing; and -- Average plant utilization will approximate 95% in 2012. Construction Products Distribution-- GSD sales revenue from Canada is expected to increase slightly from 2011 levels due to the full year contribution from greenfield operations in the Maritimes. GSD sales revenue from the United States is expected to increase from 2011 due to continued expansion of existing product lines into U.S. branches. C&I sales revenue is expected to increase from 2011 due to a focus on increasing the fabrication and export business; -- Sales margins for both GSD and C&I as compared to 2011 are expected to decrease slightly due to competitive pressures; and -- Construction Products Distribution has performed a detailed review of its existing operations and has announced the closure of two branches in early 2012 as part of its restructuring efforts. Debt Management UpdateSuperior remains committed to reducing its total debt and its total debt leverage ratios. An update to the anticipated total debt and total debt leverage ratios as at December 31, 2011 based on the updated 2012 Outlook, is detailed in the chart below. The mid-point of Superior's 2012 Outlook has been reduced since the third quarter Management Discussion & Analysis, as detailed above, and the impact has been adjusted in the table below.Debt Management Summary (1)---------------------------------------------------------------------------- (Millions of (Per Share) dollars) ----------------------------------------------------------------------------2012 financial outlook AOCF per share - mid- point (2) $1.62 181.4 Maintenance capital expenditures (0.21) 23.5 Capital lease obligation repayments (0.16) 17.9 ----------------------------------------------------------------------------Cash flow available for dividends and debt repayment before growth capital $1.25 140.0 One-time environmental expenditures at Port Edward's (0.10) 11.2 Other growth capital expenditures (0.09) 10.1 Proceeds from dividend reinvestment program 0.12 13.4 ----------------------------------------------------------------------------Estimated 2012 free cash flow available for dividend and debt repayment $1.18 132.1 Dividends (annualized) $(0.60) (67.2)----------------------------------------------------------------------------Cash flow available for debt repayment $0.58 64.9 Estimated total debt to EBTIDA as at December 31, 2012 4.6X - 4.8X 4.6X - 4.8X --------------------------------------------------------------------------------------------------------------------------------------------------------Dividend per share (annualized) $0.60 67.2 Calculated payout ratio after all capital expenditures 52% 52%--------------------------------------------------------------------------------------------------------------------------------------------------------(1) All amounts per share unless otherwise indicated.(2) See "2012 Financial Outlook" for additional details including assumptions, definitions and risk factors.In addition to Superior's significant assumptions detailed above, refer to the section "Risk Factors to Superior" for a detailed review of Superior's significant business risks.Liquidity and Capital ResourcesSuperior's revolving syndicated bank facility (Credit Facility), term loans and finance lease obligations (collectively "Borrowings") before deferred financing fees totaled $762.1 million as at December 31, 2011, an increase of $22.1 million from December 31, 2010. Overall Borrowings increased as compared to the prior year due to funding requirements in order to finance the $125.0 million in Debenture redemption completed in 2011, finance lease repayments, dividends payments and net capital expenditures offset in part by higher cash flows and the issuance of $75.0 million in Debentures.On June 20, 2011, Superior completed an extension of its Credit Facility with ten lenders and increased the size of the facility from $450 million to $615 million. The Credit Facility matures on June 27, 2014 and can be expanded up to $750 million. Financial covenant ratios were unchanged with Consolidated Secured Debt to Consolidated EBITDA ratio and Consolidated Debt to Consolidated EBITDA ratio of 3.0x and 5.0x, respectively. Additionally, in conjunction with the extension of the Credit Facility, Superior has terminated its accounts receivable securitization program which provided up to $130 million of additional credit on a seasonally adjusted basis. See "Summary of Cash Flows" for details on Superior's sources and uses of cash.As at December 31, 2011, Debentures (before deferred issue costs) issued by Superior totaled $591.4 million, $50.0 million lower than the balance of $641.4 million outstanding as at December 31, 2010. The decrease in Debentures was due to the redemption of $75.0 million on November 7, 2011 and $50 million on December 12, 2011 of Superior's previously issued 5.75% debentures due December 31, 2012 offset in part by the issuance of $75.0 million, 7.50% convertible debentures on October 4, 2011. See Note 15 to the Unaudited Condensed Consolidated Financial Statements for additional details on Superior's Debentures.As at December 31, 2011, approximately $169.7 million was available under the Credit Facility which Superior considers sufficient to meet its net working capital funding requirements, expected capital expenditures and refinancing requirements.Consolidated net working capital was $377.3 million as at December 31, 2011, a decrease of $23.6 million from net working capital of $400.9 million as at December 31, 2010. The decrease in net working capital was primarily due to significant collections of past due accounts receivable related to the System Upgrade (refer to "System Upgrade" for additional details) at Canadian propane distribution offset in part by higher commodity prices. Lower net working capital levels at Specialty Chemicals were due to a prepayment of approximately $10.8 million from a large customer. The above decreases were offset in part by increased working capital levels at Supply portfolio management due to high inventory levels associated with warmer than anticipated weather and lower net working capital levels at corporate due to reduced dividends and interest payable. Superior's net working capital requirements are financed from revolving term bank credit facilities.In May 2010, Superior reestablished its DRIP, commencing with the payment of the May 2010 dividend. The DRIP provides Shareholders with the opportunity to reinvest their cash dividends at a 5% discount to the market price of Superior's shares. Proceeds received from the DRIP were $5.5 million (Three months ended December 31, 2010 - $8.8 million) and $28.9 million (Twelve months ended December 31, 2010 - $17.2 million) for the three and twelve months ended December 31, 2011, respectively.As at December 31, 2011, when calculated in accordance with the Credit Facility, the Consolidated Secured Debt to Compliance EBITDA ratio was 2.3 to 1.0 (December 31, 2010 - 2.6 to 1.0) and the Consolidated Debt to Compliance EBITDA ratio was 2.9 to 1.0 (December 31, 2010 - 3.2 to 1.0). For both of these covenants all outstanding Debentures are not considered. These ratios are within the requirements contained in Superior's debt covenants. In accordance with the Credit Facility, Superior must maintain a Consolidated Secured Debt to Compliance EBITDA ratio of not more than 3.0 to 1.0 and not more than 3.5 to 1.0 as a result of acquisitions. In addition, Superior must maintain a Consolidated Debt to Compliance EBITDA ratio of not more than 5.0 to 1.0, excluding Debentures. Distributions (including payments to Debenture holders) cannot exceed Compliance EBITDA less cash income taxes, plus $35.0 million on a trailing twelve month rolling basis.As at December 31, 2011 proceeds of $nil million (December 31, 2010 - $90.1 million) had been raised under the accounts receivable securitization program. During the month of June of 2011, Superior terminated the accounts receivable securitization program. (See Note 13 to the Unaudited Condensed Consolidated Financial Statements).On March 8, 2011, Standard and Poor's lowered both Superior and Superior LP's long-term corporate credit rating to BB- from BB and reduced the secured debt rating to BB+ from BBB-. The outlook rating for both Superior and Superior LP remains stable and the credit rating on Superior's unsecured debt is unchanged at BB-. On September 12, 2011, DBRS lowered Superior LP's senior secured rating to BB (high) from BBB(low) and lowered Superior LP's senior unsecured rating to BB (low) from BB (high). The trend for both ratings has been changed to stable from negative.As at December 31, 2011, Superior had an estimated defined benefit pension solvency deficiency of approximately $36.3 million (December 31, 2010 - $23.7 million) and a going concern solvency deficiency of approximately $16.6 million (December 31, 2010 - $17.7 million). Funding requirements required by applicable pension legislation are based upon going concern and solvency actuarial assumptions. These assumptions differ from the going concern actuarial assumptions used in Superior's financial statements. Superior has sufficient liquidity through existing revolving term bank credits and anticipated future operating cash flow to fund this deficiency over the prescribed funding period.In the normal course of business, Superior is subject to lawsuits and claims. Superior believes the resolution of these matters will not have a material adverse effect, individually or in the aggregate, on Superior's liquidity, consolidated financial position or results of operations. Superior records costs as they are incurred or when they become determinable.Shareholders' CapitalThe weighted average number of shares outstanding during the fourth quarter was 110.4 million shares, an increase of 3.0 million shares compared to the prior year quarter due to the issuance of 3,109,694 common shares over the past twelve months and the resulting impact on weighted average number of shares outstanding. The following table provides a detailed breakdown of the common shares issued over the last twelve months:---------------------------------------------------------------------------- Issued Number Average of Common Issuance Price Shares Closing Date per Share (Millions)----------------------------------------------------------------------------As at December 31, 2010 107.7 Issuance of common shares January 15, under Superior's DRIP 2011 through December 15, 2011 $9.40 3.1 ----------------------------------------------------------------------------As at December 31, 2011 110.8 --------------------------------------------------------------------------------------------------------------------------------------------------------As at February 16, 2012, December 31, 2011 and December 31, 2010, the following common shares and securities convertible into common shares were outstanding: February 16, 2012 December 31, 2011 December 31, 2010(millions) Convertible Convertible Convertible Securities Shares Securities Shares Securities Shares----------------------------------------------------------------------------Common shares outstanding (1) 111.0 110.8 107.75.75% Debentures (2) $49.9 1.4 $49.9 1.4 $174.9 4.95.85% Debentures (3) $75.0 2.4 $75.0 2.4 $75.0 2.47.50% Debentures (4) $69.0 5.3 $69.0 5.3 $69.0 5.35.75% Debentures (5) $172.5 9.1 $172.5 9.1 $172.5 9.16.00% Debentures (6) $150.0 9.9 $150.0 9.9 $150.0 9.97.50% Debentures (7) $75.0 6.6 $75.0 6.6 ----------------------------------------------------------------------------Shares outstanding and issuableupon conversion of Debentures 145.7 145.5 139.3--------------------------------------------------------------------------------------------------------------------------------------------------------(1) Common shares outstanding as at February 16, 2012, includes 207,402 common shares issued under Superior's DRIP program during the month of January.(2) Convertible at $36.00 per share.(3) Convertible at $31.25 per share.(4) Convertible at $13.10 per share.(5) Convertible at $19.00 per share.(6) Convertible at $15.10 per share.(7) Convertible at $11.35 per share.Dividends Paid to ShareholdersDividends paid to Superior's shareholders are dependent on its cash flow from operating activities with consideration for changes in working capital requirements, investing activities and financing activities of Superior. See "Summary of Adjusted Operating Cash Flow" and "Summary of Cash Flows" for additional details on the sources and uses of Superior's cash flow.Dividends paid to shareholders in the fourth quarter were $27.6 million (before DRIP proceeds of $5.5 million) or $0.25 per share, a decrease of $10.0 million as compared to the fourth quarter of 2010 due to the revision of Superior's dividend rate to $0.05 per share per month effective with the November 2011 dividend and the revision to $0.10 per share per month effective with the March 2011 dividend payment. On November 2, 2011, Superior announced that the monthly dividend has been reduced to $0.05 per share or $0.60 per share on an annualized basis which decreased from the prior level of $0.10 per share per month or $1.20 per share on an annualized basis effective with Superior's March 2011 dividend. Superior has made the determination that it is prudent to accelerate its debt reduction plan by reducing its monthly dividend. See Superior's "Debt Management and Dividend Payout Ratio" section for further details. Dividends to shareholders are declared at the discretion of the board of directors of Superior.Superior's primary sources and uses of cash are detailed below:Summary of Cash Flows (1)---------------------------------------------------------------------------- Three months ended Twelve months ended December 31, December 31, (millions of dollars) 2011 2010 2011 2010 ----------------------------------------------------------------------------Cash flows from (used in) operating activities (20.0) (74.7) 212.0 9.9 Investing activities: Purchase of property, plant and equipment (2) (14.6) (16.3) (38.2) (40.8) Proceeds on disposal of property, plant and equipment 1.0 0.3 3.2 2.8 Investment in finance lease - (10.3) - (10.3) Acquisition of Griffith - 0.2 - (142.4) Other acquisitions (1.1) (5.7) (14.8) (23.8)----------------------------------------------------------------------------Cash flows used in investing activities (14.7) (31.8) (49.8) (214.5)----------------------------------------------------------------------------Financing activities: Net proceeds (repayment) of borrowings 125.4 (6.4) 132.3 (47.0) Repayment of senior secured notes (32.5) (2.0) (32.5) (2.0) Repayment of finance lease obligation (3.4) (3.4) (14.2) (12.8) Net proceeds (repayment) of accounts receivable securitization program - 7.5 (90.1) (2.6) Redemption of convertible debentures (125.0) - (125.0) - Proceeds from the issuance of 5.75% convertible debentures - - - 172.5 Costs incurred for the issuance of 5.75% convertible debentures - - - (6.9) Proceeds from the issuance of 6.00% convertible Debentures 150.0 - 150.0 Costs incurred for the issuance of 6.00% convertible debentures - (5.6) - (5.6) Proceeds from the issuance of 7.50 % convertible Debentures 75.0 - 75.0 - Costs incurred for the issuance of 7.50% convertible debentures (3.4) (3.4) - Issuance of common shares - - - 82.2 Proceeds from the dividend reinvestment plan 5.5 8.8 28.9 17.2 Dividends paid to shareholders (27.6) (37.6) (136.7) (157.2)----------------------------------------------------------------------------Cash flows from (used in) financing activities 14.0 111.3 (165.7) 188.2 --------------------------------------------------------------------------------------------------------------------------------------------------------Net increase (decrease) in cash and cash equivalents (20.7) 4.8 (3.5) (16.4)Cash and cash equivalents, beginning of period 26.0 3.2 7.8 24.3 Effect of translation of foreign denominated cash and cash equivalents (0.1) (0.2) 0.9 (0.1)----------------------------------------------------------------------------Cash and cash equivalents, end of period 5.2 7.8 5.2 7.8 ----------------------------------------------------------------------------(1) See the Consolidated Statements of Cash Flows for additional details.(2) See "Consolidated Capital Expenditure Summary" for additional details.Financial Instruments - Risk ManagementDerivative and non-financial derivatives are used by Superior to manage its exposure to fluctuations in foreign currency exchange rates, interest rates and commodity prices. Superior assesses the inherent risks of these instruments by grouping derivative and non-financial derivatives related to the exposures these instruments mitigate. Superior's policy is not to use derivative or non-financial derivative instruments for speculative purposes. Superior does not formally designate its derivatives as hedges and, as a result, Superior does not apply hedge accounting and is required to designate its derivatives and non-financial derivatives as held for trading.Energy Services enters into natural gas financial swaps primarily with Macquarie Cook Energy Canada Ltd. for distributor billed natural gas business in Canada to manage its economic exposure of providing fixed-price natural gas to its customers. Additionally, Energy Services maintains its natural gas swap positions with six additional counterparties. Energy Services monitors its fixed-price natural gas positions on a daily basis to evaluate compliance with established risk management policies. Superior maintains a substantially balanced fixed-price natural gas position in relation to its customer supply commitments.Energy Services entered into electricity financial swaps with four counterparties to manage the economic exposure of providing fixed-price electricity to its customers. Energy Services monitors its fixed-price electricity positions on a daily basis to evaluate compliance with established risk management policies. Energy Services maintains a substantially balanced fixed-price electricity position in relation to its customer supply commitments.Energy Services entered into various propane forward purchase and sale agreements with more than 20 counterparties to manage the economic exposure of its wholesale customer supply contracts. Energy Services monitors its fixed-price propane positions on a daily basis to monitor compliance with established risk management policies. Energy Services maintains a substantially balanced fixed-price propane gas position in relation to its wholesale customer supply commitments.Superior, on behalf of its operating divisions, entered into foreign currency forward contracts with twelve counterparties to manage the economic exposure of Superior's operations to movements in foreign currency exchange rates. Energy Services contracts a portion of its fixed-price natural gas, propane and heating oil purchases and sales in US dollars and enters into forward US dollar purchase contracts to create an effective Canadian dollar fixed-price purchase cost. Specialty Chemicals enters into US dollar forward sales contracts on an ongoing basis to mitigate the impact of foreign exchange fluctuations on sales margins on production from its Canadian plants that is sold in US dollars. Interest expense on Superior's US dollar debt is also used to mitigate the impact of foreign exchange fluctuations.As at December 31, 2011, Energy Services had hedged approximately 100% of its US dollar natural gas and propane purchase (sales) obligations for 2012. Overall Superior has hedged approximately 95% of its estimated US dollar exposure for 2012 and approximately 89% for 2013. The estimated sensitivity on adjusted operating cash flow for Superior, including divisional US exposures and the impact on US-denominated debt with respect to a $0.01 change in the Canadian to United States exchange rate for 2011 is $0.1 million, respectively after giving effect to United States forward contracts for 2012, as shown in the table below. Superior's sensitivities and guidance are based on an anticipated average Canadian to US dollar foreign currency exchange rate for 2012 at par with the US dollar.----------------------------------------------------------------------------(US$ millions except 2017 and exchange rates) 2012 2013 2014 2015 2016 Thereafter Total----------------------------------------------------------------------------Energy Services - US$ forward sales 48.4 44.0 26.0 26.0 - - 144.4Construction Products Distribution - US$ forward sales 24.0 24.0 12.0 - - - 72.0Specialty Chemicals - US$ forward sales 134.5 132.0 118.0 106.0 - - 490.5----------------------------------------------------------------------------Net US $ forward sales 206.9 200.0 156.0 144.0 - - 706.9--------------------------------------------------------------------------------------------------------------------------------------------------------Energy Services - Average US$ forward sales rate 1.05 1.06 1.01 1.01 - - 1.04Construction Products Distribution - Average US$ forward sales rate 1.06 1.07 1.00 1.00 - - 1.04Specialty Chemicals - US$ forward sales rate 1.04 1.04 1.03 1.00 - - 1.03----------------------------------------------------------------------------Net average external US$/Cdn$ exchange rate 1.05 1.05 1.03 1.00 - - 1.03--------------------------------------------------------------------------------------------------------------------------------------------------------Superior has interest rate swaps with four counterparties to manage the interest rate mix of its total debt portfolio and related overall cost of borrowing. Superior manages its overall liquidity risk in relation to its general funding requirements by utilizing a mix of short-term and longer-term maturity debt instruments. Superior reviews its mix of short-term and longer-term debt instruments on an on-going basis to ensure it is able to meet its liquidity requirements.Superior utilizes a variety of counterparties in relation to its derivative and non-financial derivative instruments in order to mitigate its counterparty risk. Superior assesses the credit worthiness of its significant counterparties at the inception and throughout the term of a contract. Superior is also exposed to customer credit risk. Energy Services and Construction Products Distribution deal with a large number of small customers, thereby reducing this risk. Specialty Chemicals, due to the nature of its operations, sells its products to a relatively small number of customers. Specialty Chemicals mitigates its customer credit risk by actively monitoring the overall credit worthiness of its customers. Energy Services fixed-price energy services business has minimal exposure to customer credit risk as local natural gas and electricity distribution utilities have been mandated, for a nominal fee, to provide invoicing, collection and the assumption of bad debts risk for residential and small commercial customers. Fixed-price energy services actively monitor the credit worthiness of its direct bill industrial customers. All of Superior's business segments have credit risk policies in place in order to minimize credit exposures.For additional details on Superior's financial instruments, including the amount and classification of gains and losses recorded in Superior's third quarter Consolidated Financial Statements, summary of fair values, notional balances, effective rates and terms, and significant assumptions used in the calculation of the fair value of Superior's financial instruments, see Note 17 to the Unaudited Condensed Consolidated Financial Statements.Disclosure Controls and Procedures and Internal Controls Over Financial ReportingNo changes have been made in Superior's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, Superior's internal control over financial reporting in the quarter ended December 31, 2011.Critical Accounting Policies and EstimatesSuperior's Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with IFRS. The significant accounting policies are described in the unaudited Condensed Consolidated Financial Statements for the period ended December 31, 2011. Certain of these accounting policies, as well as estimates made by management in applying such policies, are recognized as critical because they require management to make subjective or complex judgments about matters that are inherently uncertain. Our critical accounting estimates relate to the allowance for doubtful accounts, employee future benefits, future income tax assets and liabilities, the valuation of derivatives and non-financial derivatives and asset impairments and the assessment of potential asset retirement obligations.Adoption of IFRSThe Accounting Standards Board of Canada (AcSB) announced plans in 2008 which require the convergence of GAAP with IFRS for publicly accountable enterprises, including Superior. The changeover date from GAAP to IFRS is for annual and quarterly financial statements relating to fiscal years beginning on or after January 1, 2011. Superior adopted IFRS effective January 1, 2011 and has prepared its financial statement in accordance with IFRS.The initial adoption of IFRS has required Superior to review each of its accounting policies and determine whether or not a change is required or permitted under IFRS and whether any amended policy is required to be applied on a retrospective or prospective basis. This review was performed in accordance with IFRS 1 First-time Adoption of International Financial Reporting Standards which provides guidance for initial adoption, policy choice option and exemptions available.IFRS accounting standards are similar to the conceptual framework of GAAP, although significant differences exist in certain matters of recognition, measurement and disclosure. The adoption of IFRS has had a material impact on Superior's consolidated balance sheets and statement of comprehensive income.Transition to IFRSSuperior has restated previously reported unaudited financial figures for 2010 under GAAP to reflect the impact of adopting IFRS. Superior's financial information has been compiled from the underlying IFRS basis of financial information included in the accompanying financial statements as at December 31, 2011 and for the three and twelve months periods ended December 31, 2011 and 2010. See Note 29 to Superior's Unaudited Condensed Consolidated Financial Statements for the details on Superior's transition to IFRS.The actual adjustments recorded in Superior's opening balance sheet as at January 1, 2010 for the year ending December 31, 2011, may differ from those presented in the Unaudited Condensed Consolidated Financial Statements as a September 30, 2011 pending changes to IFRS accounting standards.Reconciliation from GAAP to IFRSThe following table reconciles Superior's audited financial information for the three and twelve months ended December 31, 2010 under GAAP to that under IFRS. Superior has also provided additional analysis describing the reconciling items affecting AOCF for the period.Reconciliation of Net Earnings (Loss) for the Three and Twelve Months Ended December 31, 2010----------------------------------------------------------------------------Three months ended December 31, 2010 (millions of dollars) GAAP Adjustments Reclassifications ----------------------------------------------------------------------------Revenues 1,009.2 0.1 1.9 Cost of products sold (761.9) 0.6 (25.2)Realized gains (losses) on derivative financial instruments (21.8) - 21.8 ----------------------------------------------------------------------------Gross profit 225.5 0.7 (1.5)----------------------------------------------------------------------------Operating and administrative costs 162.3 (6.5) 21.8 - 2.1 1.2 Deprecation of property, plant and equipment 9.2 3.6 (12.8)Amortization of intangible assets 8.7 1.4 (10.1)Interest on revolving term bank credits and term loan 9.8 0.9 7.5 Interest on convertible unsecured subordinated debt 7.4 - (7.4)Accretion of convertible debenture and borrowings issue costs 1.8 (0.4) (1.4)Impairment of intangible assets and goodwill 89.5 - - Unrealized losses (gains) on derivative financial instruments (29.0) - - ---------------------------------------------------------------------------- 259.7 1.1 (1.2)----------------------------------------------------------------------------Net earnings (loss) before income taxes (34.2) (0.4) (0.3)Income tax recovery (expense) 0.6 (24.8) 3.1 ----------------------------------------------------------------------------Net Earnings (Loss) (33.6) (25.2) 2.8 -------------------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------- Three months ended December 31, 2010 (millions of dollars) IFRS IFRS Accounts -------------------------------------------------------------------------- Revenues 1,011.2 Revenues Cost of products sold (786.5) Cost of sales Realized gains (losses) on derivative financial instruments - -------------------------------------------------------------------------- Gross profit 224.7 -------------------------------------------------------------------------- Operating and Selling, administrative costs distribution and administrative 177.6 costs 3.3 Other expenses Deprecation of property, plant and equipment - Amortization of intangible assets - Interest on revolving term bank credits and term loan 18.2 Finance expense Interest on convertible unsecured subordinated debt - Accretion of convertible debenture and borrowings issue costs - Impairment of intangible assets and goodwill 89.5 Unrealized losses Unrealized losses (gains) on derivative (gains) on financial instruments derivative financial (29.0) instruments -------------------------------------------------------------------------- 259.6 -------------------------------------------------------------------------- Net earnings (loss) Net earnings (loss) before income taxes (34.9) before income taxes Income tax recovery Income tax recovery (expense) (21.1) (expense) -------------------------------------------------------------------------- Net Earnings (Loss) (56.0) Net Earnings (Loss) -------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------------------------------------Twelve months ended December 31, 2010(millions of dollars) GAAP Adjustments Reclassifications ----------------------------------------------------------------------------Revenues 3,529.2 - 8.2 Cost of products sold (2,661.3) (1.3) (94.2)Realized gains (losses) on derivative financial instruments (80.3) - 80.3 ----------------------------------------------------------------------------Gross profit 787.6 (1.3) (5.7)----------------------------------------------------------------------------Operating and administrative costs 624.4 (23.4) 75.4 - 5.4 1.2 Deprecation of property, plant and equipment 37.7 13.7 (51.4)Amortization of intangible assets 25.0 3.0 (28.0)Interest on revolving term bank credits and term loan 39.6 4.4 31.2 Interest on convertible unsecured subordinated debt 27.6 - (27.6)Accretion of convertible debenture and borrowings issue costs 6.7 (0.4) (6.3)Impairment of intangible assets and goodwill 89.5 - - Unrealized losses (gains) on derivative financial instruments 2.2 - - ---------------------------------------------------------------------------- 852.7 2.7 (5.5)----------------------------------------------------------------------------Net earnings (loss) before income taxes (65.1) (4.0) (0.2)Income tax recovery (expense) 18.1 (24.8) 0.2 ----------------------------------------------------------------------------Net Earnings (Loss) (47.0) (28.8) - -------------------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------- Twelve months ended December 31, 2010(millions of dollars) IFRS IFRS Accounts -------------------------------------------------------------------------- Revenues 3,537.4 Revenues Cost of products sold (2,756.8) Cost of sales Realized gains (losses) on derivative financial instruments - -------------------------------------------------------------------------- Gross profit 780.6 -------------------------------------------------------------------------- Operating and Selling, administrative costs distribution and administrative 676.4 costs 6.6 Other expenses Deprecation of property, plant and equipment - Amortization of intangible assets - Interest on revolving term bank credits and term loan 75.2 Finance expense Interest on convertible unsecured subordinated debt - Accretion of convertible debenture and borrowings issue costs - Impairment of Impairment of intangible assets and intangible assets goodwill and 89.5 goodwill Unrealized losses Unrealized losses (gains) on derivative (gains) on financial instruments derivative financial 2.2 instruments -------------------------------------------------------------------------- 849.9 -------------------------------------------------------------------------- Net earnings (loss) Net earnings (loss) before income taxes (69.3) before income taxes Income tax recovery Income tax recovery (expense) (6.5) (expense) -------------------------------------------------------------------------- Net Earnings (Loss) (75.8) Net Earnings (Loss) -------------------------------------------------------------------------- --------------------------------------------------------------------------In the above table, any amounts under IFRS adjustments represents changes made to GAAP information due to the adoption of IFRS. See Note 29 to Superior's Unaudited Condensed Consolidated Financial Statements as at and for the three and twelve months ended December 31, 2011 for details of these changes.Reconciliation from AOCF under GAAP to AOCF under IFRS---------------------------------------------------------------------------- Three months ended Year ended December 31, December 31, (millions of dollars) 2010 2010 ----------------------------------------------------------------------------AOCF as reported under GAAP 57.2 (1) 143.4 (1)IFRS Adjustments: Finance leases 3.4 12.8 Employee future benefits (0.4) 1.1 Capitalization of major inspections and overhauls 1.5 4.0 Add back of non-recurring other expenses 1.2 1.2 Non-IFRS Adjustments:Revenue recognition adjustment (0.4) 0.4 ----------------------------------------------------------------------------AOCF as revised under IFRS 62.5 162.9 --------------------------------------------------------------------------------------------------------------------------------------------------------(1) In order to better reflect the results of its operations, Superior has revised the treatment of customer contract related costs and non-cash interest expenses in the prior year AOCF.Adjustments:Finance leases: Under IFRS, Superior is required to capitalize leases which qualify as finance leases based on the criteria set out in IAS 17 Leases. AOCF has increased by an amount equal to the principal repayment of leases treated as finance under IFRS. Also Superior has increased borrowings by $69.7 million as at December 31, 2010 due to the recognition of finance leases under IFRS.Employee Future Benefits: Under IFRS, Superior was required to revalue its employee benefit obligation as at January 1, 2010, which reduced the period expense for employee future benefits during 2010.Capitalization of major inspections and overhauls: Under IFRS, Superior has capitalized various expenditures for major inspections and overhauls which did not qualify for capitalization under GAAP. As such AOCF has increased due to the capitalization of those types of costs.Revenue Recognition Adjustment: Superior has adjusted the amount of previously recorded revenue and cost of goods sold for the three and twelve months ended December 31, 2010.Quarterly Financial and Operating Information----------------------------------------------------------------------------(millions of dollars except per share amounts) 2011 Quarters -------------------------------------------------------- Fourth Third Second First ----------------------------------------------------------------------------Canadian propane sales volumes (millions of litres) 368 239 260 439 U.S. refined fuels sales volumes (millions of litres) 440 344 405 552 Natural gas sales volumes (millions of GJs) 5 5 6 6 Electricity sales volumes (millions of KwH) 167 176 146 117 Chemical sales volumes (thousands of metric tonnes) 187 197 192 196 Revenues (millions of dollars) 1,043.4 845.0 898.4 1,138.8 Gross profit 234.6 178.5 176.0 238.4 Net earnings (loss) (231.4) (113.4) 1.1 41.1 Per share, basic and diluted ($2.10) $(1.04) $0.01 $0.38 Adjusted operating cash flow (millions of dollars) 63.8 23.5 19.8 73.3 Per share, basic and diluted $0.58 $0.21 $0.18 $0.68 Net working capital (1)(millions of dollars) 377.3 295.0 365.3 416.1 ------------------------------------------------------------------------------------------------------------------------------------------------------(millions of dollars except per share amounts) 2010 Quarters (2) ------------------------------------------------------- Fourth Third Second First --------------------------------------------------------------------------Canadian propane sales volumes (millions of litres) 372 234 249 380 U.S. refined fuels sales volumes (millions of litres) 499 363 371 469 Natural gas sales volumes (millions of GJs) 6 7 7 7 Electricity sales volumes (millions of KwH) 133 86 73 74 Chemical sales volumes (thousands of metric tonnes) 193 189 183 170 Revenues (millions of dollars) 1,011.2 769.1 791.2 965.9 Gross profit 224.7 172.4 165.9 217.6 Net earnings (loss) (56.0) (13.8) (5.5) (0.5)Per share, basic and diluted ($0.53) ($0.13) ($0.05) $(0.00)Adjusted operating cash flow (millions of dollars) 62.5 26.5 12.9 61.0 Per share, basic and diluted $0.58 $0.25 $0.12 $0.59 Net working capital (1)(millions of dollars) 400.9 280.9 268.3 228.8 --------------------------------------------------------------------------(1) Net working capital reflects amounts as at the quarter-end and is comprised of accounts receivable and inventories, less trade and other payables and deferred revenue.(2) All 2010 figures have been restated for the adoption of IFRS.Non-IFRS Financial MeasuresAdjusted Operating Cash FlowAdjusted operating cash flow is equal to cash flow from operating activities as defined by IFRS, adjusted for changes in non-cash working capital, other expenses, non-cash interest expense, current income taxes and finance costs. Superior may deduct or include additional items to its calculation of adjusted operating cash flow; these items would generally, but not necessarily, be items of a non-recurring nature. Adjusted operating cash flow is the main performance measure used by management and investors to evaluate the performance of Superior. Readers are cautioned that adjusted operating cash flow is not a defined performance measure under IFRS and that adjusted operating cash flow cannot be assured. Superior's calculation of adjusted operating cash flow may differ from similar calculations used by comparable entities. Adjusted operating cash flow represents cash flow generated by Superior that is available for, but not necessarily limited to, changes in working capital requirements, investing activities and financing activities of Superior.The seasonality of Superior's individual quarterly results must be assessed in the context of annualized adjusted operating cash flow. Adjustments recorded by Superior as part of its calculation of adjusted operating cash flow include, but are not limited to, the impact of the seasonality of Superior's businesses, principally the Energy Services segment, by adjusting for non-cash working capital items, thereby eliminating the impact of the timing between the recognition and collection/payment of Superior's revenues and expense, which can differ significantly from quarter to quarter. Adjustments are also made to reclassify the cash flows related to natural gas and electricity customer contract related costs in a manner consistent with the income statement recognition of these costs. Adjusted operating cash flow is reconciled to cash flow from operating activities on page 11.EBITDAEBITDA represents earnings before taxes, depreciation, amortization, finance expense and other non-cash expenses, and is used by Superior to assess its consolidated results and the results of its operating segments. EBITDA is not a defined performance measure under IFRS. Superior's calculation of EBITDA may differ from similar calculations used by comparable entities. EBITDA of Superior's operating segments may be referred to as EBITDA from operations. Net earnings are reconciled to EBITDA from operations on page 35.Compliance EBITDACompliance EBITDA represents earnings before interest, taxes, depreciation, amortization and other non-cash expenses calculated on a 12 month trailing basis giving pro forma effect to acquisitions and divestitures and is used by Superior to calculate its debt covenants and other credit information. Compliance EBITDA is not a defined performance measure under IFRS. Superior's calculation of Compliance EBITDA may differ from similar calculations used by comparable entities. See Note 23 to the Unaudited Condensed Consolidated Financial Statements for a reconciliation of net earnings (loss) to Compliance EBITDA.Payout RatioPayout ratio represents dividends as a percentage of adjusted operating cash flow less other capital expenditures and is used by Superior to assess its financial results and leverage. Payout ratio is not a defined performance measure under IFRS. Superior's calculation of Payout ratio may differ from similar calculations used by comparable entities.Reconciliation of Net Earnings (Loss) to EBITDA from Operations (1) (2)----------------------------------------------------------------------------For the three months ended Construction December 31, 2011 Energy Specialty Products Services Chemicals Distribution ----------------------------------------------------------------------------Net earnings (loss) (297.6) 19.4 5.2 Add: Amortization of property, plant and equipment and intangible assets 22.5 3.6 1.4 Amortization included in cost of sales - 11.4 - Amortization of customer contract costs 0.5 - - Customer contract related costs 0.2 - - Gain on bargain purchase (0.9) - - Impairment of intangible assets and goodwill 300.6 - - Finance costs 1.0 0.1 0.3 Unrealized losses on derivative financial instruments 20.2 - - ----------------------------------------------------------------------------EBITDA from operations 46.5 34.5 6.9 --------------------------------------------------------------------------------------------------------------------------------------------------------For the three months ended Construction December 31, 2010 Energy Specialty Products Services Chemicals Distribution ----------------------------------------------------------------------------Net earnings (loss) 37.5 15.7 5.6 Add: Amortization of property, plant and equipment, intangible assets and accretion 10.3 5.4 2.4 Amortization included in cost of sales - 9.6 - Amortization of customer contract costs 1.4 - - Customer contract related costs (0.8) - - Gain on bargain purchase (1.2) - - Finance costs 1.2 - - Other expenses 2.2 - (0.1) Unrealized gains on derivative financial instruments (10.3) (2.1) - ----------------------------------------------------------------------------EBITDA from operations 45.1 28.6 7.9 --------------------------------------------------------------------------------------------------------------------------------------------------------2011 (millions of dollars) Construction Energy Specialty Products Services Chemicals Distribution ----------------------------------------------------------------------------Net earnings (loss) (233.9) 56.1 (63.3)Add: Amortization of property, plant and equipment and intangible assets 73.5 8.5 8.3 Amortization included in cost of sales - 44.9 - Amortization of customer contract costs 4.2 - - Customer contract related costs (1.6) - - Gain on bargain purchase (0.9) - - Impairment of property, plant and equipment 3.4 - - Impairment of intangible assets and goodwill 300.6 - 78.0 Finance costs 3.9 0.3 1.2 Unrealized losses on derivative financial instruments (15.6) 5.4 - ----------------------------------------------------------------------------EBITDA from operations 133.6 115.2 24.2 --------------------------------------------------------------------------------------------------------------------------------------------------------2010 (millions of dollars) Construction Energy Specialty Products Services Chemicals Distribution ----------------------------------------------------------------------------Net earnings (loss) 18.0 39.3 (73.8)Add: Amortization of property, plant and equipment, intangible assets and accretion 58.5 10.3 10.6 Amortization included in cost of sales - 46.4 - Amortization of customer contract costs 6.3 - - Customer contract related costs (2.8) - - Gain on bargain purchase (1.2) - - Impairment of intangible assets and goodwill - - 89.5 Finance costs 4.2 0.2 0.4 Other expenses 5.3 - 0.1 Unrealized gains on derivative financial instruments 26.4 5.3 - ----------------------------------------------------------------------------EBITDA from operations 114.7 101.5 26.8 --------------------------------------------------------------------------------------------------------------------------------------------------------(1) See the Unaudited Condensed Consolidated Financial Statements for net earnings (loss), amortization of property, plant and equipment, intangible assets and accretion of convertible debenture issue costs, amortization included in cost of sales, amortization of customer contract costs, customer contract related costs and unrealized (gains) losses on derivative financial instruments.(2) See "Non-IFRS Financial Measures" for additional details.Reconciliation of Divisional Segmented Revenue, Cost of Sales and cash operating and administrative costs included in this Financial Discussion---------------------------------------------------------------------------- For the three months ended December 31, 2011 Construction Specialty Products Energy Services Chemicals Distribution ----------------------------------------------------------------------------Revenue per Financial Statements 727.6 137.7 178.1 Foreign currency gains (losses) related to working capital - 0.7 - ----------------------------------------------------------------------------Revenue per the Financial Discussion 727.6 138.4 178.1 --------------------------------------------------------------------------------------------------------------------------------------------------------Cost of products sold per Financial Statements (595.6) (82.8) (130.4) Risk reserve recovery reclassification (2.2) - - Non-cash amortization - 11.4 - ----------------------------------------------------------------------------Cost of products sold per the Financial Discussion (597.8) (71.4) (130.4)--------------------------------------------------------------------------------------------------------------------------------------------------------Gross profit 129.8 67.0 47.7 Cash operating and administrative Costs per Financial Statements (107.8) (35.4) (42.2) Amortization and depreciation expenses 22.5 3.6 1.4 Amortization of customer contract related costs 0.9 - - Customer contract related costs (0.2) - - Impairment of property, plant and equipment, intangible assets and goodwill - - - Gain on bargain purchase (0.9) - - Risk reserve recovery reclassification 2.2 - - Reclassification of foreign currency (gains) and losses related to working capital - (0.7) - ----------------------------------------------------------------------------Cash operating and administrative costs per the Financial Discussion (83.3) (32.5) (40.8)------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ For the three months ended December 31, 2010 Construction Specialty Products Energy Services Chemicals Distribution ----------------------------------------------------------------------------Revenue per Financial Statements 702.3 128.1 180.8 Foreign currency gains (losses) related to working capital 0.8 (0.1) - ----------------------------------------------------------------------------Revenue per the Financial Discussion 703.1 128.0 180.8 --------------------------------------------------------------------------------------------------------------------------------------------------------Cost of products sold per Financial Statements (571.1) (78.5) (136.9) Risk reserve recovery reclassification - - - Non-cash amortization - 9.6 - ----------------------------------------------------------------------------Cost of products sold per the Financial Discussion (571.1) (68.9) (136.9)--------------------------------------------------------------------------------------------------------------------------------------------------------Gross profit 132.0 59.1 43.9 Cash operating and administrative Costs per Financial Statements (100.8) (36.0) (38.4) Amortization and depreciation expenses 15.3 5.4 2.4 Amortization of customer contract related costs 1.4 - - Customer contract related costs (0.8) - - Impairment of property, plant and equipment, intangible assets and goodwill - - - Gain on bargain purchase (1.2) - - Risk reserve recovery reclassification - - - Reclassification of foreign currency (gains) and losses related to working capital (0.8) 0.1 - ----------------------------------------------------------------------------Cash operating and administrative costs per the Financial Discussion (86.9) (30.5) (36.0)------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ For the twelve months ended December 31, 2011 Construction Specialty Products Energy Services Chemicals Distribution ----------------------------------------------------------------------------Revenue per Financial Statements 2,686.1 527.7 711.8 Foreign currency gains (losses) related to working capital - 1.4 - ----------------------------------------------------------------------------Revenue per the Financial Discussion 2,686.1 529.1 711.8 --------------------------------------------------------------------------------------------------------------------------------------------------------Cost of products sold per Financial Statements (2,225.7) (335.3) (537.1) Risk reserve recovery reclassification (5.2) - - Non-cash amortization - 44.9 - ----------------------------------------------------------------------------Cost of products sold per the Financial Discussion (2,230.9) (290.4) (537.1)--------------------------------------------------------------------------------------------------------------------------------------------------------Gross profit 455.2 238.7 174.7 Cash operating and administrative Costs per Financial Statements (405.4) (130.6) (158.8) Amortization and depreciation expenses 73.5 8.5 8.3 Amortization of customer contract related costs 4.2 - - Customer contract related costs (1.6) - - Impairment of property, plant and equipment, intangible assets and goodwill 3.4 - - Gain on bargain purchase (0.9) - - Risk reserve recovery reclassification 5.2 - - Reclassification of foreign currency (gains) and losses related to working capital - (1.4) - ----------------------------------------------------------------------------Cash operating and administrative costs per the Financial Discussion (321.6) (123.5) (150.5)------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ For the twelve months ended December 31, 2010 Construction Specialty Products Energy Services Chemicals Distribution ----------------------------------------------------------------------------Revenue per Financial Statements 2,338.3 481.5 717.6 Foreign currency gains (losses) related to working capital 0.8 (0.4) - ----------------------------------------------------------------------------Revenue per the Financial Discussion 2,339.1 481.1 717.6 --------------------------------------------------------------------------------------------------------------------------------------------------------Cost of products sold per Financial Statements (1,904.2) (307.3) (545.3) Risk reserve recovery reclassification - - - Non-cash amortization - 46.4 - ----------------------------------------------------------------------------Cost of products sold per the Financial Discussion (1,904.2) (260.9) (545.3)--------------------------------------------------------------------------------------------------------------------------------------------------------Gross profit 434.9 220.2 172.3 Cash operating and administrative Costs per Financial Statements (380.4) (129.4) (156.1) Amortization and depreciation expenses 58.7 10.3 10.6 Amortization of customer contract related costs 6.3 - - Customer contract related costs (2.8) - - Impairment of property, plant and equipment, intangible assets and goodwill - - - Gain on bargain purchase (1.2) - - Risk reserve recovery reclassification - - - Reclassification of foreign currency (gains) and losses related to working capital (0.8) 0.4 - ----------------------------------------------------------------------------Cash operating and administrative costs per the Financial Discussion (320.2) (118.7) (145.5)--------------------------------------------------------------------------------------------------------------------------------------------------------Risk Factors to SuperiorThe risks factors and uncertainties detailed below are a summary of Superior's assessment of its material risk factors as identified in Superior's 2011 Annual Information Form under the heading "Risk Factors". For a detailed discussion of these risks, see Superior's 2011 Annual Information Form filed on the Canadian Securities Administrator's website, www.sedar.com and Superior's website, www.superiorplus.com.Risks to SuperiorSuperior is entirely dependent upon the operations and assets of Superior LP. Superior's ability to make dividend payments to shareholders is dependent upon the ability of Superior LP to make distributions on its outstanding limited partnership units as well as the operations and business of Superior LP.There is no assurance regarding the amounts of cash to be distributed by Superior LP or generated by Superior LP and therefore funds available for dividends to shareholders. The actual amount distributed in respect of the limited partnership units will depend on a variety of factors including, without limitation, the performance of Superior LP's operating businesses, the effect of acquisitions or dispositions on Superior LP, and other factors that may be beyond the control of Superior LP or Superior. In the event significant sustaining capital expenditures are required by Superior LP or the profitability of Superior LP declines, there would be a decrease in the amount of cash available for dividends to shareholders and such decrease could be material.Superior's dividend policy and the distribution policy of Superior LP are subject to change at the discretion of the board of directors of Superior or the board of directors of Superior General Partner Inc., as applicable. Superior's dividend policy and the distribution policy of Superior LP are also limited by contractual agreements including agreements with lenders to Superior and its affiliates and by restrictions under corporate law.The credit facilities and U.S. Notes of Superior LP contain covenants that require Superior LP to meet certain financial tests and that restrict, among other things, the ability of Superior LP to incur additional debt, dispose of assets or pay dividends/distributions in certain circumstances. These restrictions may preclude Superior LP from returning capital or making distributions on the limited partnership units.The payout by Superior LP of substantially all of its available cash flow means that capital expenditures to fund growth opportunities can only be made in the event that other sources of financing are available. Lack of access to such additional financing could limit the future growth of the business of Superior LP and, over time, have a material adverse effect on the amount of cash available for dividends to Shareholders.To the extent that external sources of capital, including public and private markets, become limited or unavailable, Superior's and Superior LP's ability to make the necessary capital investments to maintain or expand the current business, to make necessary principal payments and debenture redemptions under its term credit facilities may be impaired.Superior maintains a substantial floating interest rate exposure through a combination of floating interest rate borrowings and the use of derivative instruments. Demand levels for approximately half of Energy Services' sales and substantially all of Specialty Chemicals' and Construction Products Distribution's sales are affected by general economic trends. Generally speaking, when the economy is strong, interest rates increase as does sales demand from Superior's customers, thereby increasing Superior's ability to pay higher interest costs and vice versa. In this way, there is a common relationship between economic activity levels, interest rates and Superior's ability to pay higher or lower rates. However, increased interest rates can affect Superior's borrowing costs, which may have an adverse effect on Superior.A portion of Superior's net cash flows is denominated in US dollars. Accordingly, fluctuations in the Canadian/US dollar exchange rate can impact profitability. Superior attempts to mitigate this risk by hedging.The timing and amount of capital expenditures incurred by Superior LP or by its subsidiaries will directly affect the amount of cash available to Superior for dividends to shareholders. Dividends may be reduced, or even eliminated, at times when significant capital expenditures are incurred or other unusual expenditures are made.If the board of directors of Superior decides to issue additional common shares, preferred shares or securities convertible into common shares, existing shareholders may suffer significant dilution.There can be no assurances that income tax laws in the numerous jurisdictions in which Superior operates will not be changed, interpreted or administered in a manner which adversely affects Superior and its shareholders. In addition, there can be no assurance that the Canada Revenue Agency (or provincial tax agency), U.S. Internal Revenue Service (or a state or local tax agency), or the Chilean Internal Revenue Service (collectively the "Tax Agencies") will agree with how Superior calculates its income for tax purposes or that the various Tax Agencies will not change their administrative practices to the detriment of Superior or its Shareholders.Without limiting the generality of the foregoing, since the beginning of 2010, the Canada Revenue Agency has requested and reviewed information from Superior relating to the plan of arrangement (Arrangement) involving the Fund and Ballard Power Systems Inc. and the conversion of the Fund to a corporation (Conversion). While Superior is confident in the appropriateness of its tax filing position and the expected tax consequences of the Arrangement and the Conversion transaction, there remains a possibility that, if the Canada Revenue Agency elects to challenge Superior's tax filing and such challenge is successful, it could potentially affect the availability or quantum of the tax basis or other tax accounts of Superior. Although it is difficult to quantify the potential impact of any such outcome, it could be materially adverse to Superior.Risks to Superior's segmentsEnergy ServicesCanadian Propane Distribution and U.S. Refined FuelsPropane is sold in competition with other energy sources such as fuel oil, electricity and natural gas, some of which are less costly on an energy equivalent basis. While propane is usually more cost effective than electricity, electricity is a major competitor in most areas. Fuel oil is also used as a residential, commercial and industrial source of heat and, in general, is less costly on an equivalent energy basis, although operating efficiencies, environmental and air quality factors help make propane competitive with fuel oil. Except for certain industrial and commercial applications, propane is generally not competitive with natural gas in areas where natural gas already exists. Other alternative energy sources such as compressed natural gas, methanol and ethanol are available or could be further developed and could have an impact on the propane industry and Superior Propane in the future. The trend towards increased conservation measures and technological advances in energy efficiency may have a detrimental effect on propane demand and Superior Propane's sales. Demand for automotive uses is presently declining at a rate of approximately 10% to 15% per year due to the development of more fuel efficient and complicated engines which increase the cost of converting engines to propane and reduce the savings per kilometre driven. Propane commodity prices are affected by crude oil and natural gas commodity prices.Competition in the U.S. Refined Fuels business markets generally occurs on a local basis between large full service, multi-state marketers and smaller local independent marketers. Although the industry has seen a continued trend of consolidation over the past several years, the top ten multi-state marketers still generate only one-third of total retail sales in the United States. Marketers primarily compete based upon price and service and tend to operate in close proximity to customers, typically within a 35-mile marketing radius from a central depot, to lower delivery costs and provide prompt service.Weather and general economic conditions affect propane and refined fuels market volumes. Weather influences the demand for propane and heating oil used primarily for space heating uses and also for agricultural applications.The trend towards increased conservation measures and technological advances in energy efficiency may have a detrimental effect on propane and heating oil demand and Superior's sales. Further, increases in the cost of propane encourage customers to conserve fuel and to invest in more energy-efficient equipment, reducing demand. Changes in propane supply costs are normally passed through to customers, but timing lags (the time between when Superior purchases the propane and when the customer purchases the propane) may result in positive or negative gross margin fluctuations.Superior offers its customers various fixed-price propane and heating oil programs. In order to mitigate the price risk from offering these services, Superior uses its physical inventory position, supplemented by forward commodity transactions with various third parties having terms and volumes substantially the same as its customers' contracts. In periods of high propane price volatility the fixed price programs create exposure to over or under supply positions as the demand from customers may significantly exceed or fall short of supply procured. In addition, if propane prices decline significantly subsequent to customers signing up for a fixed price program there is a risk that customers will default on their commitments.Superior's operations are subject to the risks associated with handling, storing and transporting propane in bulk. Slight quantities of propane may also be released during transfer operations. To mitigate risks, Superior has established a comprehensive program directed at environmental, health and safety protection. This program consists of an environmental policy, codes of practice, periodic self-audits, employee training, quarterly and annual reporting and emergency prevention and response.The U.S. refined fuels business, through a centralized safety and environment management system, ensures that safety practices and regulatory compliance are an important part of its business. The storage and delivery of refined fuels poses the potential for spills which impact the soils and water of storage facilities and customer properties.Superior's fuel distribution businesses are based and operate in Canada and the United States, and, as a result, such operations could be affected by changes to laws, rules or policies which may either be more favourable to competing energy sources or increase costs or otherwise negatively affect the operations of Energy Services in comparison to such competing energy sources. Any such changes could have an adverse effect on the operations of Energy Services.Approximately 12% of Superior's Canadian propane distribution and U.S. refined fuels distribution businesses employees are unionized. Collective bargaining agreements are renegotiated in the normal course of business. While labour disruptions are not expected, there is always risk associated with the re-negotiation process that could have an adverse impact to Superior.Fixed-price energy services businessNew entrants in the energy retailing business may enter the market and compete directly for the customer base that Superior targets, slowing or reducing its market share.SEM purchases natural gas to meet its estimated commitments to its customers based upon the historical consumption of gas of its customers. Depending on a number of factors, including weather, customer attrition and poor economic conditions affecting commercial customers' production levels, customer natural gas consumption may vary from the volume purchased. This variance must be reconciled and settled at least annually and may require SEM to purchase or sell natural gas at market prices which may have an adverse impact on the results of this business. To mitigate potential balancing risk, SEM closely monitors its balancing position and takes measures such as adjusting gas deliveries and transferring gas between pools of customers, so that imbalances are minimized. The reserve is reviewed on a monthly basis to ensure that it is sufficient to absorb any losses that might arise from balancing.SEM matches its customers estimated electricity requirements by entering into electricity swaps in advance of acquiring customers. Depending on several factors, including weather, customer's energy consumption may vary from the volumes purchased by SEM. SEM is able to invoice existing commercial electricity customers for balancing charges when the amount of energy used is greater than or less than the tolerance levels set initially. In certain circumstances, there can be balancing issues for which SEM is responsible when customer aggregation forecasts are not realized.Fixed-price energy services resources its fixed-price term natural gas sales commitments by entering into various physical natural gas and US dollar foreign exchange purchase contracts for similar terms and volumes to create an effective Canadian dollar fixed-price cost of supply. Superior transacts with nine financial and physical natural gas counterparties. There can be no assurance that any of these counterparties will not default on any of their obligations to Superior. However, the financial condition of each counterparty is evaluated and credit limits are established to minimize Superior's exposure to this risk. There is also a risk that supply commitments and foreign exchange positions may become unmatched; however, this is monitored daily in compliance with Superior's risk management policy.Fixed-price energy services must retain qualified sales agents in order to properly execute its business strategy. The continued growth of fixed-price energy services is reliant on the services of agents to sign up new customers. There can be no assurance that competitive conditions will allow these agents to achieve these customer additions. Lack of success in the marketing programs of fixed-price energy services would limit future growth of cash flow.Fixed-price energy services operates in the highly regulated energy industry in Ontario and Quebec. Changes to existing legislation could impact this business' operations. As part of the current regulatory framework, local delivery companies are mandated to perform certain services on behalf of fixed-price energy services, including invoicing, collection, assuming specific bad debt risks and storage and distribution of natural gas. Any elimination or changes to these rules could have a significant adverse effect on the results of this business.The Ontario Energy Board issued an update to the revised Codes of Conduct supporting the Energy Consumer Protection Act. Although the industry had anticipated automatic renewal of natural gas accounts on a month-to-month basis, the OEB has confirmed that the automatic renewal of natural gas contracts will be allowed for a period of one year capped at the customer's existing rate. Only one automatic renewal will be allowed emphasizing the need to positively convert automatic renewals to other products before the customer is returned to the utility at the end of the renewal term. Renewal notifications will require a standard disclosure form and a price comparison between fixed-price energy service's renewal price and the utility default rate.Specialty ChemicalsSpecialty Chemicals competes with sodium chlorate, chloralkali and potassium producers on a worldwide basis. Key competitive factors include price, product quality, logistics capability, reliability of supply, technical capability and service. The end-use markets for products are correlated to the general economic environment and the competitiveness of customers, all of which are outside of its control along with market pricing for pulp.Specialty Chemicals has long-term electricity contracts or electricity contracts that renew automatically with power producers in each of the jurisdictions where its plants are located. There is no assurance that Specialty Chemicals will continue to be able to secure adequate supplies of electricity at reasonable prices or on acceptable terms.Potassium chloride (KCL) is a major raw material used in the production of potassium hydroxide at the Port Edwards, Wisconsin facility. Substantially all of Specialty Chemicals KCL is received from Potash Corporation of Saskatchewan (Potash). Specialty Chemicals currently has a limited ability to source KCL from additional suppliers.Specialty Chemicals is exposed to fluctuations in the US dollar and the euro versus the Canadian dollar. Specialty Chemicals manages its exposure to fluctuations between the United States and Canadian dollar by entering into hedge contracts with external third parties and internally with other Superior businesses.Specialty Chemicals' operations involve the handling, production, transportation, treatment and disposal of materials that are classified as hazardous and are regulated by environmental and health and safety laws, regulations and requirements. The potential exists for the release of highly toxic and lethal substances, including chlorine. Equipment failure could result in damage to facilities, death or injury and liabilities to third parties. If at any time the appropriate regulatory authorities deem any of the facilities unsafe, they may order that such facilities be shut down.Specialty Chemicals' operations and activities in various jurisdictions require regulatory approvals for the handling, production, transportation and disposal of chemical products and waste substances. The failure to obtain or comply fully with such applicable regulatory approvals may materially adversely affect Specialty Chemicals.Specialty Chemicals' production facilities maintain complex process and electrical equipment. The facilities have existed for many years and undergone upgrades and improvements over time. Routine maintenance is regularly completed to ensure equipment is operated within appropriate engineering and technical requirements. Notwithstanding Specialty Chemicals' operating standards and history of limited downtime, breakdown of electrical transformer or rectifier equipment would temporarily reduce production capacity at the affected facility. Although insurance coverage exists to mitigate substantial loss due to equipment outage, Specialty Chemicals' reputation and its ability to meet customer requirements could be negatively affected due to a major electrical equipment failure.Approximately 23% of Specialty Chemicals' employees are unionized. Collective bargaining agreements are renegotiated in the normal course of business. While labour disruptions are not expected, there is always risk associated with the re-negotiation process that could have an adverse impact to Superior.Construction Products DistributionActivity in the Construction Products Distribution segment is subject to changes in the level of general economic activity and in particular to the level of activity in residential and non-residential construction subsectors. New construction in residential markets is subject to such factors as household income, employment levels, customer confidence, population changes and the supply of residential units in any local area. Residential renovation is not as sensitive to these factors and can provide some balance in the demand for residential construction product distribution. Non-residential activity can be subdivided into commercial, industrial and institutional. New construction activity in these sectors is subject to many of the same general economic factors as for residential activity. In the industrial and institutional subsectors, government and regulatory programs can also have a significant impact on the outlook for product distribution, particularly as related to our insulation businesses. As a result, changes to the level of general economic activity or any of the above mentioned factors that affect the amount of construction or renovations in residential and non-residential markets can have an adverse affect on the CPD business and Superior.Construction Products Distribution competes with other specialty construction distributors servicing the builder/contractor market, in addition to big-box home centres and independent lumber yards. The ability to remain competitive depends on its ability to provide reliable service at competitive prices.The gypsum specialty distributor (GSD) market is driven largely by residential and non-residential construction. Demand for wall and ceiling building materials is affected by changes in general and local economic factors including demographic trends, employment levels, interest rates, consumer confidence and overall economic growth. These factors in turn impact the level of existing housing sales, new home construction, new non-residential construction, and office/commercial space turnover, all of which are significant factors in the determination of demand for products and services.The commercial & industrial (C&I) market is driven largely by C&I construction spending and economic growth. Sectors within the C&I market that are particularly influential to demand include: commercial construction and renovation, the construction, maintenance and expansion of industrial process facilities (i.e. oil refineries and petrochemical plants, power generation facilities) and institutional facilities (i.e. government, healthcare and education).The distribution of walls and ceilings and C&I products involves risks, including the failure or substandard performance of equipment, human error, natural disasters, suspension of operations and new governmental statutes, regulations, guidelines and policies. Operations are also subject to various hazards incidental to the handling, processing, storage and transportation of certain hazardous materials, including industrial chemicals. These hazards can result in personal injury including fatalities, damage to and destruction of property and equipment and environmental damage. There can be no assurance that as a result of past or future operations, there will not be claims of injury by employees or members of the public due to exposure, or alleged exposure, to these materials. There can be no assurance as to the actual amount of these liabilities or the timing of them, if any. The business maintains safe working practices through proper procedures and direction and utilization of equipment such as forklifts, boom trucks, fabrication equipment and carts/dollies. The business handles and stores a variety of construction materials and maintains appropriate material handling compliance programs in accordance with local, state/provincial and federal regulations.Approximately 4% of Construction Products Distribution's employees are unionized. Collective bargaining agreements are renegotiated in the normal course of business. While labour disruptions are not expected, there is always risk associated with the re-negotiation process that could have an adverse impact to Superior.SUPERIOR PLUS CORP.Condensed Consolidated Balance Sheets----------------------------------------------------------------------------(unaudited, millions of Canadian December December January 1, dollars) Notes 31, 2011 31, 2010(1) 2010(1)----------------------------------------------------------------------------Assets Current Assets Cash and cash equivalents 5.2 7.8 24.3 Trade and other receivables 5 & 18 472.9 551.0 394.3 Prepaid expenses 20.7 23.3 21.3 Inventories 6 203.1 167.1 143.5 Unrealized gains on derivative financial instruments 18 13.3 31.4 22.2 ----------------------------------------------------------------------------Total current assets 715.2 780.6 605.6 ----------------------------------------------------------------------------Non-Current Assets Property, plant and equipment 8 885.0 912.4 880.0 Intangible assets 9 65.6 184.2 185.6 Goodwill 10 186.1 471.7 527.5 Notes and finance lease receivables 10.0 12.1 - Deferred tax 19 315.5 309.3 326.6 Unrealized gains on derivative financial instruments 18 16.0 26.6 28.5 ----------------------------------------------------------------------------Total non-current assets 1,478.2 1,916.3 1,948.2 ----------------------------------------------------------------------------Total assets 2,193.4 2,696.9 2,553.8 --------------------------------------------------------------------------------------------------------------------------------------------------------Liabilities and Equity Current Liabilities Trade and other payables 12 297.6 318.2 295.4 Deferred revenue 13 14.2 6.8 5.8 Borrowings 14 & 15 54.3 136.2 108.9 Convertible unsecured subordinated debentures 49.3 - - Dividends and interest payable 7.6 15.5 14.2 Unrealized losses on derivative financial instruments 18 61.7 78.6 77.8 ----------------------------------------------------------------------------Total current liabilities 484.7 555.3 502.1 ----------------------------------------------------------------------------Non-Current Liabilities Borrowings 14 & 15 701.4 596.7 680.1 Convertible unsecured subordinated debentures 16 521.7 619.1 308.4 Provisions 11 17.2 13.2 6.9 Employee future benefits 17 65.3 45.5 30.1 Deferred tax 19 5.9 54.9 38.5 Unrealized losses on derivative financial instruments 18 47.6 57.8 52.6 ----------------------------------------------------------------------------Total non-current liabilities 1,359.1 1,387.0 1,116.6 --------------------------------------------------------------------------------------------------------------------------------------------------------Total liabilities 1,843.8 1,942.5 1,618.7 ----------------------------------------------------------------------------Equity Capital 1,633.1 1,606.4 1,507.3 Deficit 20 (1,228.2) (797.9) (551.1)Accumulated other comprehensive loss 20 (55.3) (54.1) (21.1)----------------------------------------------------------------------------Total equity 349.6 754.4 935.1 ----------------------------------------------------------------------------Total liabilities and equity 2,193.4 2,696.9 2,553.8 --------------------------------------------------------------------------------------------------------------------------------------------------------(See Notes to the Condensed Consolidated Financial Statements)(1)Refer to Note 29 for impact of adopting IFRSSUPERIOR PLUS CORP.Condensed Consolidated Statement of Changes in Equity----------------------------------------------------------------------------Years ended December 31(millions of Canadian Share Contributed Total dollars) Capital Surplus(2) Capital ----------------------------------------------------------------------------January 1, 2010 (1) 1,502.0 5.3 1,507.3 Net loss - - - Net proceeds on issuance of share capital 81.7 - 81.7 Option value associated with the issuance of the convertible debentures - 0.2 0.2 Share issued under Dividend Reinvestment Plan 17.2 - 17.2 Dividends declared to shareholders - - - Unrealized foreign currency losses on translation of foreign operations - - - Actuarial defined benefit losses - - - Reclassification of derivative gains and losses previously deferred - - - Income tax on other comprehensive income - - - Prior period adjustment - - - ----------------------------------------------------------------------------December 31, 2010 (1) 1,600.9 5.5 1,606.4 ---------------------------------------------------------------------------- Net loss - - - Option value associated with redemption of convertible debentures - (2.2) (2.2) Shares issued under Dividend Reinvestment Plan 28.9 - 28.9 Dividends declared to shareholders - - Unrealized foreign currency gains on translation of foreign operations - - - Actuarial defined benefit losses - - - Reclassification of derivative gains and losses previously deferred - - - Income tax on other comprehensive income - - - ----------------------------------------------------------------------------December 31, 2011 1,629.8 3.3 1,633.1 -------------------------------------------------------------------------------------------------------------------------------------------------------- Accumulated Years ended December other 31(millions of Canadian comprehensive dollars) Deficit loss Total ----------------------------------------------------------------------------January 1, 2010 (1) (551.1) (21.1) 935.1 Net loss (75.8) - (75.8) Net proceeds on issuance of share capital - - 81.7 Option value associated with the issuance of the convertible debentures - - 0.2 Share issued under Dividend Reinvestment Plan - - 17.2 Dividends declared to shareholders (171.2) - (171.2) Unrealized foreign currency losses on translation of foreign operations - (27.4) (27.4) Actuarial defined benefit losses - (19.9) (19.9) Reclassification of derivative gains and losses previously deferred - 12.1 12.1 Income tax on other comprehensive income - 2.2 2.2 Prior period adjustment 0.2 - 0.2 ----------------------------------------------------------------------------December 31, 2010 (1) (797.9) (54.1) 754.4 ---------------------------------------------------------------------------- Net loss (302.6) - (302.6) Option value associated with redemption of convertible debentures - - (2.2) Shares issued under Dividend Reinvestment Plan - - 28.9 Dividends declared to shareholders (127.7) - (127.7) Unrealized foreign currency gains on translation of foreign operations - 13.6 13.6 Actuarial defined benefit losses - (25.5) (25.5) Reclassification of derivative gains and losses previously deferred - 5.9 5.9 Income tax on other comprehensive income - 4.8 4.8 ----------------------------------------------------------------------------December 31, 2011 (1,228.2) (55.3) 349.6 ----------------------------------------------------------------------------(See Notes to the Condensed Consolidated Financial Statements)(1) Refer to Note 29 for impact of adopting IFRS(2) Contributed surplus represents Superior's equity reserve for the option value associated with the issuance of convertibleunsecured subordinated debentures and warrants.SUPERIOR PLUS CORP.Condensed Consolidated Statement of Net Loss and Comprehensive Loss---------------------------------------------------------------------------- Three Months Ended Year Ended December December 31, 31, (unaudited, millions of Canadian dollars except per share amounts) Notes 2011 2010 2011 2010 ---------------------------------------------------------------------------- REVENUES 24 1,043.4 1,011.2 3,925.6 3,537.4 Cost of sales 24 (808.8) (786.5) (3,098.1) (2,756.8)---------------------------------------------------------------------------- Gross profit 234.6 224.7 827.5 780.6 ---------------------------------------------------------------------------- EXPENSES Selling, distribution and administrative costs 24 188.7 177.6 706.7 676.4 Other expenses - 3.3 - 6.6 Finance expense 24 20.7 18.2 85.5 75.2 Impairment of intangible assets and goodwill 10 300.6 89.5 378.6 89.5 Unrealized losses (gains) on derivative financial instruments 18 (0.3) (29.0) 9.7 2.2 ---------------------------------------------------------------------------- 509.7 259.6 1,180.5 849.9 ---------------------------------------------------------------------------- Net loss before income taxes (275.1) (34.9) (353.0) (69.3) Income tax recovery (expense) 19 43.7 (21.1) 50.4 (6.5)---------------------------------------------------------------------------- Net loss (231.4) (56.0) (302.6) (75.8)---------------------------------------------------------------------------- Net loss (231.4) (56.0) (302.6) (75.8) Other comprehensive loss: Unrealized foreign currency gains (losses) on translation of foreign operations 20 (11.0) (19.5) 13.6 (27.4) Actuarial defined benefit losses 20 (5.4) 2.5 (25.5) (19.9) Reclassification of derivative gains previously deferred 20 0.6 2.9 5.9 12.1 Income tax recovery on other comprehensive loss 20 1.3 (3.6) 4.8 2.2 ---------------------------------------------------------------------------- Other comprehensive loss (14.5) (17.7) (1.2) (33.0)---------------------------------------------------------------------------- Total Comprehensive loss (245.9) (73.7) (303.8) (108.8)-------------------------------------------------------------------------------------------------------------------------------------------------------- Net Loss per Share From operations: Basic and diluted 21 ($2.10) ($0.52) ($2.77) ($0.72)(See Notes to the Condensed Consolidated Financial Statements)1. Refer to Note 29 for impact of adopting IFRS SUPERIOR PLUS CORP.Condensed Consolidated Statement of Cash Flows---------------------------------------------------------------------------- Year Ended December Three Months Ended December 31, 31, (unaudited, millions of Canadian dollars) Notes 2011 2010 2011 2010 ----------------------------------------------------------------------------OPERATING ACTIVITIES Net loss (231.4) (56.0) (302.6) (75.8)Adjustments for: Depreciation included in selling, distribution and administrative costs 8 17.7 10.4 51.8 49.0 Amortization of intangible assets 9 9.8 12.5 41.9 30.4 Depreciation included in cost of sales 8 11.4 9.6 44.9 46.4 Amortization of customer related costs 0.5 1.4 4.2 6.3 Unrealized losses on derivative financial instruments 18 (0.3) (29.0) 9.7 2.2 Gain on bargain purchase 4 (0.9) (1.2) (0.9) (1.2) Customer contract related costs 0.2 (0.8) (1.6) (2.8) Impairment of intangible assets and goodwill 10 300.6 89.5 378.6 89.5 Finance costs recognized in net earnings (loss) 20.7 18.2 85.5 75.2 Income tax expense (recovery) recognized in net earnings (43.7) 21.1 (50.4) 6.5 Decrease (Increase) in non-cash operating working capital items 23 (69.8) (118.5) 30.1 (143.3)----------------------------------------------------------------------------Net cash flows from operating activities 14.8 (42.8) 291.2 82.4 Income taxes (paid) received (0.9) (0.3) (1.3) (0.7)Interest paid (33.9) (31.6) (77.9) (71.8)----------------------------------------------------------------------------Cash flows (used in) from operating activities (20.0) (74.7) 212.0 9.9 ----------------------------------------------------------------------------INVESTING ACTIVITIES Purchase of property, plant and equipment 8 (14.6) (16.3) (38.2) (40.8)Proceeds from disposal of property, plant and equipment 8 1.0 0.3 3.2 2.8 Investment in finance lease - (10.3) - (10.3)Acquisition of Griffith 4 - 0.2 - (142.4)Other acquisitions 4 (1.1) (5.7) (14.8) (23.8)----------------------------------------------------------------------------Cash flows used in operating activities (14.7) (31.8) (49.8) (214.5)----------------------------------------------------------------------------FINANCING ACTIVITIES Net proceeds (repayment) of revolving term bank credits and other debt 125.4 (6.4) 132.3 (47.0)Repayment of senior secured notes (32.5) (2.0) (32.5) (2.0)Repayment of finance lease obligations (3.4) (3.4) (14.2) (12.8)Net proceeds (repayment) from accounts receivable sales program - 7.5 (90.1) (2.6)Redemption of 5.75% convertible debentures 16 (125.0) - (125.0) - Proceeds from issuance of 5.75% convertible debentures 16 - - - 172.5 Issue costs incurred for the 5.75% convertible debentures 16 - - - (6.9)Proceeds from issuance of 6.00% convertible debentures 16 - 150.0 - 150.0 Issue costs incurred for the 6.00% convertible debentures 16 - (5.6) - (5.6)Proceeds from issuance of 7.50% convertible debentures 16 75.0 - 75.0 - Issue costs incurred for the 7.50% convertible debentures 16 (3.4) - (3.4) - Proceeds from issuance of common shares - - - 82.2 Proceeds from the dividend reinvestment program 5.5 8.8 28.9 17.2 Dividends paid to shareholders (27.6) (37.6) (136.7) (156.8)----------------------------------------------------------------------------Cash flows (used in) from financing activities 14.0 111.3 (165.7) 188.2 --------------------------------------------------------------------------------------------------------------------------------------------------------Net (decrease) increase in cash and cash equivalents (20.7) 4.8 (3.5) (16.4)Cash and cash equivalents, beginning of period 26.0 3.2 7.8 24.3 Effect of translation of foreign denominated cash and cash equivalents (0.1) (0.2) 0.9 (0.1)----------------------------------------------------------------------------Cash and cash equivalents, end of period 5.2 7.8 5.2 7.8 ----------------------------------------------------------------------------(See Notes to the Condensed Consolidated Financial Statements)(1) Refer to Note 29 for impact of adopting IFRSNotes to the Unaudited Condensed Consolidated Financial Statements(unaudited, Tabular amounts in Canadian millions of dollars, unless noted otherwise, except per share amounts.)1. OrganizationSuperior Plus Corp. (Superior) is a diversified business corporation, incorporated under the Canada Business Corporations Act. The address of the registered office is 840 - 7th Avenue SW, Calgary, Alberta. Superior holds 100% of Superior Plus LP (Superior LP), a limited partnership formed between Superior General Partner Inc., as general partner and Superior as limited partner. Superior holds 100% of the shares of Superior General Partner Inc. Superior does not conduct active business operations but rather distributes to shareholders the income it receives from Superior Plus LP in the form of partnership allocations, net of expenses and interest payable on the convertible unsecured subordinated debentures (the debentures). Superior's investments in Superior Plus LP are financed by share capital and debentures. Superior is a publicly traded company with its common shares trading on the Toronto Stock Exchange ("TSX") under the exchange symbol SPB.The accompanying Unaudited Condensed Consolidated Financial Statements (Consolidated Financial Statements) of Superior as at December 31, 2011 and the three months and the twelve months ended December 31, 2011 and 2010 were authorized for issue by the Board of Directors on February 16, 2012.Reportable Operating SegmentsSuperior operates three distinct reportable operating segments: Energy Services, Specialty Chemicals and Construction Products Distribution. Superior's Energy Services operating segment provides distribution, wholesale procurement and related services in relation to propane, heating oil and other refined fuels. Energy Services also provides fixed-price natural gas and electricity supply services. Superior's Specialty Chemicals operating segment is a leading supplier of sodium chlorate and technology to the pulp and paper industries and a regional supplier of potassium and chloralkali products to the U.S. Midwest. Superior's Construction Products Distribution operating segment is one of the largest distributors of commercial and industrial insulation in North America and the largest distributor of specialty construction products to the walls and ceilings industry in Canada (See Note 25).2. Basis of PresentationThe accompanying Consolidated Financial Statements have been prepared in accordance and comply with International Accounting Standards 34 Interim Financial Reporting (IAS 34) as issued by the International Financial Accounting Standards Board (IASB) using the accounting policies Superior adopted in its annual consolidated financial statements as at and for the year ended December 31, 2011. Those accounting policies are based on the International Financial Reporting Standards (IFRS) standards and International Financial Reporting Interpretations Committee (IFRIC) interpretations that were applicable at that time. Superior applied IFRS 1 "first-time adoption of International Financial Reporting Standards" (IFRS 1) as at January 1, 2010 (Transition Date). An explanation of the transition to International Financial Reporting Standards (IFRS) is provided in Note 29. These financial statements have been prepared on a going concern basis.Superior's accounting policies applied upon conversion to IFRS have been disclosed in the first unaudited interim condensed consolidated financial statements for the three-month period ended March 31, 2011. There have been no changes to these accounting policies previously disclosed in the March 31, 2011 statements. These accounting policies have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently throughout the consolidated entities.These Consolidated Financial Statements are presented in Canadian dollars, which is Superior's functional and presentation currency. All financial information presented in Canadian dollars has been rounded to the nearest hundred thousand. These Consolidated Financial Statements should be read in conjunction with Superior's 2011 annual consolidated financial statements and in consideration of the IFRS transition disclosures included in Note 29 to these Consolidated Financial Statements and the additional disclosures included herein.The Consolidated Financial Statements have been prepared on the historical cost basis except for certain financial instruments that are measured at fair value as explained in the accounting policies below and incorporate the accounts of Superior and its wholly-owned subsidiaries. Subsidiaries are all entities over which Superior has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The results of subsidiaries are included in Superior's income statement from date of acquisition, or in the case of disposals, up to the date of disposal. All transactions and balances between Superior and Superior's subsidiaries have been eliminated on consolidation. Superior's subsidiaries are all wholly owned directly or indirectly by Superior Plus Corp.Superior's Consolidated Financial Statements were previously prepared in accordance with Canadian generally accepted accounting principles (GAAP). GAAP differs in some areas from IFRS and in preparing these Consolidated Financial Statements, management has amended certain accounting, measurements and consolidation methods previously applied in the GAAP financial statements to comply with IFRS. The comparative figures for 2010 were restated to reflect these adjustments. Note 29 contains reconciliations and descriptions of the effect of the transition from GAAP to IFRS on equity, earnings, and comprehensive income along with line-by-line reconciliations of the statement of net earnings (loss) and comprehensive income (loss) and balance sheets for the year ended December 31, 2010 as well as the interim periods relevant to the computation of theses Consolidated Financial Statements.In preparation of these Consolidated Financial Statements in accordance with IAS 34 requires the use of certain critical accounting estimates. It also requires management to exercise judgment in applying Superior's accounting policies. The areas involving a higher degree of judgment or complexity are areas where assumptions and estimates are significant to these Consolidated Financial Statements are disclosed in note 2 (a).Significant Accounting Policies(a) Significant Accounting Judgments, Estimates and AssumptionsThe preparation of Superior's Consolidated Financial Statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, net earnings (loss) and related disclosures. The estimates and associated assumptions are based on historical experience and various other factors that are deemed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are as follows:Fair Value of Derivative and Non-Financial Derivative InstrumentsWhere the fair value of derivatives and non-financial derivatives cannot be derived from active markets, they are determined using valuation techniques including the discounted cash flow model. This requires the use of assumptions concerning the amount and timing of estimated future cash flows and discount rates. Differences between actual values and assumed values will impact net earnings in the period when the determination of the difference is made.Allowance for Doubtful AccountsSuperior recognizes an allowance for doubtful accounts based on historical customer collection history, general economic indicators and other customer specific information, all of which require Superior to make certain assumptions. Where the actual collectability of accounts receivable differs from these estimates, such differences will have an impact on net income in the period such a determination is made.Property, Plant and Equipment and Intangible AssetsCapitalized assets, including property, plant and equipment and intangible assets are amortized over their respective estimated useful lives.ProvisionsProvisions have been estimated for decommissioning costs, restructuring and environmental expenditures. These provisions are estimates and the actual costs and timing of future cash flows are dependent on future events. Any differences between estimates and the actual future liability will be accounted for in the period when such determination is made.Employee Future BenefitsSuperior has a number of defined benefits pension plans and other benefit plans. The cost of defined benefit pension plans and the present value of the pension obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions. These include the determination of the discount rate, future salary increases, mortality rates and future pension increases. Due to the complexity of the valuation, the underlying assumptions and its long term nature, a defined benefit obligation is highly sensitive to changes in these assumptions.Income Tax Assets and LiabilitiesSuperior recognizes expected tax assets and liabilities based on estimates of current and future taxable net earnings, which may require significant judgment regarding the ultimate tax determination of certain items. If taxable net earnings differ from the estimates it may have an impact on current and future income tax provisions in the period when the determination of the difference is made.Decommissioning LiabilitiesThe determination of decommissioning liabilities requires Superior to make estimates regarding the useful life of certain operating facilities, the timing and dollar value of future remediation activities, discount rates and the interpretation and changes to various environmental laws and regulations. Any differences between estimates and actual results will impact Superior's accrual for decommissioning liabilities and will result in an impact to net earnings.Asset ImpairmentsFinancial and non-financial assets are subject to impairment reviews based on whether current or future events and circumstances suggest that their recoverable amount may be less than their carrying value. Recoverable amounts are based on a calculation of expected future cash flows which include management assumptions and estimates of future performance.Critical Judgments in Applying Accounting PoliciesIn the process of applying Superior's accounting policies, which are described above, management makes judgments that could significantly affect the amounts recognized in the consolidated financial statements. The most critical of these judgments are:Impairment of Property, Plant and EquipmentAn evaluation of whether or not an asset is impaired involves consideration of whether indicators of impairment exist. Factors which could indicate that impairment exists include: significant underperformance relative to historical or projected operating results, significant changes in the manner in which an asset is used or in Superior's overall business strategy, or significant negative industry or economic trends. In some cases, these events are clear. However, in many cases, a clearly identifiable event indicating possible impairment does not occur. Instead, a series of individually insignificant events occur over a period of time leading to an indication that an asset may be impaired. Events can occur in these situations that may not be known until a date subsequent to their occurrence. Management continually monitors Superior's segments, the markets, and the business environment, and make judgments and assessments about conditions and events in order to conclude whether a possible impairment exists.Income TaxesPreparation of the Consolidated Financial Statements involves determining an estimate of, or provision for, income taxes in each of the jurisdictions in which Superior operates. The process also involves making an estimate of taxes currently payable and taxes expected to be payable or recoverable in future periods, referred to as deferred income taxes. Deferred income taxes result from the effects of temporary differences due to items that are treated differently for tax and accounting purposes. The tax effects of these differences are reflected in the Balance Sheet as deferred income tax assets and liabilities. An assessment must also be made to determine the likelihood that Superior's future taxable income will be sufficient to permit the recovery of deferred income tax assets. To the extent that such recovery is not probable, recognized deferred income tax assets must be reduced. Judgment is required in determining the provision for income taxes and recognition of deferred income tax assets and liabilities. Management must also exercise judgment in its assessment of continually changing tax interpretations, regulations and legislation, to ensure deferred income tax assets and liabilities are complete and fairly presented. The effects of differing assessments and applications could be material.Financial InstrumentsThe fair value of financial instruments are determined and classified within three categories, which are outlined below and discussed in more detail in Note 17.Level IFair values in Level I are determined using inputs that are unadjusted quoted prices in active markets for identical assets or liabilities that Superior has the ability to access.Level IIFair values in Level II are determined, directly or indirectly, using inputs that are observable for the asset or liability.Level IIIFair values in Level III are determined using inputs for the asset or liability that are not readily observable.The fair value measurement of a financial instrument is included in only one of the three levels, the determination of which is based upon the lowest level input that is significant to the derivation of the fair value. Classification of financial instruments requires management to use judgment in respect of both the determination of fair value and the lowest level input of significance.(b) Recent Accounting PronouncementsCertain new standards, interpretations, amendments and improvements to existing standards were issued by the IASB or International Financial Reporting Interpretations Committee ("IFRIC") that are mandatory for accounting periods beginning January 1, 2011 or later periods. The standards impacted that are applicable to Superior are as follows:IFRS 7 - Financial Instruments: Disclosure, amendments regarding disclosures - Transfer of Financial Assets;In October 2010, IASB amended IFRS 7 - Financial Instruments: Disclosures to require quantitative and qualitative disclosures for transfers of financial assets where the transferred assets are not derecognized in their entirety or the transferor retains continuing managerial involvement. The amendment also requires disclosure of supplementary information if a substantial portion of the total amount of the transfer activity occurs in the closing days of a reporting period. The amendments to IFRS 7 must be applied for annual periods beginning on or after July 1, 2011, with early adoption permitted. Superior is assessing the effect of IFRS 7 on its disclosures, however changes, if any, are not expected to be material.IFRS 9 - Financial Instruments: Classification and Measurement;IFRS 9, Financial Instruments, was issued in November 2009 and is intended to replace IAS 39, Financial Instruments: Recognition and Measurement. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. Requirements for financial liabilities were added in October 2010 and they largely carried forward existing requirements in IAS 39, Financial Instruments - Recognition and Measurement, except that fair value changes due to credit risk for liabilities designated at fair value through profit and loss would generally be recorded in other comprehensive income. This standard is required to be applied for accounting periods beginning on or after January 1, 2013, with earlier adoption permitted. Superior is assessing the effect of IFRS 9 on its financial results and financial position, however changes, if any, are not expected to be material.IFRS 10 - Consolidated Financial Statements;IFRS 10, Consolidated Financial Statements, establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. IFRS 10 requires an entity to consolidate an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Under existing IFRS, consolidation is required when an entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The revised standard is effective for Superior on January 1, 2013, with earlier adoption permitted. Superior is assessing the effect of the changes to IFRS 10 on its financial results and financial position.IFRS 11 - Joint Arrangements;IFRS 11, Joint Arrangements, requires a venture to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method of accounting, whereas joint operations will require the venture to recognize its share of the assets, liabilities, revenue and expenses. This standard is required to be applied for accounting periods beginning on or after January 1, 2013, with earlier adoption permitted. Superior is assessing the effect of the changes to IFRS 11 on its financial results and financial position.IFRS 12 - Disclosure of Interests in Other Entities;IFRS 12, Disclosure of Interests in Other Entities, establishes disclosure requirements for interests in other entities, such as joint arrangements, associates, special purpose vehicles and off balance sheet vehicles. The standard carries forward existing disclosures and also introduces significant additional disclosure requirements that address the nature of, and risks associated with, an entity's interests in other entities. This standard is effective for Superior on January 1, 2013, with early adoption permitted. Superior has not assessed the impact the adoption of this revised standard will have, nor has it determined if it will early adopt the standard.IFRS 13 - Fair Value Measurements;IFRS 13, Fair Value Measurements, defines fair value, sets out a single IFRS framework for measuring fair value and requires disclosures about fair value measurements. IFRS 13 applies to IFRSs that require or permit fair value measurements or disclosures about fair value measurements (and measurements, such as fair value less costs to sell, based on fair value or disclosures about those measurements), except in specified circumstances. IFRS 13 is to be applied for annual periods beginning on or after January 1, 2013. Earlier application is permitted. Superior is assessing the effect of the changes to IFRS 13 on its financial results and financial position.IAS 12 - Income Taxes, amendments regarding Deferred Tax: Recovery of Underlying Assets;IAS 12, Income Taxes, was amended in December 2010 to remove subjectivity in determining on which basis an entity measures the deferred tax relating to an asset. The amendment introduces a presumption that an entity will assess whether the carrying amount of an asset will be recovered through the sale of the asset. The amendment to IAS 12 is effective for reporting periods beginning on or after January 1, 2012. Superior is assessing the effect of the changes to IAS 12 on its financial results and financial position.IAS 19 - Employee Benefits, amendments;IAS 19 amendments were issued in June 2011 that will change the accounting for and disclosure of defined benefit plans and termination benefits. This standard requires that the changes in defined benefit obligations are recognized as they occur, eliminating the corridor approach and accelerating the recognition of past service costs. The changes in defined benefit obligations and plan assets are to be disaggregated into three components: service costs, net interest on the net defined benefit liabilities (assets) and re-measurements of the net defined benefit liabilities (assets). This standard is required to be applied for accounting periods beginning on or after January 1, 2013, with early adoption permitted.IAS 1 - Amendments to IAS 1, Presentation of Financial Statements: Other Comprehensive Income;On June 16, 2011, the IASB issued amendments to IAS 1, Presentation of Financial Statements, which require entities preparing financial statements in accordance with IFRSs to group together items within other comprehensive income (OCI) that may be reclassified to the net earnings or loss section of the income statement and to separately group together items that will not be reclassified to the profit or loss section of the income statement. The amendments also reaffirm existing requirements that net earnings or loss and OCI should be presented as either a single statement or two consecutive statements. The amendments are effective for financial years commencing on or after July 1, 2012.Superior does not anticipate that any of these changes will have a material impact on its results of operations or financial position.3. Seasonality of OperationsEnergy ServicesEnergy Services sales typically peak in the first quarter when approximately one-third of annual propane and other refined fuels sales volumes and gross profits are generated due to the demand from heating end-use customers. They then decline through the second and third quarters rising seasonally again in the fourth quarter with heating demand. Similarly, net working capital levels are typically at seasonally high levels during the first and fourth quarters, 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 and other refined fuels.Construction Products DistributionConstruction Products Distribution sales typically peak during the second and third quarters with the seasonal increase in building and remodeling activities. They then decline through the first and fourth quarters. Similarly, net working capital levels are typically at seasonally high levels during the second and third quarters, and normally decline to seasonally low levels in the first and fourth quarters.4. AcquisitionsOn November 17, 2011, Superior completed the acquisition of certain assets which constitute an insulation services business (Insulation Assets) for an aggregate purchase price of $0.2 million. Superior elected to not disclose a purchase price equation for the acquisition as it was considered immaterial. Superior cannot reasonably determine the net earnings amount attributable to the Insulation Assets had the acquisition closed on January 1, 2011 or from the date of acquisition as operations were integrated into Superior's existing operations.On October 7, 2011, Superior completed the acquisition of certain assets which constitute a refined fuels distribution business (Hamilton) for an aggregate purchase price of $0.4 million. Superior elected to not disclose a purchase price equation for the acquisition as it was considered immaterial. Superior cannot reasonably determine the net earnings amount attributable to Hamilton had the acquisition closed on January 1, 2011 or from the date of acquisition as operations were integrated into Superior's existing operations.On October 6, 2011, Superior completed the acquisition of certain assets which constitute a propane distribution business (Walts) for an aggregate purchase price of $1.0 million. Superior elected to not disclose a purchase price equation for the acquisition as it was considered immaterial. Superior cannot reasonably determine the net earnings amount attributable to Walts had the acquisition closed on January 1, 2011 or from the date of acquisition as operations were integrated into Superior's existing operations.On September 8, 2011, Superior completed the acquisition of certain assets (Elkhorn) which constitute propane distribution business for an aggregate purchase price of $6.5 million including adjustments for working capital. The primary purpose of the acquisition is to expand the Energy Services business in Pennsylvania and benefit from synergies. The below noted fair values have been prepared on a preliminary basis pending finalization of net working capital adjustments.Elkhorn Fair Value Recognized on Acquisition ----------------------------------------------------------------------------Intangible assets 4.7 Property, plant and equipment 2.3 ---------------------------------------------------------------------------- 7.0 Trade and other payables (0.1)---------------------------------------------------------------------------- (0.1)Net identifiable assets and liabilities 6.9 Gain on bargain purchase (0.4)----------------------------------------------------------------------------Total consideration 6.5 ----------------------------------------------------------------------------The components of the purchase consideration are as follows: Cash (paid on September 8, 2011) 6.0 Deferred consideration 0.5 ----------------------------------------------------------------------------Total purchase consideration 6.5 --------------------------------------------------------------------------------------------------------------------------------------------------------Superior cannot reasonably determine the revenue and net earnings amount attributable to Elkhorn had the acquisition closed on January 1, 2011 due to limited access to the related financial information.On August 4, 2011, Superior completed the acquisition of certain assets which constitute a refined fuel and propane distribution business (Brennan) for an aggregate purchase price of $3.7 million including adjustments for working capital. Superior elected to not disclose a purchase price equation for the acquisition as it was considered immaterial. Superior cannot reasonably determine the net earnings amount attributable to Brennan had the acquisition closed on January 1, 2011 or from the date of acquisition as operations were integrated into Superior's existing operations.On April 29, 2011, Superior completed the acquisition of certain assets which constitute a refined fuel and propane distribution business located in New Hartford, Connecticut (Country Comfort) for an aggregate purchase price of $0.4 million including adjustments for working capital. Superior elected to not disclose a purchase price equation for the acquisition as it was considered immaterial. Superior cannot reasonably determine the net earnings amount attributable to Country Comfort had the acquisition closed on January 1, 2011 or from the date of acquisition as operations were integrated into Superior's existing operations.On March 9, 2011, Superior completed the acquisition of certain assets (Propane Acquisition) which constitute propane distribution business for an aggregate purchase price of $5.3 million including adjustments for working capital. The primary purposes of the acquisition are to expand Energy Services business in Ontario and benefit from synergies.Propane Acquisition Fair Value Recognized on Acquisition ----------------------------------------------------------------------------Trade and other receivables(1) 1.3 Inventories 0.2 Property, plant and equipment 1.1 ---------------------------------------------------------------------------- 2.6 Trade and other payables (0.4)---------------------------------------------------------------------------- (0.4)Net identifiable assets and liabilities 2.2 Goodwill arising on acquisition 3.1 ----------------------------------------------------------------------------Total consideration 5.3 ----------------------------------------------------------------------------The components of the purchase consideration are as follows: Cash (paid on March 9, 2011) 4.3 Deferred consideration 1.0 ----------------------------------------------------------------------------Total purchase consideration 5.3 --------------------------------------------------------------------------------------------------------------------------------------------------------1. The gross amount of trade receivables is $1.4 million, of which $0.1 is expected to be uncollectible. Superior cannot reasonably determine the revenue and net earnings contributed since the acquisition or the amounts attributable to the Propane Acquisition had the acquisition closed on January 1, 2011 as operations were integrated into Superior's existing operations.On January 15, 2011, Superior completed the acquisition of certain assets which constitute a refined fuel and propane distribution business (Butler) for an aggregate purchase price of $0.5 million including adjustments for working capital. Superior elected to not disclose a purchase price equation for the acquisition as it was considered immaterial. Superior cannot reasonably determine the net earnings amount attributable to Butler had the acquisition closed on January 1, 2011 or from the date of acquisition as operations were integrated into Superior's existing operations.On October 25, 2010, Superior completed the acquisition of certain assets which constitute a US retail heating oil and propane distribution business (KW Acquisition) for an aggregate purchase price of $4.9 million including adjustments for working capital. The assets provide a broad range of services, including heating, ventilation and air conditioning repair and other related services.KW Acquisition Fair Value Recognized on Acquisition ----------------------------------------------------------------------------Inventories 0.2 Property, plant and equipment 3.3 Intangible assets 4.1 ---------------------------------------------------------------------------- 5.6 Trade and other payables (0.7)Deferred tax liability (0.8)---------------------------------------------------------------------------- (1.5)Net identifiable assets and liabilities 4.9 Gain on bargain purchase (1.2)----------------------------------------------------------------------------Total consideration 4.9 The components of the purchase consideration are as follows: Cash (paid on October 25 and November 4, 2010) 4.4 Deferred consideration 0.5 ----------------------------------------------------------------------------Total purchase consideration 4.9 --------------------------------------------------------------------------------------------------------------------------------------------------------Superior cannot reasonably determine the net earnings amount attributable to the KW Acquisition had the acquisition closed on January 1, 2011 or from the date of acquisition as operations were integrated into Superior's existing operations.On June 28, 2010, Superior completed the acquisition of certain assets of a Western Canadian commercial and industrial insulation distributor (Burnaby) for an aggregate purchase price of $17.7 million, inclusive of $0.1 million in transaction costs which have been expensed through other expenses in the consolidated statement of net loss and comprehensive loss. The assets acquired consist of three operating branches in Alberta and British Columbia and allows Construction Products Distribution to expand its commercial and industrial distribution business in Canada.Burnaby Fair Value Recognized on Acquisition ----------------------------------------------------------------------------Trade and other receivables(1) 8.4 Inventories 2.9 Property, plant and equipment 0.5 Intangible assets(2) 2.1 ---------------------------------------------------------------------------- 13.9 Trade and other payables (3.0)---------------------------------------------------------------------------- (3.0)Net identifiable assets and liabilities 10.9 Goodwill arising on acquisition 6.8 ----------------------------------------------------------------------------Total consideration 17.7 ----------------------------------------------------------------------------1. The gross amount of trade receivables is $8.6 million, of which $0.2 million is expected to be uncollectible. 2. Superior has reclassified $2.1 million to separable identifiable intangible assets from goodwill as part of the finalization of the Burnaby purchase allocation. The components of the purchase consideration are as follows: Cash (paid on June 28, 2010) 2.0 Common shares 15.7----------------------------------------------------------------------------Total purchase consideration 17.7--------------------------------------------------------------------------------------------------------------------------------------------------------Superior completed the acquisition of Burnaby in order expand its commercial and industrial insulation business in Canada.Revenue and net loss for the year ended December 31, 2010 would have been $21.4 million and $5.7 million, respectively, if the Burnaby acquisition had occurred on January 1, 2010. S Subsequent to the acquisition date of June 28, 2010, Burnaby contributed to Construction Products Distribution revenue and net earnings were $17.5 million and $3.1 million, respectively for the year ended December 31, 2010.On January 20, 2010, Superior acquired 100% of the shares of Griffith Holdings Inc. (Griffith) for consideration of $142.6 million, net of $2.5 million in cash assumed. Additionally, $1.6 million in transaction costs were incurred during the course of this acquisition, which has been expensed through other expenses in the consolidated statement of net loss and comprehensive loss. The fair value of the identifiable assets and liabilities of Griffith as at the date of acquisition were:Griffith Acquisition Fair Value Recognized on Acquisition ----------------------------------------------------------------------------Trade and other receivables(1) 41.1 Inventories 23.2 Unrealized gains on derivative financial instruments 1.2 Property, plant and equipment 83.2 Intangible assets 54.4 ---------------------------------------------------------------------------- 203.1 Trade and other payables (32.8)Provisions (3.6)Assumed deferred consideration obligations (0.6)Deferred tax liability (41.7)---------------------------------------------------------------------------- (78.7)Net identifiable assets and liabilities 124.4 Goodwill arising on acquisition(2) 18.0 ----------------------------------------------------------------------------Total consideration 142.4 ----------------------------------------------------------------------------The components of the purchase consideration are as follows: Cash paid 142.4 ----------------------------------------------------------------------------Total purchase consideration 142.4 --------------------------------------------------------------------------------------------------------------------------------------------------------1. The gross amount of trade receivables is $34.7 million, of which $0.9 million is expected to be uncollectible. 2. The amount of goodwill that is expected to be deductible for tax purposes is approximately $7.0 million. Superior completed the acquisition of Griffith in order expand its refined fuels distribution business into the north eastern U.S. The Company's business is complementary to Superior's other operations in New York state.Revenue and net earnings for the twelve months ended December 31, 2010 for Energy Services would have included $686.0 million and $11.7 million, respectively, if the Griffith acquisition had occurred on January 1, 2010. Subsequent to the acquisition date of January 20, 2010, Griffith contributed to Energy Services revenue and net earnings of $644.0 million and $10.7 million, respectively for the twelve months ended December 31, 2010.5. Trade and Other ReceivablesA summary of trade and other receivables are as follows: December 31, December 31, January 1, Notes 2011 2010 2010----------------------------------------------------------------------------Trade receivables, net of allowances 18 427.1 499.7 330.3Accounts receivable - other 45.1 50.7 64.0Finance lease receivable 0.7 0.6 -----------------------------------------------------------------------------Trade and other receivables 472.9 551.0 394.3--------------------------------------------------------------------------------------------------------------------------------------------------------6. InventoriesFor the three and twelve months ended December 31, 2011 inventories of $741.4 million (December 31, 2010 - $696.7 million) and $2,769.2 million (December 31, 2010 - $2,356.6 million) were expensed through cost of products sold. Inventory was written down during the year ended December 31, 2011 by $2.6 million (December 31, 2010 - $1.6 million). No reversals of write downs were recorded during the year ended December 31, 2011 and 2010.7. Insurance ClaimDuring the fourth quarter of 2010, Specialty Chemicals' Buckingham, Quebec sodium chlorate plant experienced an electrical transformer failure which caused one its production lines to cease operation. The electrical equipment was repaired and the production line resumed operations in the second quarter of 2011. During the outage, efforts were made to source product from other producers to satisfy customer requirements. However, a portion of sodium chlorate sales were lost and additional costs were incurred in order to purchase additional product and make repairs to the equipment. In the fourth quarter of 2011, a partial payment of $3.7 million was received for Specialty Chemicals' business interruption and property damage claim. The $3.7 million has been recorded as a reduction to cost of sales ($3.2 million) and to operating expenses ($0.5 million) based on the respective business interruption and property damage claim amounts net of the insurance deductible amount.8. Property, Plant and Equipment---------------------------------------------------------------------------- Specialty Energy Chemicals Services Plant & Retailing Land Buildings Equipment Equipment----------------------------------------------------------------------------Cost ----------------------------------------------------------------------------Balance at January 1, 2010 29.0 136.2 719.1 467.3----------------------------------------------------------------------------Balance at December 31, 2010 29.4 140.4 713.8 582.8----------------------------------------------------------------------------Balance at December 31, 2011 29.7 147.3 728.4 591.5----------------------------------------------------------------------------Accumulated Depreciation and Impairment ----------------------------------------------------------------------------Balance at January 1, 2010 - 28.4 230.8 240.0----------------------------------------------------------------------------Balance at December 31, 2010 - 33.7 269.1 272.9----------------------------------------------------------------------------Balance at December 31, 2011 - 38.8 308.2 285.8--------------------------------------------------------------------------------------------------------------------------------------------------------Carrying Value ----------------------------------------------------------------------------As at January 1, 2010 29.0 107.8 488.3 227.3As at December 31, 2010 29.4 106.7 444.7 309.9As at December 31, 2011 29.7 108.5 420.2 305.7---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Construction Products Distribution Leasehold Equipment Improvements Total--------------------------------------------------------------------------Cost --------------------------------------------------------------------------Balance at January 1, 2010 39.2 9.4 1,400.2--------------------------------------------------------------------------Balance at December 31, 2010 37.8 9.2 1,513.4--------------------------------------------------------------------------Balance at December 31, 2011 41.2 9.6 1,547.7--------------------------------------------------------------------------Accumulated Depreciation and Impairment --------------------------------------------------------------------------Balance at January 1, 2010 14.7 6.3 520.2--------------------------------------------------------------------------Balance at December 31, 2010 18.6 6.7 601.0--------------------------------------------------------------------------Balance at December 31, 2011 22.4 7.5 662.7----------------------------------------------------------------------------------------------------------------------------------------------------Carrying Value --------------------------------------------------------------------------As at January 1, 2010 24.5 0.3 880.0As at December 31, 2010 19.2 2.5 912.4As at December 31, 2011 18.8 2.1 885.0----------------------------------------------------------------------------------------------------------------------------------------------------Depreciation per cost category: For the three months For the twelve months ended December 31, ended December 31, 2011 2010 2011 2010----------------------------------------------------------------------------Cost of sales 11.4 9.6 44.9 46.4Selling, distribution and 17.7 10.4 51.8 49.0 administrative costs ----------------------------------------------------------------------------Total 29.1 20.0 96.7 95.4----------------------------------------------------------------------------The carrying value of Superior's property, plant, and equipment includes $74.2 million as at December 31, 2011 (December 31, 2010 - $73.7 million and January 1, 2010 - $59.5 million) of leased assets.During the third quarter of 2011, a fire occurred at U.S. Refined Fuel's Mumford, New York fuel distribution location damaged and flooding occurred at Mountoursville, Pennsylvania distribution location causing damage to both facilities. Superior recognized an impairment charge of $3.4 million associated with the damage. Currently, it is not possible to estimate the expected amount of recovery that Superior will receive under its business interruption insurance policies and therefore as at December 31, 2011, no receivable for insurance recovery has been recorded. Insurance recoveries are recorded when the amount of the recovery has been agreed with the insurer or when payments are received.9. Intangible Assets---------------------------------------------------------------------------- Energy Services Construction Specialty Customer Trademarks Products Chemicals Contract & Non- Distribution Royalty Related Compete Intangible Assets and Investment Costs Agreements Assets Patents Property Total----------------------------------------------------------------------------Cost ----------------------------------------------------------------------------Balance at January 1, 2010 36.5 108.8 46.7 65.4 1.0 258.4----------------------------------------------------------------------------Balance at December 31, 2010 38.2 166.5 20.5 65.4 1.0 291.6----------------------------------------------------------------------------Balance at December 31, 2011 39.8 69.7 1.1 65.4 1.0 177.0--------------------------------------------------------------------------------------------------------------------------------------------------------Accumulated Amortization and Impairment ----------------------------------------------------------------------------Balance at January 1, 2010 21.8 2.0 3.0 46.0 - 72.8----------------------------------------------------------------------------Balance at December 31, 2010 27.0 25.1 2.8 52.5 - 107.4----------------------------------------------------------------------------Balance at December 31, 2011 31.2 20.7 0.4 59.1 - 111.4----------------------------------------------------------------------------Carrying value ----------------------------------------------------------------------------As at January 1, 2010 14.7 106.8 43.7 19.4 1.0 185.6As at December 31, 2010 11.2 141.4 17.7 12.9 1.0 184.2As at December 31, 2011 8.6 49.0 0.7 6.3 1.0 65.6--------------------------------------------------------------------------------------------------------------------------------------------------------Amortization per cost category: For the three months For the nine months ended December 31, ended December 31, 2011 2010 2011 2010----------------------------------------------------------------------------Selling, distribution and 13.2 12.5 45.3 30.4 administrative costs ----------------------------------------------------------------------------Total 13.2 12.5 45.3 30.4----------------------------------------------------------------------------An impairment charge was recorded to the intangible assets of Superior's Energy Services segment during the fourth quarter (see Note 10 for further details).10. Goodwill December 31, December 31, January 1, 2011 2010 2010----------------------------------------------------------------------------Balance at beginning of period 471.7 527.5 527.5Additional amounts recognized from business combinations occurring during the period (Note 4) 3.6 38.3 -Adjustment to Purchase Price Allocations (Note 4) (2.1) - -Impairment of Energy Services (227.8) - -Impairment Construction Products Distribution (61.2) (88.4) -Effect of foreign currency differences 1.9 (5.7) -----------------------------------------------------------------------------Balance at end of period 186.1 471.7 527.5--------------------------------------------------------------------------------------------------------------------------------------------------------Impairment of goodwill and intangible assetsGoodwill acquired through business combinations and intangible assets have been allocated for impairment testing to individual cash-generating units each representing the lowest level within Superior at which goodwill and intangible assets is monitored for internal management purposes. The cash generating units identified by management is consistent with the business segments disclosed in Note 26. On a quarterly basis Superior assesses whether any indications of impairment have occurred which would require a testing goodwill for impairment using a two-step process, with the first step being to assess whether the recoverable amount of a reporting unit to which goodwill is assigned is less than its carrying value. If this is the case, a second impairment test is performed which requires a comparison of the recoverable amount to its carrying value. Value in use calculations have been used to determine the recoverable amount for the goodwill and intangible assets allocated to Superior's cash generating units.Construction Products DistributionDuring the third quarter of 2011 it was determined that Superior's Construction Products Distribution segment had indications of impairment. As such Superior completed a detailed assessment of the business segment's operations; the recoverable amount of the Construction Products Distribution segment was determined using a detailed cash flow model based on current market assumptions surrounding the construction products industry which was negatively impacted by the continued economic slowdown across North America, the reduction in new home residential housing starts and ongoing weakness in commercial construction markets. Based on the calculated recoverable amount, it was determined that the goodwill and intangible assets in the Construction Products Distribution segment were impaired and a goodwill impairment charge of $61.2 million and an intangible assets impairment charge of $17.5 million were recognized as reduction in the carrying value of the respective balances during the third quarter of 2011.Basis on which recoverable amount has been determinedThe recoverable amount for the Construction Products Distribution segment was determined using a detailed cash flow model which was based on evidence from an internal board approved budget. Management's internal budgets are based on past experience and were adjusted to reflect market trends and economic conditions. The resulting recoverable amount was then compared to the carrying amount of the business segment which resulted in an impairment charge that was allocated to goodwill and intangible assets of the Construction Products Distribution segment. The impairment charge was recognized as an expense against Superior's net loss for the period ended December 31, 2011.Key rates used in calculation of recoverable amountGrowth rate to perpetuityThe first five years of cash flow projections used in the model were based on management's internal budgets and projections after five years were extrapolated using growth rates in line with historical long term growth rates in the construction products industry. The long term growth rate used in determining the recoverable amount for the Construction Products Distribution segment was 1.5%.Discount ratesCash flows in the model were discounted using a discount rate specific to the Construction Products Distribution segment. Discount rates reflect the current market assessments of the time value of money and are derived from the business segment's weighted average cost of capital. Risks specific to the Construction Products Distribution segment were reflected within the cash flow model. The weighted average cost of capital was then adjusted to reflect the impact of tax in order to calculate an equivalent pre-tax discount rate. The after-tax discount rate used in determining the recoverable amount for the Construction Products Distribution's segment was 12.0%.Inflation ratesInflation rates used in the cash flow model were based on a blend of a number of publically available inflation forecasts. The inflation rate used in determining the recoverable amount for the Construction Distribution Product's segment was 2%.Key assumptionsThe model used to determine the recoverable amount of the Construction Products Distribution segment is based on the assumption that sales revenue is expected to decline from 2010 levels due to market conditions which are expected to continue to impact the financial results of the business segment through to the end of 2012.Energy ServicesDuring the fourth quarter of 2011 it was determined that Superior's Energy Services was impaired. As such Superior completed a detailed assessment of the business segment's operations; the recoverable amount of the Energy Services segment was determined using a detailed cash flow model based on current market assumptions surrounding the Canadian propane distribution and U.S. refined fuels distribution industries which were negatively impacted by the continued economic slowdown across North America, shift in sales mix from higher margin heating volumes to lower margin non-heating volumes, and energy conservation efforts from Superior's customers. Based on the calculated recoverable amount, it was determined that the goodwill and intangible assets in the Energy Services segment were impaired and a goodwill impairment charge of $227.8 million and an intangible assets impairment charge of $72.7 million were recognized as reduction in the carrying value of the respective balances during the fourth quarter of 2011.Basis on which recoverable amount has been determinedThe recoverable amount for the Energy Services segment was determined using a detailed cash flow model which was based on evidence from an internal board approved budget. Management's internal budgets are based on past experience and were adjusted to reflect market trends and economic conditions. The resulting recoverable amount was then compared to the carrying amount of the business segment which resulted in an impairment charge that was allocated to goodwill and intangible assets of the Energy Services segments. The impairment charge was recognized as an expense against Superior's net loss for the year ended December 31, 2011.Key rates used in calculation of recoverable amountGrowth rate to perpetuityThe first five years of cash flow projections used in the model were based on management's internal budgets and projections after five years were extrapolated using growth rates in line with historical long term growth rates. The long term growth rate used in determining the recoverable amount for the Energy Services segment was 0.5%.Discount ratesCash flows in the model were discounted using a discount rate specific to the Energy Services segment. Discount rates reflect the current market assessments of the time value of money and are derived from the business segment's weighted average cost of capital. Risks specific to the Energy Services segment were reflected within the cash flow model. The weighted average cost of capital was then adjusted to reflect the impact of tax in order to calculate an equivalent pre-tax discount rate. The after-tax discount rate used in determining the recoverable amount for the Energy Services' segment was 10.8% for Canadian propane distribution and 11.5% for U.S. refined fuels.Inflation ratesInflation rates used in the cash flow model were based on a blend of a number of publically available inflation forecasts. The inflation rate used in determining the recoverable amount for the Energy Services' segment was 2%.Key assumptionsThe model used to determine the recoverable amount of the Energy Services segment is based on the assumption that is expected to decline from 2011 levels due to the items noted above which are expected to continue to impact the operating results of the business segment through to the end of 2012.11. Provisions---------------------------------------------------------------------------- Decommissioning Environmental Costs Expenditures Total ----------------------------------------------------------------------------Balance at January 1, 2010 6.9 - 6.9 Additional provisions recognized during the period 0.8 7.1 7.9 Utilization - (1.7) (1.7)Amounts reversed during the period - (2.3) (2.3)Unwinding of discount 0.3 - 0.3 Impact of change in discount rate 2.2 - 2.2 Net foreign currency exchange difference - (0.1) (0.1)----------------------------------------------------------------------------Balance at December 31, 2010 10.2 3.0 13.2 Additional provisions recognized during the period 3.4 - 3.4 Amounts reversed during the period - (0.9) (0.9)Utilization - (0.5) (0.5)Unwinding of discount 0.4 - 0.4 Impact of change in discount rate 1.7 - 1.7 Net foreign currency exchange difference (0.2) 0.1 (0.1)--------------------------------------------------------------------------------------------------------------------------------------------------------Balance at December 31, 2011 15.5 1.7 17.2 ----------------------------------------------------------------------------Decommissioning costsSpecialty ChemicalsSuperior makes full provision for the future cost of decommissioning Specialty Chemicals' chemical facilities. The provision for decommissioning costs is on a discounted basis and is based on existing technologies at current prices or long-term price assumptions, depending on the expected timing of the activity. As at December 31, 2011, the discount rate used in Superior's calculation was 2.5% (December 31, 2010 - 4.0%). Superior estimates the total undiscounted amount of expenditures required to settle its decommissioning liabilities is approximately $20.3 million (December 31, 2010 - $20.1 million) which will be paid out over the next twenty to twenty eight years. While Superior's provision for decommissioning costs is based on the best estimate of future costs and the economic lives of the chemical facilities, there is uncertainty regarding both the amount and timing of incurring these costs.Energy ServicesSuperior makes full provision for the future costs of decommissioning certain assets associated with Superior's Energy Services operating segment. Superior estimates the total undiscounted amount of expenditures required to settle its decommissioning liabilities is approximately $9.2 million (December 31, 2010 - $9.8 million) which will be paid out over the next twenty to twenty five years. The risk-free rate of 2.5% (December 31, 2010 - 4.0%) was used to calculate the present value of the estimated cash flows.Environmental ExpendituresProvisions for environmental remediation are made when a clean-up is probable and the amount of the obligation can be reliably estimated. Generally, this coincides with commitment to a formal plan of action or, if earlier, on divestment or on closure of inactive sites. The provision for environmental liabilities has been estimated using existing technology, at current prices and discounted using a risk-free discount rate of 2.5% (December 31, 2010 -4.0%). The majority of these costs are expected to be incurred over the next 10 years. The extent and cost of future remediation programs are inherently difficult to estimate. They depend on the scale of any possible contamination, the timing and extent of corrective actions, and also Superior's share of the liability.12. Trade and Other PayablesA summary of trade and other payables are as follows: December 31, December 31, January 1, Notes 2011 2010 2010----------------------------------------------------------------------------Trade payables 18 243.9 271.9 226.7Other payables 47.8 36.8 58.6Amounts due to customers under construction contracts 2.2 0.7 1.0Share based payments 22 3.7 8.8 9.1----------------------------------------------------------------------------Trade and other payables 297.6 318.2 295.4--------------------------------------------------------------------------------------------------------------------------------------------------------13. Deferred Revenue December 31, December 31, January 1, 2011 2010 2010----------------------------------------------------------------------------Balance at beginning of the period 6.8 5.8 5.8Deferred during the period 21.4 14.7 -Released to net earnings (loss) (14.5) (14.0) -Foreign exchange impact 0.5 0.3 -----------------------------------------------------------------------------Balance at end of period 14.2 6.8 5.8-------------------------------------------------------------------------------------------------------------------------------------------------------- December 31, December 31, January 1, 2011 2010 2010----------------------------------------------------------------------------Current 14.2 6.8 5.8Non-current - - ----------------------------------------------------------------------------- 17.8 6.8 5.8--------------------------------------------------------------------------------------------------------------------------------------------------------The deferred revenue relates to Energy Services unearned service revenue and deferred sales to a customer within the Specialty Chemicals segment.14. Borrowings Year of Maturity Effective Interest Rate ----------------------------------------------------------------------------Revolving term bank credits(1) Bankers Acceptances (BA) 2014 Floating BA rate plus applicable credit spread Canadian Prime Rate Loan 2014 Prime rate plus credit spread LIBOR Loans (US$138.9 million; 2010- 2014 Floating LIBOR rate plus US$143.0 million) applicable credit spread US Base Rate Loan 2014 US Prime rate plus credit spread (US$29.2 million; 2010- US$31.0 million) -------------------------------------------------------------------------------------------------------------------------------------------------------- Other Debt Notes payable Prime Deferred consideration 2012-2016 Non-interest bearing Accounts receivable securitization (2) -------------------------------------------------------------------------------------------------------------------------------------------------------- Senior Secured Notes(3) ---------------------------------------------------------------------------- Senior secured notes subject to 2012-2015 7.65% fixed interest rates (US$124.0 million; 2010 - US$156.0 million) ---------------------------------------------------------------------------- Senior Unsecured Debentures ---------------------------------------------------------------------------- Senior unsecured debentures 2016 8.25%---------------------------------------------------------------------------- Leasing Obligations ---------------------------------------------------------------------------- Leasing obligations (see Note 15) --------------------------------------------------------------------------------------------------------------------------------------------------------Total Borrowings before deferred financing fees Deferred financing fees ----------------------------------------------------------------------------Borrowings Current maturities ----------------------------------------------------------------------------Borrowings -------------------------------------------------------------------------------------------------------------------------------------------------------- December 31, December 31, January 1, 2011 2010 2010 ----------------------------------------------------------------------------Revolving term bank credits(1) Bankers Acceptances (BA) 60.8 174.6 219.5 Canadian Prime Rate Loan 19.8 40.0 - LIBOR Loans (US$138.9 million; 2010- 141.3 142.3 146.1 US$143.0 million) US Base Rate Loan 29.7 30.8 6.3 (US$29.2 million; 2010- US$31.0 million) ---------------------------------------------------------------------------- 410.3 273.9 327.0 ---------------------------------------------------------------------------- Other Debt Notes payable - - 0.6 Deferred consideration 4.0 1.2 2.4 Accounts receivable securitization - 90.1 92.7 (2) ---------------------------------------------------------------------------- 4.0 91.3 95.7 ---------------------------------------------------------------------------- Senior Secured Notes(3) ---------------------------------------------------------------------------- Senior secured notes subject to 126.1 155.1 165.4 fixed interest rates (US$124.0 million; 2010 - US$156.0 million) ---------------------------------------------------------------------------- Senior Unsecured Debentures ---------------------------------------------------------------------------- Senior unsecured debentures 150.0 150.0 150.0 ---------------------------------------------------------------------------- Leasing Obligations ---------------------------------------------------------------------------- Leasing obligations (see Note 15) 71.7 69.7 58.0 --------------------------------------------------------------------------------------------------------------------------------------------------------Total Borrowings before deferred 762.1 740.0 796.1 financing fees Deferred financing fees (6.4) (7.1) (7.1)----------------------------------------------------------------------------Borrowings 755.7 732.9 789.0 Current maturities (54.3) (136.2) (108.9)----------------------------------------------------------------------------Borrowings 701.4 596.7 680.1 --------------------------------------------------------------------------------------------------------------------------------------------------------1. Superior and its wholly-owned subsidiaries, Superior Plus Financing Inc. and Commercial E Industrial (Chile) Limitada, expanded the revolving term bank credit borrowing capacity to $615 million from $450 million on June 20, 2011. The credit facilities mature on June 27, 2014 and are secured by a general charge over the assets of Superior and certain of its subsidiaries. As at December 31, 2011, Superior had $34.8 million of outstanding letters of credit (December 31, 2010 - $28.6 million) and approximately $84.2 million of outstanding financial guarantees (December 31, 2010 - $65.3 million). The fair value of Superior's revolving term bank credits, other debt, letters of credit, and financial guarantees approximates their carrying value as a result of the market based interest rates, the short-term nature of the underlying debt instruments and other related factors. 2. Superior sold, with limited recourse, certain trade accounts receivable on a revolving basis to an entity sponsored by a Canadian chartered bank. The accounts receivable were sold at a discount to face value based on prevailing money market rates. The level of accounts receivable sold under the program fluctuates seasonally with the level of accounts receivable. As at December 31, 2011 proceeds of $nil million (December 31, 2010 - $90.1 million) had been received. Superior terminated the accounts receivable securitization program in June 2011. 3. Senior secured notes (the Notes) totaling US$124.0 million (Cdn$126.1 million at December 31, 2011 and Cdn$155.1 million at December 31, 2010) are secured by a general charge over the assets of Superior and certain of its subsidiaries. Principal repayments began in the fourth quarter of 2009. Management has estimated the fair value of the Notes based on comparisons to treasury instruments with similar maturities, interest rates and credit risk profiles. The estimated fair value of the Notes at December 31, 2011 was Cdn$121.0 million (December 31, 2010 - Cdn$156.6 million). Repayment requirements of Borrowings before deferred financing costs are as follows: Current maturities 54.3Due in 2013 54.2Due in 2014 451.6Due in 2015 41.6Due in 2016 155.8Due in 2017 4.6Subsequent to 2017 -----------------------------------------------------------------------------Total 762.1--------------------------------------------------------------------------------------------------------------------------------------------------------15. Leasing ArrangementsOperating Lease CommitmentsSuperior has entered into leases on certain vehicles, rail cars, premises and other equipment. These leases have an average life of between three and five years with no renewal option included in the contracts. There are no restrictions placed upon Superior by entering into these leases.Future minimum lease payments under non-cancellable operating leases are as follows: December 31, December 31, January 1, 2011 2010 2010----------------------------------------------------------------------------Not later than one year 26.8 27.7 26.5Later than one year and not later 57.2 65.6 60.4 than five years Later than five years 27.1 20.7 15.8---------------------------------------------------------------------------- 111.1 114.0 102.7--------------------------------------------------------------------------------------------------------------------------------------------------------Obligations under finance leaseFinance leases relate to fuel distribution and construction products vehicles and equipment and office space with lease terms of 5 to 15 years. Superior has options to purchase the assets for a nominal amount at the conclusion of the lease agreements. Superior's obligations under finance leases are secured by the lessors title to the leased assets. December 31, December 31, January 1, Minimum Lease Payments 2011 2010 2010 ----------------------------------------------------------------------------Not later than one year 19.8 18.3 14.7 Later than one year and not later than five years 57.9 56.2 46.6 Later than five years 5.8 7.3 9.4 Less: future finance charges (11.8) (12.1) (12.7)----------------------------------------------------------------------------Present value of minimum lease payments 71.7 69.7 58.0 --------------------------------------------------------------------------------------------------------------------------------------------------------Present Value of Minimum Lease December 31, December 31, January 1, Payments 2011 2010 2010 ----------------------------------------------------------------------------Not later than one year 15.6 13.9 11.1 Later than one year and not later than five years 51.5 48.8 39.0 Later than five years 4.6 7.0 8.9 ----------------------------------------------------------------------------Present value of minimum lease payments 71.7 69.7 58.0 --------------------------------------------------------------------------------------------------------------------------------------------------------Included in the Consolidated Financial Statements as: December 31, December 31, January 1, Notes 2011 2010 2010----------------------------------------------------------------------------Current portion of leasing obligations 14 15.6 13.9 11.1Non-current portion of leasing obligations 56.1 55.8 46.9---------------------------------------------------------------------------- 71.7 69.7 58.0--------------------------------------------------------------------------------------------------------------------------------------------------------16. Convertible Unsecured Subordinated DebenturesSuperior's debentures are as follows:---------------------------------------------------------------------------- December October December June Maturity 2012 2015 2014 2017(1)Interest rate 5.75% 5.85% 7.50% 5.75%Conversion price per share $ 36.00 $ 31.25 $ 13.10 $ 19.00 ----------------------------------------------------------------------------Face value, December 31, 2010 174.9 75.0 69.0 172.5 Debentures issued - - - - Debentures redeemed(4) (125.0) - - - ----------------------------------------------------------------------------Face value, December 31, 2011 49.9 75.0 69.0 172.5 ----------------------------------------------------------------------------Issue costs, December 31, 2010 (2.7) (1.2) (2.7) (6.5) Issue costs incurred - - - - Redemption adjustment 1.2 - - - Accretion of issue costs 1.0 0.3 0.6 0.8 ----------------------------------------------------------------------------Issue costs, December 31, 2011 (0.5) (0.9) (2.1) (5.7)----------------------------------------------------------------------------Discount value, December 31, 2010 (0.8) (0.3) (0.4) (0.2) Recognized discount value - - - - Redemption adjustment 0.3 - - - Accretion of discount value 0.4 0.1 0.1 - ----------------------------------------------------------------------------Discount value, December 31, 2011 (0.1) (0.2) (0.3) (0.2)----------------------------------------------------------------------------Debentures outstanding as at December 31, 2011 49.3 73.9 66.6 166.6 Less current maturities (49.3) - - - ----------------------------------------------------------------------------Debentures outstanding as at December 31, 2011 - 73.9 66.6 166.6 Debentures outstanding as at December 31, 2010 171.2 73.4 66.0 165.9 Debentures outstanding as at January 1, 2010 170.0 73.1 65.3 - --------------------------------------------------------------------------------------------------------------------------------------------------------Quoted market value as at December 31, 2011 50.0 63.0 65.2 122.5 Quoted market value as at December 31, 2010 175.8 74.9 71.6 162.6 Quoted market value as at January 1, 2010 177.1 74.4 78.3 - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ October Maturity June 2018(2) 2016(3) Total Interest rate 6.0% 7.5% Carrying Conversion price per share $ 15.10 $ 11.35 Value ----------------------------------------------------------------------------Face value, December 31, 2010 150.0 - 641.4 Debentures issued - 75.0 75.0 Debentures redeemed(4) - - (125.0)----------------------------------------------------------------------------Face value, December 31, 2011 150.0 75.0 591.4 ----------------------------------------------------------------------------Issue costs, December 31, 2010 (5.7) - (18.8) Issue costs incurred (0.2) (3.2) (3.4) Redemption adjustment - - 1.2 Accretion of issue costs 0.6 0.1 3.4 ----------------------------------------------------------------------------Issue costs, December 31, 2011 (5.3) (3.1) (17.6)----------------------------------------------------------------------------Discount value, December 31, 2010 (1.8) - (3.5) Recognized discount value - (0.4) (0.4) Redemption adjustment - - 0.3 Accretion of discount value 0.2 - 0.8 ----------------------------------------------------------------------------Discount value, December 31, 2011 (1.6) (0.4) (2.8)----------------------------------------------------------------------------Debentures outstanding as at December 31, 2011 143.1 71.5 571.0 Less current maturities - - (49.3)----------------------------------------------------------------------------Debentures outstanding as at December 31, 2011 143.1 71.5 521.7 Debentures outstanding as at December 31, 2010 142.6 - 619.1 Debentures outstanding as at January 1, 2010 - - 308.4 --------------------------------------------------------------------------------------------------------------------------------------------------------Quoted market value as at December 31, 2011 105.6 62.3 466.6 Quoted market value as at December 31, 2010 144.6 - 629.5 Quoted market value as at January 1, 2010 - - 329.8 --------------------------------------------------------------------------------------------------------------------------------------------------------1. Superior issued $172.5 million in 5.75% convertible unsecured subordinated debentures during the first quarter of 2010. In conjunction with the issuance of these debentures, Superior swapped $150 million of the fixed rate obligation into a floating-rate obligation of floating BA rate plus 2.65%. 2. Superior issued $150.0 million in 6.0% convertible unsecured subordinated debentures during the fourth quarter of 2010. 3. Superior issued $75.0 million in 7.5% convertible unsecured subordinated debentures during the fourth quarter of 2011. 4. Superior redeemed $75.0 million and $50.0 million of the 5.75% December 2012 convertible unsecured subordinated debentures on November 7, 2011 and December 12, 2011 respectively. The debentures may be converted into shares at the option of the holder at any time prior to maturity and may be redeemed by Superior in certain circumstances. Superior may elect to pay interest and principal upon maturity or redemption by issuing shares to a trustee in the case of interest payments, and to the debenture holders in the case of payment of principal. The number of any shares issued will be determined based on market prices for the shares at the time of issuance. Also Superior has a cash conversion put option which allows Superior to settle any conversion of debentures in cash, in lieu of delivering common shares to the debenture holders of the June 2018 and October 2016 convertible debentures. The cash conversion put option has been classified as an embedded derivative and measured at FVTNL (see Note 18 for further details).17. Employee Future BenefitsAmounts recognized in net earnings (loss) in respect of these defined benefit plans are as follows for the periods ended: For the three months For the year ended ended December 31, December 31, 2011 2010 2011 2010 ----------------------------------------------------------------------------Current service cost 0.7 0.5 2.5 2.0 Interest on obligation 2.0 2.0 8.2 8.4 Defined contribution plan payments - - 0.1 0.1 Expected return on plan assets (1.9) (1.8) (7.6) (7.2)Past service cost - 0.1 - 0.1 ---------------------------------------------------------------------------- 0.8 0.8 3.2 3.4 --------------------------------------------------------------------------------------------------------------------------------------------------------The total expense for the period is included in the "Selling, distribution and administrative costs" expense in the income statement.The amount recognized in "Other Comprehensive Income" is as follows: For the three months For the year ended ended December 31, December 31, 2011 2010 2011 2010 ----------------------------------------------------------------------------Actuarial gains and (losses) (3.5) 2.5 (25.4) (19.9)Cumulative actuarial losses - - (45.3) (19.9)----------------------------------------------------------------------------18. Financial InstrumentsIFRS requires disclosure around fair value and specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect Superior's market assumptions. These two types of inputs create the following fair value hierarchy:-- Level 1 - quoted prices in active markets for identical instruments. -- Level 2 - quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. -- Level 3 - valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. The fair value of a financial instrument is the amount of consideration that would be estimated to be agreed upon in an arm's-length transaction between knowledgeable, willing parties who are under no compulsion to act. Fair values are determined by reference to quoted bid or asking prices, as appropriate, in the most advantageous active market for that instrument to which Superior has immediate access. Where bid and ask prices are unavailable, Superior uses the closing price of the most recent transaction of the instrument. In the absence of an active market, Superior estimates fair values based on prevailing market rates (bid and ask prices, as appropriate) for instruments with similar characteristics and risk profiles or internal or external valuation models, such as discounted cash flow analysis using, to the extent possible, observable market-based inputs.Fair values determined using valuation models require the use of assumptions concerning the amount and timing of estimated future cash flows and discount rates. In determining those assumptions, Superior looks primarily to available readily observable external market inputs including factors such as forecast commodity price curves, interest rate yield curves, currency rates, and price and rate volatilities as applicable.-------------------------------------------------------------------------------------------------------------------------------------------------------- Fair Value Effective InputDescription Notional (1) Term Rate Level----------------------------------------------------------------------------Natural gas financial swaps- NYMEX - - - Level 1Natural gas financial swaps- 2012- AECO 29.64 GJ(2) 2016 CDN$4.84/GJ Level 1Foreign currency forward 2012- contracts, net sale US$706.9(3) 2015 1.03 Level 1Foreign currency forward contracts, net purchase - - - Level 1Interest rate swaps - CDN$ Six month BA 2012- rate plus $150.0 2017 2.65% Level 2Debenture embedded derivative $225.0 2012-2018 - Level 3Energy Services Propane wholesale purchase and sale contracts, net sale 4.08 USG(4) 2012 $1.62/USG Level 2Energy Services Butane wholesale purchase and sale contracts, net sale 0.40 USG(4) 2012 $1.17/USG Level 2Energy Services electricity 2012- swaps 1.73MWh(5) 2016 $45.91/MWh Level 2Energy Services swaps and option purchase and sale 17.3 $2.70 contracts Gallons(4) 2012 US/Gallon Level 2Specialty Chemicals fixed-price 2012- electricity purchase agreement 12-45 MW (6) 2017(7) $37.59/MWh Level 3------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Asset (Liability) ---------------------------------------------------------------------------- December 31, December 31, January 1,Description 2011 2010 2010----------------------------------------------------------------------------Natural gas financial swaps- NYMEX - (101.1) (22.2)Natural gas financial swaps- AECO (78.9) (2.9) (69.3)Foreign currency forward contracts, net sale 5.7 12.5 12.5Foreign currency forward contracts, net purchase - 0.4 0.4Interest rate swaps - CDN$ 10.9 (1.3) -Debenture embedded derivative (0.6) (1.8) -Energy Services Propane wholesale purchase and sale contracts, net sale (0.6) (1.6) (2.2)Energy Services Butane wholesale purchase and sale contracts, net sale 0.2 - (0.2)Energy Services electricity swaps (16.0) (13.0) (9.3)Energy Services swaps and option purchase and sale contracts (0.7) 1.2 0.1Specialty Chemicals fixed-price electricity purchase agreement - 5.3 10.5--------------------------------------------------------------------------------------------------------------------------------------------------------1. Notional values as at December 31, 2011 2. Millions of gigajoules purchased 3. Millions of dollars/EUROS purchased 4. Millions of United States gallons purchased 5. Millions of mega watt hours (MWh) 6. Mega watts (MW) on a 24/7 continual basis per year purchased 7. Specialty Chemicals fixed-price electricity purchase agreement has been impacted by the TransAlta Corporate force majeure issued in December 2010 and the value of the agreement is estimated as $nil million. All financial and non-financial derivatives are designated as fair value through net earnings or loss upon their initial recognition.---------------------------------------------------------------------------- Current Long-term Current Long-term Assets Assets Liabilities LiabilitiesDescription ----------------------------------------------------------------------------Natural gas financial swaps - - 46.7 32.2 - NYMEX and AECO Energy Services electricity - - 8.6 7.4 swaps Foreign currency forward 7.1 7.7 1.7 7.4 contracts, net Interest rate swaps 2.6 8.3 - -Debenture embedded - - - 0.6 derivative Energy Services propane 3.1 - 3.7 - wholesale purchase and sale contracts Energy Services butane 0.2 - - - wholesale purchase and sale contracts Energy Services heating oil 0.3 - 1.0 - purchase and sale contracts ----------------------------------------------------------------------------As at December 31, 2011 13.3 16.0 61.7 47.6As at January 1, 2010 22.2 28.5 77.8 52.6As at December 31, 2010 31.4 26.6 78.6 57.8------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ For the three months ended For the three months ended December 31, 2011 December 31, 2010 Realized Unrealized Realized Unrealized Description gain(loss) gain (loss) gain (loss) gain (loss)----------------------------------------------------------------------------Natural gas financial swaps - NYMEX and AECO (13.6) (13.0) (21.8) 16.6 Energy Services electricity swaps (2.4) (4.2) (1.5) (3.6)Foreign currency forward contracts, net 0.5 47.3 4.8 16.5 Interest rate swaps 1.3 - 1.5 (5.4)Foreign currency forward contracts, balance sheet related (0.2) (29.7) - 0.5 Energy Services propane wholesale purchase and sale contracts - - - 0.4 Energy Services butane wholesale purchase and sale contracts - (3.1) - (3.8)Energy Services heating oil purchase and sale contracts 2.8 (0.9) (1.6) 0.2 Specialty Chemicals fixed-price power purchase agreements (0.9) - (3.2) 2.1 ----------------------------------------------------------------------------Total realized and unrealized gains (losses) on financial and non- financial derivatives (12.5) (3.6) (21.8) 23.5 --------------------------------------------------------------------------------------------------------------------------------------------------------Foreign currency translation of senior secured notes - 4.1 - 5.5 Change in fair value of debenture embedded derivative - (0.2) - - ----------------------------------------------------------------------------Total realized and unrealized gains (losses) (12.5) 0.3 (21.8) 29.0 -------------------------------------------------------------------------------------------------------------------------------------------------------- For the year ended For the year ended December 31, 2011 December 31, 2010 Realized Unrealized Realized Unrealized Description gain(loss) gain (loss) gain(loss) gain (loss)----------------------------------------------------------------------------Natural gas financial swaps - NYMEX and AECO (63.9) 19.4 (82.2) (23.4)Energy Services electricity swaps (7.3) (3.1) (4.4) (3.7)Foreign currency forward contracts, net 15.7 (27.0) 5.2 19.7 Interest rate swaps 2.5 9.3 2.9 1.6 Foreign currency forward contracts, balance sheet related (0.2) - - 0.5 Energy Services propane wholesale purchase and sale contracts - - - 0.4 Energy Services heating oil purchase and sale contracts 1.7 (1.7) (1.5) (0.2)Specialty Chemicals fixed- price power purchase agreements (3.4) (5.4) 0.3 (5.3)----------------------------------------------------------------------------Total realized and unrealized gains (losses) on financial and non- financial derivatives (54.9) 8.5 (80.3) (10.4)--------------------------------------------------------------------------------------------------------------------------------------------------------Foreign currency translation of senior secured notes - (2.8) - 8.2 Change in fair value of debenture embedded derivative - 1.6 - - ----------------------------------------------------------------------------Total realized and unrealized losses (54.9) (9.7) (80.3) (2.2)----------------------------------------------------------------------------Realized gains (losses) on financial and non-financial derivatives and foreign currency translation gains (losses) on the revaluation of Canadian domiciled US-denominated working capital have been classified on the statement of net earnings (loss) based on the underlying nature of the financial statement line item and/or the economic exposure being managed.The following summarizes Superior's classification and measurement of financial assets and liabilities:---------------------------------------------------------------------------- Classification Measurement----------------------------------------------------------------------------Financial Assets Cash and cash equivalents Loans and receivables Amortized costTrade and other receivables Loans and receivables Amortized costDerivative assets FVTNL Fair ValueNotes and finance lease receivable Loans and receivables Amortized costFinancial liabilities Trade and other payables Other liabilities Amortized costDividends and interest payable Other liabilities Amortized costProvisions Other liabilities Amortized costBorrowings Other liabilities Amortized costConvertible unsecured subordinated debentures(1) Other liabilities Amortized costDerivative liabilities FVTNL Fair Value----------------------------------------------------------------------------1. Except for derivatives embedded in the related financial instruments that are classified as FVTNL and measured at fair value. Non-Derivative Financial InstrumentsThe fair value of Superior's cash and cash equivalents, trade and other receivables, notes and finance lease receivables, trade and other payables, and dividends and interest payable approximates their carrying value due to the short-term nature of these amounts. The carrying value and the fair value of Superior's borrowings and debentures, is provided in Notes 14 and 16.Financial Instruments - Risk ManagementMarket RiskFinancial derivatives and non-financial derivatives are used by Superior to manage its exposure to fluctuations in foreign currency exchange rates, interest rates and commodity prices. Superior assesses the inherent risks of these instruments by grouping derivative and non-financial derivatives related to the exposures these instruments mitigate. Superior's policy is not to use financial derivative or non-financial derivative instruments for speculative purposes. Superior does not formally designate its derivatives as hedges; as a result, Superior does not apply hedge accounting and is required to designate its financial derivatives and non-financial derivatives as fair value through profit or loss.Effective 2008, Energy Services entered into natural gas financial swaps primarily with Macquarie Cook Energy Canada Ltd. for distributor billed natural gas business in Canada to manage its economic exposure of providing fixed-price natural gas to its customers. Additionally, Energy Services continues to maintain its historical natural gas swap positions with seven additional counterparties. Energy Services monitors its fixed-price natural gas positions on a daily basis to monitor compliance with established risk management policies. Energy Services maintains a substantially balanced fixed-price natural gas position in relation to its customer supply commitments.Energy Services enters into electricity financial swaps with three counterparties to manage the economic exposure of providing fixed-price electricity to its customers. Energy Services monitors its fixed-price electricity positions on a daily basis to monitor compliance with established risk management policies. Energy Services maintains a substantially balanced fixed-price electricity position in relation to its customer supply commitments.Specialty Chemicals has entered into a fixed-price electricity purchase agreement to manage the economic exposure of certain chemical facilities to changes in the market price of electricity, in a market where the price of electricity is not fixed. The fair value with respect to this agreement is with a single counterparty.Energy Services enters into various propane forward purchase and sale agreements with more than twenty counterparties to manage the economic exposure of its wholesale customer supply contracts. Energy Services monitors its fixed-price propane positions on a daily basis to monitor compliance with established risk management policies. Energy Services maintains a substantially balanced fixed-price propane gas position in relation to its wholesale customer supply commitments.Superior, on behalf of its operating divisions, enters into foreign currency forward contracts with ten counterparties to manage the economic exposure of Superior's operations to movements in foreign currency exchange rates. Energy Services contract a portion of their fixed-price natural gas, and propane purchases and sales in US dollars and enter into forward US dollar purchase contracts to create an effective Canadian dollar fixed-price purchase cost. Specialty Chemicals enters into US dollar forward sales contracts on an ongoing basis to mitigate the impact of foreign exchange fluctuations on sales margins on production from its Canadian plants that is sold in US dollars. Interest expense on Superior's US dollar debt is also used to mitigate the impact of foreign exchange fluctuations.Superior has interest rate swaps with variety of counterparties to manage the interest rate mix of its total debt portfolio and related overall cost of borrowing. Superior manages its overall liquidity risk in relation to its general funding requirements by utilizing a mix of short-term and longer-term maturity debt instruments. Superior reviews its mix of short-term and longer-term debt instruments on an on-going basis to ensure it is able to meet its liquidity requirements.Credit RiskSuperior utilizes a variety of counterparties in relation to its derivative and non-financial derivative instruments in order to mitigate its counterparty risk. Superior assesses the credit worthiness of its significant counterparties at the inception and throughout the term of a contract. Superior is also exposed to customer credit risk. Energy Services deals with a large number of small customers, thereby reducing this risk. Specialty Chemicals, due to the nature of its operations, sells its products to a relatively small number of customers. Specialty Chemicals mitigates its customer credit risk by actively monitoring the overall credit worthiness of its customers. Energy Services has minimal exposure to customer credit risk as local natural gas and electricity distribution utilities have been mandated, for a nominal fee, to provide Energy Services with invoicing, collection and the assumption of bad debts risk for residential customers. Energy Services actively monitors the credit worthiness of its commercial customers. Overall, Superior's credit quality is enhanced by its portfolio of customers which is diversified across both geographic (primarily Canada and North America) and end-use (primarily commercial, residential and industrial) markets.Allowance for doubtful accounts and past due receivables are reviewed by Superior at each reporting date. Superior updates its estimate of the allowance for doubtful accounts based on the evaluation of the recoverability of trade receivable balances of each customer taking into account historic collection trends of past due accounts and current economic conditions. Trade receivables are written-off once it is determined they are not collectable.Pursuant to their respective terms, trade receivables, before deducting an allowance for doubtful accounts, are aged as follows: December 31, December 31, January 1, 2011 2010 2010----------------------------------------------------------------------------Current 280.3 294.9 265.8Past due less than 90 days 128.1 182.3 63.7Past due over 90 days 39.5 36.5 11.0----------------------------------------------------------------------------Trade Receivable 447.9 513.7 340.5--------------------------------------------------------------------------------------------------------------------------------------------------------The current portion of Superior's trade receivable is neither impaired nor past due and there are no indications as of the reporting date that the debtors will not meet their obligations to pay.Superior's trade receivables are stated after deducting a provision of $20.8 million as at December 31, 2011 (December 31, 2010 - $14.0 million). The movement in the provision for doubtful accounts was as follows: December 31, December 31, January 1, 2011 2010 2010 ----------------------------------------------------------------------------Allowance for doubtful accounts, opening (14.0) (10.2) (9.3) Opening adjustment due to acquisitions 0.3 (1.0) - Impairment losses recognized on receivables (10.8) (6.3) (7.5) Amounts recovered 3.7 - - Amounts written off during the period as uncollectible - 3.5 6.6 ----------------------------------------------------------------------------Allowance for doubtful accounts, ending (20.8) (14.0) (10.2)----------------------------------------------------------------------------Liquidity RiskLiquidity risk is the risk that Superior cannot meet a demand for cash or fund an obligation as it comes due. Liquidity risk also includes the risk of not being able to liquidate assets in a timely manner at a reasonable price.To ensure Superior is able to react to contingencies and investment opportunities quickly, Superior maintains sources of liquidity at the corporate and subsidiary level. The primary source of liquidity consists of cash and other financial assets, undrawn committed revolving term bank credit facility, equity markets and debenture markets.Superior is subject to the risks associated with debt financing, including the ability to refinance indebtedness at maturity. Superior believes these risks are mitigated through the use of long-term debt secured by high quality assets, maintaining debt levels that are in management's opinion are appropriate, and by diversifying maturities over an extended period of time. Superior also seeks to include in its agreements terms that protect it from liquidity issues of counterparties that might otherwise impact liquidity.Superior's contractual obligations associated with its financial liabilities are as follows: 2017 and 2012 2013 2014 2015 2016 Thereafter Total----------------------------------------------------------------------------Revolving tern bank credits and term loans 54.3 54.2 451.6 41.6 155.8 4.6 762.1Convertible unsecured subordinated debentures 49.3 - 66.6 73.9 71.5 309.7 571.0US$ foreign currency forward sales contracts (US$) 206.9 200.0 156.0 144.0 - - 706.9CDN$ natural gas purchases 16.0 9.1 0.7 (0.2) - - 25.6US$ heating oil purchases (US$) 44.3 - - - - - 44.3US$ propane purchases (US$) 6.7 - - - - - 6.7--------------------------------------------------------------------------------------------------------------------------------------------------------Superior's contractual obligations are considered to be normal course operating commitments and do not include the impact of mark-to-market fair values on financial and non-financial derivatives. Superior expects to fund these obligations through a combination of cash flow from operations, proceeds on revolving term bank credits and proceeds on the issuance of share capital. Superior's financial instruments' sensitivities to changes in foreign currency exchange rates, interest rates and various commodity prices and the impact to net earnings are detailed below: Year December 31, 2011 ----------------------------------------------------------------------------Increase (decrease) to net earnings (loss) of a $0.01 increase in the CDN$ to the US$ (7.0)Increase (decrease) to net earnings (loss) of a 0.5% increase in interest rates (0.7)Increase (decrease) to net earnings (loss) of a $0.40/GJ increase in the price of natural gas 2.1 Increase (decrease) to net earnings (loss) of a $0.04/litre increase in the price of propane 0.7 Increase (decrease) to net earnings (loss) of a $0.10/gallon increase in the price of heating oil 1.5 Increase (decrease) to net earnings (loss) of a $1.00/KwH increase in the price of electricity 1.1 Increase (decrease) to net earnings of a $0.04/litre increase in the price of butane - ----------------------------------------------------------------------------The calculation of Superior's sensitivity to changes in foreign currency exchange rates, interest rates and various commodity prices represent the change in fair value of the financial instrument without consideration of the value of the underlying variable, for example, the underlying customer contracts. The recognition of the sensitivities identified above would have impacted Superior's unrealized gain (loss) on financial instruments and would not have a material impact on Superior's cash flow from operations.19. Income TaxesConsistent with prior periods, Superior recognizes a provision for income taxes for its subsidiaries that are subject to current and deferred income taxes, including United States income tax and Chilean income tax.Total income tax recovery (expense), comprised of current taxes and deferred taxes for the three and nine months ended December 31, 2011 was $43.7 million and $50.4 million, respectively, compared to ($21.1) million and $(6.5) million in the comparative period. Income taxes were impacted by the unrealized losses on derivative financial instruments, and the impairment of intangible assets and goodwill. For the three and twelve months ended December 31, 2011, deferred income tax recovery from operations in Canada, the United States and Chile was $19.6 million and $51.3 million, respectively, which resulted in a corresponding total net deferred income tax asset of $309.6 million. The deferred income tax expense for the three and twelve months ended December 31, 2010 was $21.1 million and $5.7 million, respectively.20. Total EquitySuperior is authorized to issue an unlimited number of common shares and an unlimited number of preferred shares. The holders of common shares are entitled to dividends if, as and when declared by the Board of Directors; to one vote per share at meetings of the holders of common shares; and upon liquidation, dissolution or winding up of Superior to receive pro rata the remaining property and assets of Superior, subject to the rights of any shares having priority over the common shares, of which none are outstanding.Preferred shares are issuable in series with each class of preferred share having such rights as the Board of Directors may determine. Holders of preferred shares are entitled, in priority to holders of common shares, to be paid ratably with holders of each other series of preferred shares the amount of accumulated dividends, if any, specified to be payable preferentially to the holders of such series upon liquidation, dissolution or winding up of Superior to be paid rateably with holders of each other series of preferred shares the amount, if any, specified as being payable preferentially to holders of such series. Superior does not have any preferred shares outstanding.Common shares outstanding as at January 1, 2010, December 31, 2010 and December 31, 2011 have par value of $nil million. No common shares have been reserved in relation to any share option programs. Issued Number of Common Shares Total (Millions) Equity----------------------------------------------------------------------------Total equity, January 1, 2010 99.9 935.1----------------------------------------------------------------------------Total equity, December 31, 2010 107.7 754.4Net loss for the period - (302.6)Option value associated with the issuance of convertible debentures (2.2)Other comprehensive income - (1.2)Issuance of common shares for the dividend reinvestment plan 3.1 28.9Dividends declared to shareholders (1) - (127.7)----------------------------------------------------------------------------Total equity, December 31, 2011 110.8 349.6----------------------------------------------------------------------------1. Dividends to shareholders are declared at the discretion of Superior. During the twelve months ended December 31, 2011, Superior paid dividends of $136.7 million or $1.25 per share (December 31, 2010 - $156.8 million or $1.48 per share). Accumulated other comprehensive loss consisted of the following components: December 31, December 31, January 1, 2011 2010 2010 ----------------------------------------------------------------------------Currency translation adjustment Balance at beginning of period (27.4) - - Unrealized foreign currency gains and losses on translation of foreign operations 13.6 (27.4) - ---------------------------------------------------------------------------- Balance at end of period (13.8) (27.4) - ----------------------------------------------------------------------------Actuarial defined benefits Balance at beginning of period (14.8) - - Actuarial defined benefit losses (25.5) (19.9) - Income tax recovery 4.8 5.1 - ---------------------------------------------------------------------------- Balance at end of period (35.5) (14.8) - ----------------------------------------------------------------------------Accumulated derivative gains (losses) Balance at beginning of period (11.9) (21.1) (21.1) Reclassification of derivative gains previously deferred 5.9 12.1 - Income tax recovery (expense) - (2.9) - ---------------------------------------------------------------------------- Balance at end of period (6.0) (11.9) (21.1)----------------------------------------------------------------------------Accumulated other comprehensive loss at end of period (55.3) (54.1) (21.1)--------------------------------------------------------------------------------------------------------------------------------------------------------Other Capital DisclosuresAdditional Capital DisclosuresSuperior's objectives when managing capital are: (i) to maintain a flexible capital structure to preserve its ability to meet its financial obligations, including potential obligations from acquisitions; and (ii) to safeguard Superior's assets while at the same time maximizing the growth of its businesses and returns to its shareholders.In the management of capital, Superior includes shareholders' equity (excluding accumulated other comprehensive income) (AOCI), current and long-term debt, convertible debentures, securitized accounts receivable and cash and cash equivalents.Superior manages its capital structure and makes adjustments in light of changes in economic conditions and nature of the underlying assets. In order to maintain or adjust the capital structure, Superior may adjust the amount of dividends to Shareholders, issue additional share capital, issue new debt or convertible debentures, issue new debt or convertible debentures with different characteristics and/or increase or decrease the amount of securitized accounts receivable.Superior monitors its capital based on the ratio of senior debt outstanding to net earnings before interest, taxes, depreciation, amortization and other non-cash expenses (EBITDA), as defined by its revolving term credit facility, and the ratio of total debt outstanding to EBITDA. Superior's reference to EBITDA as defined by its revolving term credit facility may be referred to as compliance EBITDA in other public reports of Superior.Superior is subject to various financial covenants in its credit facility agreements, including senior debt and total debt to EBITDA ratios, which are measured on a quarterly basis. As at December 31, 2011, December 31, 2010 and January 1, 2010 Superior was in compliance with all of its financial covenants.Superior's financial objectives and strategy related to managing its capital as described above have remained unchanged from the prior fiscal year. Superior believes that its debt to EBITDA ratios are within reasonable limits, in light of Superior's size, the nature of its businesses and its capital management objectives.Non-IFRS Financial Measures utilized for bank covenant purposesCompliance EBITDACompliance EBITDA represents earnings before interest, taxes, depreciation, amortization and other non-cash expenses calculated on a 12 month trailing basis giving pro forma effect to acquisitions and divestitures and is used by Superior to calculate its debt covenants and other credit information. Compliance EBITDA is not a defined performance measure under IFRS. Superior's calculation of compliance EBITDA may differ from similar calculations used by comparable entities.The capital structure of Superior and the calculation of its key capital ratios are as follows:-------------------------------------------------------------------------------------------------------------------------------------------------------- December 31, December 31, As at 2011 2010 ----------------------------------------------------------------------------Total shareholders' equity 349.6 754.4 Exclude accumulated other comprehensive loss 55.3 54.1 ----------------------------------------------------------------------------Shareholders' equity (excluding AOCI) 404.9 808.5 Current borrowings (1) 54.3 136.2 Borrowings (1) 707.8 603.8 Less: Senior unsecured debentures (150.0) (150.0)----------------------------------------------------------------------------Consolidated secured debt 612.1 590.0 Add: Senior unsecured debentures 150.0 150.0 ----------------------------------------------------------------------------Consolidated debt 762.1 740.0 Current portion of convertible unsecured subordinated debentures(1) 49.9 - Convertible unsecured subordinated debentures (1) 541.5 641.4 ----------------------------------------------------------------------------Total debt 1,353.5 1,381.4 ----------------------------------------------------------------------------Total capital 1,758.4 2,189.9 --------------------------------------------------------------------------------------------------------------------------------------------------------1. Borrowings and convertible unsecured subordinated debentures are before deferred issue costs. -------------------------------------------------------------------------------------------------------------------------------------------------------- December 31, December 31, Twelve months ended 2011 2010 ----------------------------------------------------------------------------Net loss (302.6) (75.8)Adjusted for: Finance expense 85.5 75.2 Realized gains on derivative financial instruments included in finance expense 2.3 2.9 Depreciation of property, plant and equipment 48.4 49.0 Depreciation and amortization included in cost of sales 44.9 46.4 Amortization of intangible assets 45.3 30.4 Impairment of intangible assets and goodwill 378.6 89.5 Income tax (recovery) expense (50.4) 6.5 Unrealized losses on derivative financial instruments 9.7 2.2 Proforma impact of acquisitions 1.5 4.8 ----------------------------------------------------------------------------Compliance EBITDA (1) 263.2 231.1 --------------------------------------------------------------------------------------------------------------------------------------------------------1. EBITDA, as defined by Superior's revolving term credit facility, is calculated on a trailing 12-month basis taking into consideration the pro forma impact of acquisitions and dispositions in accordance with the requirements of Superior's credit facility. Superior's calculation of EBITDA and debt to EBITDA ratios may differ from those of similar entities. December 31, 2011 December 31, 2010----------------------------------------------------------------------------Consolidated debt to Compliance EBITDA 2.9:1 3.2:1Total debt to Compliance EBITDA 5.1:1 6.0:1--------------------------------------------------------------------------------------------------------------------------------------------------------21. Net Earnings (loss) per Share Three months ended Twelve months ended December 31, December 31, 2011 2010 2011 2010 ----------------------------------------------------------------------------Net loss per share computation, basic and diluted (1) Net loss for the period (231.4) (56.0) (302.6) (75.8) Weighted average shares outstanding 110.4 107.4 109.2 105.6 ----------------------------------------------------------------------------Net loss per share, basic and diluted $ (2.10) $ (0.52) $ (2.77) $ (0.72)--------------------------------------------------------------------------------------------------------------------------------------------------------1. All outstanding convertible debentures have been excluded from this calculation as they were anti-dilutive. The following potential ordinary shares are anti-dilutive and are therefore excluded from the weighted average number of ordinary shares for the purposes of diluted earnings per share. Three months ended Twelve months ended December 31, December 31, Notes 2011 2010 2011 2010----------------------------------------------------------------------------Convertible Debentures 5.75% 15 1.4 4.9 1.4 4.9 5.85% 15 2.4 2.4 2.4 2.4 7.50% 15 5.3 5.3 5.3 5.3 5.75% 15 9.1 9.1 9.1 9.1 6.00% 15 9.9 9.9 9.9 9.9 7.50% 15 6.6 - 6.6 -----------------------------------------------------------------------------Total anti-dilutive instruments 34.7 31.6 34.7 31.6--------------------------------------------------------------------------------------------------------------------------------------------------------22. Share Based CompensationRestricted/Performance SharesUnder the terms of Superior's long-term incentive program, restricted shares (RSs), performance shares (PSs) and/or director shares (DSs) can be granted to directors, senior officers and employees of Superior. Both types of shares entitle the holder to receive cash compensation in relation to the value of a specified number of underlying notional shares. RSs vest evenly over a period of three years commencing from the date of grant, except for RSs issued to directors which vest three years from the date of grant. Payments are made on the anniversary dates of the RS to the holders entitled to receive them on the basis of a cash payment equal to the value of the underlying notional shares. PSs vest three years from the date of grant and their notional value is dependent on Superior's performance as compared to established benchmarks. DSs vest immediately on the date of grant and payments are made to directors once they retire based on the number of notional shares outstanding and the value of the shares on that date. Employee compensation expense for these plans is charged against net earnings (loss) over the vesting period of the RSs, PSs, and DSs. The amount payable by Superior in respect of RSs, PSs and DSs changes as a result of dividends and share price movements. The fair value of all the RSs, PSs and DSs are equal to Superior's common share market price and the divisional notional share price if related to a divisional plan. In the event of an employee termination, any unvested shares are forfeited on that date.As at December 31, 2011 there were: 1,255,379 RSs outstanding (December 31, 2010 - 1,008,945 RSs) 951,752 PSs outstanding (December 31, 2010 - 674,577 PSs) and 187,655 DSs outstanding (December 31, 2010 - nil). For the three months and twelve months ended December 31, 2011 total compensation expense (recovery) related to RSs, PSs and DSs was $(0.2) million (December 31, 2010 - $4.1 million) and $3.9 million (December 31, 2010 - $7.7 million) respectively. Payouts during the year ended December 31, 2011 under the long term incentive plan were completed at a weighted average price of $8.43 per share (December 31, 2010 - $9.99 per share) for RSs and $14.65 per share (December 31, 2010 - $11.52 per share) for PSs. For the period ended December 31, 2011 the total carrying amount of the liability related to RSs, PSs and DSs was $3.7 million (December 31, 2010 - $8.8 million).23. Supplemental Disclosure of Non-Cash Operating Working Capital Changes Three month ended Twelve months ended December 31, December 31, 2011 2010 2011 2010 ----------------------------------------------------------------------------Changes in non-cash working capital Trade receivable and other (54.0) (166.3) 82.8 (170.8) Inventories (6.3) (10.2) (36.0) (23.6) Trade and other payables (0.7) 55.9 (13.1) 23.8 Purchased working capital 0.1 (0.5) 0.7 39.0 Other (7.8) 2.6 (4.3) (11.7)---------------------------------------------------------------------------- (68.7) (118.5) 30.1 (143.3)--------------------------------------------------------------------------------------------------------------------------------------------------------24. Supplemental Disclosure of Condensed Consolidated Statement of Comprehensive Income Three months ended Twelve months ended December 31, December 31, 2011 2010 2011 2010 ----------------------------------------------------------------------------Revenues Revenue from products 1,008.4 980.7 3,823.9 3,448.5 Revenue from the rendering of services 20.1 17.7 53.7 56.8 Rental revenue 9.7 7.2 29.6 28.5 Construction contract revenue 2.6 5.1 2.0 2.3 Realized gains on derivative financial instruments 2.6 0.5 16.4 1.3 ---------------------------------------------------------------------------- 1,043.4 1,011.2 3,925.6 3,537.4 ----------------------------------------------------------------------------Cost of sales (includes products and services) Cost of products and services (781.3) (753.1) (2,979.7) (2,623.1) Depreciation of property, plant and equipment (11.4) (9.6) (44.9) (46.4) Realized losses on derivative financial instruments (16.1) (23.8) (73.5) (87.3)---------------------------------------------------------------------------- (808.8) (786.5) (3,098.1) (2,756.8)----------------------------------------------------------------------------Selling, distribution and administrative costs Other selling, distribution and administrative costs 77.2 72.8 272.2 259.4 Employee future benefit expense 0.8 (0.6) 3.2 1.9 Employee costs 84.5 84.2 339.3 337.2 Gain on bargain purchase (0.9) (1.2) (0.9) (1.2) Depreciation of property, plant and equipment 14.2 10.4 48.4 49.0 Amortization of intangible assets 13.3 12.5 41.9 30.4 Impairment of intangible assets - - 3.4 - Realized gains on the translation of U.S. denominated net working capital (0.4) (0.5) (0.8) (0.3)---------------------------------------------------------------------------- 188.7 177.6 706.7 676.4 ----------------------------------------------------------------------------Finance expense Interest on borrowings 9.2 9.8 37.4 39.6 Interest on convertible unsecured subordinated debentures 10.1 7.4 39.1 27.6 Interest on obligations under finance leases 1.2 1.1 5.0 4.5 Gain on debenture redemption (1.7) - (1.7) - Unwind of discount on debentures, borrowing anddecommissioning liabilities 3.0 1.4 8.0 6.4 Realized gains on derivative financial instruments (1.1) (1.5) (2.3) (2.9)---------------------------------------------------------------------------- 20.7 18.2 85.5 75.2 ----------------------------------------------------------------------------25. Related Party TransactionsTransactions between Superior and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.For the three months and twelve months ended December 31, 2011, Superior incurred $0.4 million (December 31, 2010 - $0.1 million) and $1.7 million (December 2010 - $0.9 million) in legal fees respectively, with Norton Rose Canada LLP. Norton Rose Canada LLP is a related party with Superior as a board member is a Partner at the law firm.26. Reportable Segment InformationSuperior has adopted IFRS 8 Operating Segments, which requires operating segments to be identified on the basis of internal reports about components of the Company that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segments and to assess their performance. Segment revenues reported below represents revenues generated from external customers.----------------------------------------------------------------------------For the three months ended Construction December 31, Energy Specialty Products Total 2011 Services Chemicals Distribution Corporate Consolidated ----------------------------------------------------------------------------Revenues 727.6 137.7 178.1 - 1,043.4 Cost of sales (includes product & services) (595.6) (82.8) (130.4) - (808.8)----------------------------------------------------------------------------Gross Profit 132.0 54.9 47.7 - 234.6 Expenses Selling, distribution and administrative costs 38.0 16.0 19.3 3.4 76.7 Depreciation of property, plant and equipment 11.1 1.8 1.4 - 14.3 Amortization of intangible assets 11.4 1.8 - - 13.2 Employee costs 47.3 15.8 21.5 (0.1) 84.5 Finance expense 1.0 0.1 0.3 19.3 20.7 Impairment of intangible assets and goodwill 300.6 - - - 300.6 Unrealized losses (gains) on derivative financial instruments 20.2 - - (20.5) (0.3)--------------------------------------------------------------------------------------------------------------------------------------------------------Net earnings (loss) before income taxes (297.6) 19.4 5.2 (2.1) (275.1)Income tax recovery - - - (43.7) (43.7)----------------------------------------------------------------------------Net earnings (loss) (297.6) 19.4 5.2 41.6 (231.4)----------------------------------------------------------------------------For the three months ended Construction December 31, Energy Specialty Products Total 2010 Services Chemicals Distribution Corporate Consolidated ----------------------------------------------------------------------------Revenues 702.3 128.1 180.8 - 1,011.2 Cost of sales (includes products & services) (571.1) (78.5) (136.9) - (786.5)----------------------------------------------------------------------------Gross Profit 131.2 49.6 43.9 - 224.7 Expenses Selling, distribution and administrative costs 39.3 15.8 14.2 1.2 70.5 Depreciation of property, plant and equipment 4.8 3.8 1.8 10.4 Amortization of intangible assets 10.3 1.6 0.6 12.5 Employee costs 46.4 14.8 21.8 1.2 84.2 Other expenses 2.2 - (0.1) 1.2 3.3 Finance expense 1.0 - - 17.2 18.2 Impairment of intangible assets and goodwill - - 89.5 - 89.5 Unrealized losses (gains) on derivative financial instruments (10.3) (2.1) - (16.6) (29.0)--------------------------------------------------------------------------------------------------------------------------------------------------------Net earnings (loss) before income taxes 37.5 15.7 (83.9) (4.2) (34.9)Income tax expense - - - 21.1 21.1 ----------------------------------------------------------------------------Net earnings (loss) 37.5 15.7 (83.9) (25.3) (56.0)----------------------------------------------------------------------------For the year Construction ended December Energy Specialty Products Total 31, 2011 Services Chemicals Distribution Corporate Consolidated ----------------------------------------------------------------------------Revenues 2,686.1 527.7 711.8 - 3,925.6 Cost of sales (includes product & services) (2,225.7) (335.3) (537.1) - (3,098.1)----------------------------------------------------------------------------Gross Profit 460.4 192.4 174.7 - 827.5 Expenses Selling, distribution and administration costs 142.0 59.9 63.9 7.9 273.7 Depreciation of property, plant and equipment 44.4 1.8 5.6 - 51.8 Amortization of intangible assets 32.5 6.7 2.7 - 41.9 Employee costs 186.5 62.2 86.6 4.0 339.3 Finance expense 3.9 0.3 - 80.1 85.5 Impairment of intangible assets and goodwill 300.6 - 78.0 - 378.6 Unrealized losses (gains) on derivative financial instruments (15.6) 5.4 - 19.9 9.7 --------------------------------------------------------------------------------------------------------------------------------------------------------Net earnings (loss) before income taxes (233.9) 56.1 (63.3) (111.9) (353.0)Income tax recovery - - - (50.4) (50.4)----------------------------------------------------------------------------Net earnings (loss) (233.9) 56.1 (63.3) (62.1) (302.6)---------------------------------------------------------------------------- For the year Construction ended December Energy Specialty Products Total 31, 2010 Services Chemicals Distribution Corporate Consolidated ---------------------------------------------------------------------------- Revenues 2,338.3 481.5 717.6 - 3,537.4 Cost of sales (includes products & services) (1,904.2) (307.3) (545.3) - (2,756.8)---------------------------------------------------------------------------- Gross Profit 434.1 174.2 172.3 - 780.6 Expenses Selling, distribution and administrative costs 134.7 59.4 61.9 3.8 259.8 Depreciation of property, plant and equipment 37.4 3.8 7.8 - 49.0 Amortization of intangible assets 21.1 6.5 2.8 - 30.4 Employee costs 187.2 59.7 83.6 6.7 337.2 Other expenses 5.3 - 0.1 1.2 6.6 Finance expense 4.0 0.2 0.4 70.6 75.2 Impairment of intangible assets and goodwill - - 89.5 - 89.5 Unrealized losses (gains) on derivative financial instruments 26.4 5.3 - (29.5) 2.2 -------------------------------------------------------------------------------------------------------------------------------------------------------- Net earnings (loss) before income taxes 18.0 39.3 (73.8) (52.8) (69.3) Income tax expense - - - 6.5 6.5 ---------------------------------------------------------------------------- Net earnings (Loss) 18.0 39.3 (73.8) (59.3) (75.8)--------------------------------------------------------------------------------------------------------------------------------------------------------Net working capital, Total assets, Total liabilities, Acquisitions and Purchase of property, plant and equipment---------------------------------------------------------------------------- Construction Energy Specialty Products Total Services Chemicals Distribution Corporate Consolidated----------------------------------------------------------------------------As at December 31, 2011 Net working capital (1) 239.8 25.7 129.8 (18.0) 377.3 Total assets 1,008.3 618.8 218.8 347.5 2,193.4 Total liabilities 369.2 208.3 68.8 1,197.5 1,843.8----------------------------------------------------------------------------As at December 31, 2010 Net working capital (1) 290.2 33.5 108.3 (31.1) 400.9 Total assets 1,410.9 653.1 278.3 354.6 2,696.9 Total liabilities 449.4 177.3 74.0 1,241.8 1,942.5----------------------------------------------------------------------------For the three months ended December 31, 2011 Acquisitions 1.1 - - - 1.1 Purchase of property, plant and equipment 8.2 5.7 0.6 0.1 14.6----------------------------------------------------------------------------For the three months ended December 31, 2010 Acquisitions 5.7 0.3 (0.4) - 5.5 Purchase of property, plant and equipment 4.3 1.5 0.4 0.2 16.3----------------------------------------------------------------------------Forthe twelve months ended December 31, 2011 Acquisitions 14.8 - - - 14.8 Purchase of property, plant and equipment 19.9 16.1 2.1 0.1 38.2----------------------------------------------------------------------------For the twelve months ended December 31, 2010 Acquisitions 148.2 0.3 17.7 - 166.2 Purchase of property, plant and equipment 20.9 15.6 2.8 1.5 40.8--------------------------------------------------------------------------------------------------------------------------------------------------------1. Net working capital reflects amounts as at the quarter end and is comprised of trade and other ceivables, prepaid expenses and inventories, less trade and other payables, deferred revenue and dividends and interest payable. 27. Geographic Information United Total Canada States Other Consolidated----------------------------------------------------------------------------Revenues for the three months ended December 31, 2011 461.1 558.1 24.2 1,043.4Revenues for the twelve months December 31, 2011 1,743.7 2,091.8 90.1 3,925.6Intangible assets as at December 31, 2011 26.9 38.7 - 65.6Property, plant and equipment as at December 31, 2011 486.5 349.3 49.2 885.0Goodwill as at December 31, 2011 185.6 0.5 - 186.1Total assets as at December 31, 2011 1,337.9 788.3 67.2 2,193.4----------------------------------------------------------------------------Revenues for the three months ended December 31, 2010 476.7 515.1 19.4 1,011.2Revenues for the twelve months December 31, 2010 1,691.8 1,762.2 83.4 3,537.4Intangible assets as at December 31, 2011 39.8 144.4 - 184.2Property, plant and equipment as at December 31, 2010 511.8 349.7 50.9 912.4Goodwill as at December 31, 2010 391.5 80.2 - 471.7Total assets as at December 31, 2010 1,781.4 843.9 71.6 2,696.9----------------------------------------------------------------------------28. Comparative FiguresCertain reclassifications of prior year amounts have been made to conform to current period presentation. Specifically, $16.1 million and $15.4 million have been reclassified to trade and other receivables from trade and other payables to provide comparative presentation of certain of Construction Products Distribution vendor and customer rebates as at January 1, 2010 and December 31, 2010, respectively.29. Explanation of transition to IFRSSuperior's financial statements for the year ending December 31, 2011 are the first annual financial statements that comply with IFRS and these financial statements were prepared as described in Note 2, including the application of IFRS 1.IFRS also requires that comparative financial information be provided. As a result, the first date at which Superior has applied IFRS was January 1, 2010 (Transition Date). IFRS 1 requires first-time adopters to retrospectively apply all effective IFRS standards as of the reporting date, which for Superior is December 31, 2011. However, it also provides for certain optional exemptions and certain mandatory exceptions for first time IFRS adopters.First-time adoption of IFRSSet forth below are the applicable IFRS 1 elective exemptions and mandatory exceptions applied in the conversion from GAAP to IFRS.IFRS Elective ExemptionsShare-Based Payment TransactionsIFRS 2, Share-based Payment, encourages application of its provisions to equity instruments granted on or before November 7, 2002, but requires the application only to equity instruments granted after November 7, 2002 that had not vested by the Transition Date. Superior has elected to utilize this exemption to avoid applying IFRS 2 Share-Based Payment retrospectively and restate all share-based liabilities that were settled before the date of transition to IFRS. Accordingly, all unsettled liabilities arising from share-based payment transactions are in compliance with the principles of IFRS after the Transition Date.Changes in the Decommissioning Liabilities Included in the Cost of Property, Plant and EquipmentSuperior as elected to utilize this exemption to avoid retrospective restatement of all changes in decommissioning, restoration, and similar liabilities that are included in property, plant and equipment prior to the Transition Date.LeasesSuperior has elected to apply the transitional provisions of IFRIC 4 Determining Whether an Arrangement Contains a Lease to determine only whether any existing contract or arrangements at the Transition Date contains a lease under IFRIC 4 and if so, to apply IAS 17 Leases from the inception of that arrangement. Furthermore, Superior has elected to utilize the leases exemption to avoid the reassessment of determining whether an arrangement contained a lease at the Transition Date for all arrangements assessed prior to the Transition Date which resulted in the same outcome under IFRS and previous GAAP.Fair Value or Revaluation as Deemed CostGenerally, for Energy Services, Specialty Chemicals and Construction Products Distribution property, plant, equipment, Superior has elected to use the fair value as deemed cost exemption. Deemed cost is the cost under previous GAAP that was established by measuring items at fair value due to business combinations. For certain Energy Services property, plant and equipment, Superior has revalued assets at deemed cost and recorded accumulated depreciation and amortization of its property, plant and equipment in accordance with its IFRS policies.Business CombinationsA first-time adopter may elect not to apply IFRS 3 Business Combinations, retrospectively to business combinations completed before the Transition Date. However, if a first-time adopter restates any business combinations to comply with IFRS 3, it shall restate all later business combinations and shall also apply IAS 27 from that same date. Superior has elected not to apply IFRS 3 to business combinations completed before the Transition Date. Superior has applied IFRS 3, Business Combinations, to all acquisitions completed during 2010 in accordance with IFRS. Superior has also tested all goodwill for impairment from acquisitions completed in 2010 and restated under IFRS 3. Superior also tested goodwill for impairment at the Transition Date to IFRS which resulted in no adjustments to goodwill.Employee BenefitsIFRS 1 provides the option to retrospectively apply the corridor approach under IAS 19, Employee Benefits, for the recognition of actuarial gains and losses, or recognize all cumulative gains and losses deferred under GAAP in opening retained earnings at the Transition Date. Superior elected to recognize all cumulative actuarial gains and losses that existed at its Transition Date in opening deficit for all of its employee benefit plans.Cumulative Translation DifferencesRetrospective application of IFRS would require Superior to determine cumulative currency translation differences in accordance with IAS 21, The Effects of Changes in Foreign Exchange Rates, from the date a subsidiary or equity method investee was formed or acquired. IFRS 1 permits cumulative translation gains and losses to be reset to zero at the Transition Date. Superior elected to reset all cumulative translation gains and losses to zero in opening deficit at its Transition Date.Borrowing CostsIAS 23, Borrowing Costs, requires an entity to capitalize the borrowing costs related to all qualifying assets for which the commencement date for capitalization is on or after January 1, 2009 or date of transition whichever is later. Superior has applied the transitional provisions prescribed in IAS 23, which has constituted a change in accounting policy. All borrowing costs related to qualifying assets for which the commencement date for capitalization is on or after the Transition Date have been capitalized.IFRS Mandatory ExceptionsDerecognition of financial assets and liabilitiesA first-time adopter should apply the derecognition requirements in IAS 39 Financial Instruments: Recognition and Measurement, prospectively to transactions occurring on or after January 1, 2004. Superior has applied this mandatory exception which did not impact any of Superior's previously reported results.Hedge AccountingHedge accounting can only be applied prospectively from the Transition Date to transactions that satisfy the hedge accounting criteria in IAS 39 at that date. Hedging relationships cannot be designated retrospectively and the supporting documentation cannot be created retrospectively. Superior has applied this mandatory exception which did not impact any of Superior's previously reported results.Non-controlling InterestsA first-time adopter that applies IAS 27 Consolidated and Separate Financial Statements, should apply the standard retrospectively, with the exception of the following requirements which are applied prospectively from the Transition Date:-- The requirement that total comprehensive income is attributed to the owners of the parent and to the non-controlling interests have a deficit balance; -- The requirements on accounting for changes in the parent's ownership interest in a subsidiary that do not result in a loss of control; and -- The requirements on accounting for a loss of control over a subsidiary, and the related requirements of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.EstimatesAn entity's estimates in accordance with IFRS at the date of transition to IFRS shall be consistent with estimates made for the same date in accordance with previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error.Superior has applied these mandatory exceptions which did not impact any of Superior's previously reported results.Reconciliations between GAAP and IFRSIFRS 1 requires an entity to reconcile equity and comprehensive income for prior periods. The Company's first time adoption of IFRS did not have a material impact on the total operating, investing or financing cash flows. The following represents the reconciliations from GAAP to IFRS for the respective periods noted for equity, earnings and comprehensive income.Reconciliation of equity as at January 1, 2010--------------------------------------------------------------------------------------------------------------------------------------------------------GAAP accounts (millions of dollars) Notes GAAP Adjustments --------------------------------------------------------------------------------------------------------------------------------------------------------Assets Current Assets Cash and cash equivalents 24.3 - Accounts receivable and other (a) (j) 329.9 85.7 - - Inventories (k) 145.7 (2.2)Future income tax asset 59.0 - Current portion of unrealized gains on derivative financial instruments 22.2 - ---------------------------------------------------------------------------- 581.1 83.5 Property, plant and equipment (b) (d) 668.0 213.6 Intangible assets (l) 180.0 4.0 Goodwill (m) 528.4 (0.9)Accrued pension asset (c) 18.2 (18.2)Deferred income tax asset (g) 165.7 (18.3)Investment tax credits 120.2 - Long-term portion of unrealized gains on derivative financial instruments 28.5 - ---------------------------------------------------------------------------- 2,290.1 263.7 --------------------------------------------------------------------------------------------------------------------------------------------------------Liabilities and Shareholders' Equity Current Liabilities Accounts payable and accrued liabilities (n) 296.8 (1.4) Unearned revenue 5.8 - Current portion of term loans (a) (d) 5.1 103.8 Dividends and interest payable to shareholders and debenture-holders 14.2 - Current portion of deferred credit (e) 24.5 (24.5) Current portion of unrealized losses on derivative financial instruments 77.8 - ---------------------------------------------------------------------------- 424.2 77.9 Revolving term bank credits and term loans (d) 633.2 46.9 Convertible unsecured subordinated debentures (o) 309.0 (0.6)Asset retirement obligations and environmental liabilities (f) 0.9 6.0 Employee future benefits (c) 17.2 12.9 Future income tax liability (g) 22.1 16.4 Deferred credit (e) 246.4 (246.4)Long-term portion of unrealized losses on derivative financial instruments 52.6 - ----------------------------------------------------------------------------Total Liabilities 1,705.6 (86.9)Shareholders' Equity Shareholders' capital 1,502.0 - Contributed surplus 5.3 - Deficit (883.3) 332.2 Accumulated other comprehensive loss (h) (39.5) 18.4 ----------------------------------------------------------------------------Total Shareholders' Equity 584.5 350.6 ---------------------------------------------------------------------------- 2,290.1 263.7 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------GAAP accounts (millions of Reclassificatio dollars) ns IFRS IFRS accounts --------------------------------------------------------------------------------------------------------------------------------------------------------Assets Current Assets Current Assets Cash and cash Cash and cash equivalents - 24.3 equivalents Accounts receivable and Trade and other other (21.3) 394.3 receivables Prepaid 21.3 21.3 expenses Inventories - 143.5 Inventories Future income tax asset (59.0) - Unrealized Current portion of gains on unrealized gains on derivative derivative financial financial instruments - 22.2 instruments ---------------------------------------------------------------------------- (59.0) 605.6 Non Current Assets Property, plant and Property, plant equipment (1.6) 880.0 and equipment Intangible assets and investment Intangible assets 1.6 185.6 property Goodwill - 527.5 Goodwill Accrued pension asset - - Deferred income tax asset 179.2 326.6 Deferred tax Investment tax credits (120.2) - Deferred tax Unrealized Long-term portion of gains on unrealized gains on derivative derivative financial financial instruments - 28.5 instruments ---------------------------------------------------------------------------- - 2,553.8 --------------------------------------------------------------------------------------------------------------------------------------------------------Liabilities and Shareholders' Equity Current Current Liabilities Liabilities Accounts payable and Trade and other accrued liabilities - 295.4 payables Deferred Unearned revenue - 5.8 revenue Current portion of term loans - 108.9 Borrowings Dividends and interest payable to Dividends and interest shareholders payable to shareholders and debenture- and debenture-holders - 14.2 holders Current portion of deferred credit - - Unrealized Current portion of losses on unrealized losses on derivative derivative financial financial instruments - 77.8 instruments ---------------------------------------------------------------------------- - 502.1 Non Current Liabilities Revolving term bank credits and term loans - 680.1 Borrowings Convertible unsecured Convertible unsecured subordinated subordinated debentures - 308.4 debentures Asset retirement obligations and environmental liabilities - 6.9 Provisions Employee futureEmployee future benefits - 30.1 benefits Future income tax liability - 38.5 Deferred tax Deferred credit - - Unrealized Long-term portion of losses on unrealized losses on derivative derivative financial financial instruments - 52.6 instruments ----------------------------------------------------------------------------Total Liabilities - 1,618.7 Shareholders' Equity Shareholders' capital 5.3 1,507.3 Capital Contributed surplus (5.3) - Deficit - (551.1) Deficit Accumulated other Accumulated other comprehensive comprehensive loss - (21.1) loss ----------------------------------------------------------------------------Total Shareholders' Equity - 935.1 ---------------------------------------------------------------------------- - 2,553.8 --------------------------------------------------------------------------------------------------------------------------------------------------------Reconciliation of equity as at December 31, 2010 (balance sheet last reported under GAAP)--------------------------------------------------------------------------------------------------------------------------------------------------------GAAP accounts (millions of dollars) Notes GAAP Adjustments --------------------------------------------------------------------------------------------------------------------------------------------------------Assets Current Assets Cash and cash equivalents 8.9 Accounts receivable and other (a)(j) 487.2 87.1 - Inventories (k) 173.3 (6.2) Future income tax asset 48.6 - Current portion of unrealized gains on derivative financial instruments 31.4 - ---------------------------------------------------------------------------- 749.4 80.9 Property, plant and equipment (b)(d) 687.7 225.9 Intangible assets (l) 181.0 2.0 Goodwill (i)(m) 478.7 (7.0)Accrued pension asset (c) 21.0 (21.0)Long-term portion of notes and finance lease receivable 12.1 - Future income tax asset (g) 191.1 (47.8)Investment tax credits 117.4 - Long-term portion of unrealized gains on derivative financial instruments 26.6 - ---------------------------------------------------------------------------- 2,465.0 233.0 --------------------------------------------------------------------------------------------------------------------------------------------------------Liabilities and Shareholders' Equity Current Liabilities Accounts payable and accrued liabilities (n) 317.8 1.5 Unearned revenue 6.8 - Current portion of term loans (a)(d) 32.2 104.0 Dividends and interest payable to shareholders and debenture-holders 15.5 - Current portion of deferred credit (e) 18.2 (18.2) Future income tax liability 1.3 Current portion of unrealized losses on derivative financial instruments 78.6 - ---------------------------------------------------------------------------- 470.4 87.3 Revolving term bank credits and term loans (d) 540.9 55.8 Convertible unsecured subordinated debentures (o) 621.7 (0.8)Asset retirement obligations and environmental liabilities (f) 7.1 6.1 Employee future benefits (c) 19.2 26.3 Future income tax liability (g) 70.0 (16.4)Deferred credit (e) 229.6 (229.6)Long-term portion of unrealized losses on derivative financial instruments 56.0 - ----------------------------------------------------------------------------Total Liabilities 2,014.9 (71.3)Shareholders' Equity Shareholders' capital (i) 1,601.2 (0.3) Contributed surplus 5.5 - Deficit (1,101.3) 303.4 Accumulated other comprehensive loss (h) (55.3) 1.2 ----------------------------------------------------------------------------Total Shareholders' Equity 450.1 304.3 ---------------------------------------------------------------------------- 2,465.0 233.0 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------GAAP accounts (millions of Reclassificatio dollars) ns IFRS IFRS accounts --------------------------------------------------------------------------------------------------------------------------------------------------------Assets Current Assets Cash and cash Cash and cash equivalents (1.1) 7.8 equivalents Accounts receivable and Trade and other other (23.3) 551.0 receivables Prepaid 23.3 23.3 expenses Inventories - 167.1 Inventories Future income tax asset (48.6) - Unrealized Current portion of gains on unrealized gains on derivative derivative financial financial instruments - 31.4 instruments ---------------------------------------------------------------------------- (49.7) 780.6 Property, plant and Property, plant equipment (1.2) 912.4 and equipment Intangible assets and investment Intangible assets 1.2 184.2 property Goodwill - 471.7 Goodwill Accrued pension asset - - Long-term portion of notes Notes and and finance lease finance lease receivable - 12.1 receivables Future income tax asset 166.0 309.3 Deferred tax Investment tax credits (117.4) - Unrealized Long-term portion of gains on unrealized gains on derivative derivative financial financial instruments - 26.6 instruments ---------------------------------------------------------------------------- (1.1) 2,696.9 --------------------------------------------------------------------------------------------------------------------------------------------------------Liabilities and Shareholders' Equity Current Liabilities Accounts payable and Trade and other accrued liabilities (1.1) 318.2 payables Deferred Unearned revenue - 6.8 revenue Current portion of term loans - 136.2 Borrowings Dividends and interest Dividends and payable to shareholders interest and debenture-holders - 15.5 payable Current portion of deferred credit - - Future income tax liability (1.3) - Unrealized Current portion of losses on unrealized losses on derivative derivative financial financial instruments - 78.6 instruments ---------------------------------------------------------------------------- (2.4) 555.3 Revolving term bank credits and term loans - 596.7 Borrowings Convertible unsecured Convertible unsecured subordinated subordinated debentures (1.8) 619.1 debentures Asset retirement obligations and environmental liabilities - 13.2 Provisions Employee futureEmployee future benefits - 45.5 benefits Future income tax liability 1.3 54.9 Deferred tax Deferred credit - - Unrealized Long-term portion of losses on unrealized losses on derivative derivative financial financial instruments 1.8 57.8 instruments ----------------------------------------------------------------------------Total Liabilities (1.1) 1,942.5 Shareholders' Equity Shareholders' capital 5.5 1,606.4 Capital Contributed surplus (5.5) - Deficit - (797.9) Deficit Accumulated other Accumulated other comprehensive comprehensive loss - (54.1) loss ----------------------------------------------------------------------------Total Shareholders' Equity - 754.4 ---------------------------------------------------------------------------- (1.1) 2,696.9 --------------------------------------------------------------------------------------------------------------------------------------------------------Reconciliation of equity as at December 31, 2010 (balance sheet last reported under GAAP)The following narratives explain the significant differences between the previous historical GAAP accounting policies and the current IFRS policies applied by Superior.(a) Derecognition of Financial AssetsGAAP: Certain financial assets are derecognized under GAAP when entities do not retain access to all the economic benefits of the asset after a transfer of the receivable to a third party, including the accounts receivable securitization program.IFRS: Under IFRS only certain financial assets can be derecognized when the related criteria are met. Based on a review of the IFRS criteria Superior's accounts receivable securitization program does not qualify for derecognition. As such the previously derecognized balances have been recognized under IFRS and included under trade and other receivables and borrowings.(b)Property, Plant and EquipmentComponentization and Major inspection and repairsGAAP: The cost of an item of property, plant and equipment made up of significant separable component parts should be allocated to the component parts when practicable. Costs meeting the criteria to be classified as a betterment are capitalized. GAAP specifies that the costs incurred in the maintenance of the service potential of an item of property, plant and equipment is a repair, not betterment.IFRS: An entity is required to separately depreciate each part of property, plant and equipment that is significant in relation to the total cost of the property, plant and equipment item. Also, major inspections or overhauls required at regular intervals over the useful life of an item of property, plant and equipment which allows the continued use of the asset are required to be capitalized. As a result, Superior adjusted its depreciation of property, plant and equipment based on the each item's component parts and capitalized certain recertification, inspections and overhauls related to certain Energy Services assets.Reversal of Prior Asset ImpairmentGAAP: An impairment loss recognized in a prior period shall not be reversed if the fair value of the asset subsequently increases.IFRS: An impairment loss recognized in a prior period for an asset other than goodwill may be reversed if, and only if, there has been a change in the estimates used to determine the recoverable amount of the asset since the last impairment loss was recognized. Under previous GAAP, Superior recognized an impairment loss on a Specialty Chemicals' facility. Upon transition to IFRS, Superior has reversed this impairment up to previous cost less normal depreciation based on several market factor developments including the lower power rate trend in the facility's region, major cell upgrade investments made between the time the impairment was recognized and the Transition Date and improved North American pulp and paper fundamentals.Capitalized assets related to finance leasesGAAP: To determine the appropriate classification of a lease as either capital or operating, an entity uses the following tests: the fair value versus the present value of the minimum lease payments, the lease term versus economic useful life, and the transfer or risks and rewards.IFRS: To determine the appropriate classification of a lease as either finance or operating, an entity uses the same tests as under GAAP keeping in mind that IFRS adds an additional criterion noting that leased assets of a highly specialized nature might also be an indicator of a finance lease. Although the tests are consistent with GAAP and IFRS, the criteria in IAS 17 Leases is not framed in the same context as they do not provide a "bright line" and leaves more room for judgment when assessing when a lease transfers substantially all of the risks and rewards incidental to ownership. As a result, on transition to IFRS, Superior re-evaluated its leases and determined the appropriate classification between finance and operating leases. For those resulting finance leases, certain assets were capitalized and associated liabilities were recorded related to Energy Services and Construction Products Distribution.(c)Accrued Pension Asset and Employee Future BenefitsAs noted in the section discussing the IFRS applicable elective exemptions applied in the conversion from GAAP to IFRS, Superior has elected to recognize all cumulative actuarial gains and losses that existed at the Transition Date in opening retained earnings for all of its employee future benefit plans.Actuarial Gains and LossesGAAP: Actuarial gains and losses that arise in calculating the present value of the defined benefit obligation and the fair value of plan assets are recognized on a systematic and consistent basis, subject to a minimum required amortization based on a "corridor" approach. The corridor was 10% of the greater of the accrued benefit obligation at the beginning of the year and the fair value of plan assets at the beginning of the year. This excess is amortized as a component of pension expense into net earnings (loss) over the expected average remaining life of the active employees participating in the plans. Actuarial gains and losses below the 10% corridor are deferred.IFRS: Superior has elected to recognize all actuarial gains and losses immediately in a separate statement of comprehensive income without recycling to the income statement in subsequent periods. As a result, actuarial gains and losses are not amortized to net earnings (loss) but rather are recorded directly to other comprehensive income at the end of each period. As a result, Superior adjusted its pension expense to remove the amortization of actuarial gains and losses. Also Superior reclassified any accrued pension asset related to actuarial gains (loss) to Deficit at the Transition Date.Measurement DateGAAP: The measurement date of the defined benefit and plan assets can be a date up to three months prior to the date of the financial statements, provided the entity adopted this practice consistently from year to year. Superior used a measurement date of November 30th for the pension plans and December 31st for the other post-employment plans.IFRS: An entity is required to determine the present value of the pension obligation and the fair value of plan assets with sufficient regularity such that the amounts recognized in the financial statements do not differ materially from the amounts that would be determined at the balance sheet date. As a result, on transition to IFRS, Superior re-measured its pension obligations and plan assets as of January 1, 2010, which impacted the calculation of the pension expense.Fair Value of Expected Return on Plan AssetsGAAP: The expected return on plan assets is the product of the expected long-term rate of return on plan assets and a market-related fair value of plan assets. The market-related fair value recognized changes in the fair value of plan assets over a five year period.IFRS: The expected return on plan assets is a product of the expected long-term rate of return on plan assets and the fair value of plan assets on the balance sheet date. As a result, Superior adjusted its pension expense to reflect an expected return on plan assets using the fair value of its plan assets at the end of each reporting period.(d)Finance Leasing ObligationsGAAP: To determine the appropriate classification of a lease as either capital or operating, an entity uses the following tests: the fair value versus the present value of the minimum lease payments, the lease term versus economic useful life, and the transfer or risks and rewards.IFRS: To determine the appropriate classification of a lease as either finance or operating, an entity uses the same tests as under GAAP keeping in mind that IFRS adds an additional criterion noting that leased assets of a highly specialized nature might also be an indicator of a finance lease. Although the tests are consistent with GAAP and IFRS, the criteria in IAS 17 Leases is not framed in the same context as they do not provide a "bright line" and leaves more room for judgment when assessing when a lease transfers substantially all of the risks and rewards incidental to ownership. As a result, on transition to IFRS, Superior re-evaluated its leases and determined the appropriate classification between finance and operating leases. Any finance lease obligations have been grouped with current and non-current borrowings. For those resulting finance leases, certain assets were capitalized and associated liabilities were recorded related to Energy Services and Construction Products Distribution.(e)Deferred CreditGAAP: When, through a business combination or reorganization, an entity obtains tax basis that can be used to offset future income taxes payable, Emerging Issues Committee (EIC) abstract - 110 stipulates that these future tax benefits should be recorded as future tax assets on the balance sheet. Any excess of the amounts assigned to the acquired assets over the consideration paid should be allocated pro rata to reduce the values assigned to any non-monetary assets acquired. If the allocation reduces the non-monetary assets to zero, then the remainder should be classified as a deferred credit and amortized to net earnings (loss) over the life of the tax asset.IFRS: When, through a business combination or reorganization, an entity obtains tax basis that can be used to offset future income taxes payable, IFRS stipulates that the difference between the recognized tax asset and the consideration paid to a third party to obtain those benefits is to be fully recognized in the income statement during the period in which the transaction occurred. As a result, on transition to IFRS, all deferred credits related to prior acquisitions were reclassified to opening deficit.(f)ProvisionsGAAP: An entity is required to recognize a liability for an asset retirement obligation in the period in which it is incurred when a reasonable estimate of the amount of the obligation can be made. If a reasonable estimate of the amount of the obligation cannot be made in the period the asset retirement obligation is incurred, the liability shall be recognized when a reasonable estimate of the amount of the obligation can be made. Additionally, only a legal obligation associated with the retirement of a tangible long-lived asset establishes a clear duty or responsibility to another party that justifies the recognition of the liability.IFRS: An entity is required to recognize a provision for obligations arising from both legal and constructive obligations regardless of the uncertainty of the nature or timing of the provision. As a result, on transition to IFRS, a provision for decommissioning costs related to certain Specialty Chemicals facilities has been recorded.Also restructuring provisions are only included as part of acquired liabilities when the acquiree has recognized an existing liability for restructuring in accordance with application IFRS standards. As a result, restructuring provisions recorded as part of the purchase price allocation under GAAP are charged to earnings under IFRS. Superior recognized various restructuring provisions related to business combinations completed in 2010 which could not be recognized under IFRS, as such the related amounts were adjusted through retained earnings.(g)Deferred Income taxesSuperior has adjusted both deferred tax assets and liabilities due to recognizing deferred income taxes on the various adjustments made to Superior balance sheet due to the transition to IFRS.(h)Accumulated Other Comprehensive Income (Loss)As noted in the section discussing the IFRS applicable elective exemptions applied in the conversion from GAAP to IFRS, Superior has applied the one-time exemption to set the unrealized foreign currency gains (losses) on translation of self-sustaining foreign operations ("currency cumulative translation adjustment" or "CTA") to zero as of January 1, 2010. The cumulative translation adjustment balance as of January 1, 2010 of $22.1 million was recognized as an adjustment to opening deficit. The application of the exemption had no impact on net equity.(i) GoodwillBusiness CombinationsAs stated in the section entitled "IFRS Exemption Options", Superior did not early adopt IFRS 3 for business combinations completed during 2010. Consequently, business combinations completed prior to January 1, 2010 have not been restated and the carrying amount of goodwill under IFRS as of January 1, 2010 is equal to the carrying amount under GAAP as of that date. The IFRS adjustments below relate to acquisitions completed on or after January 1, 2010.Measurement of Purchase PriceGAAP: Shares issued as consideration to complete a business combination are measured at their market price a few days before and after the date the parties reached an agreement on the purchase price and the proposed transaction is announced.IFRS: Shares issued as consideration to complete a business combination are measured at their market value at the acquisition closing date. As a result, goodwill and shareholders' capital were reduced relative to the re-measurement of the shares issued as consideration for the Burnaby Assets acquisition.Acquisition related costsGAAP: If certain conditions are met, the costs of restructuring an acquisition can be included in the purchase price and the allocation of the acquisition costs. Also direct costs incurred to complete an acquisition can be included in the allocation of acquisition costs to the assets acquired.IFRS: Restructuring provisions are only included as part of the acquired liabilities when the acquiree has recognized an existing liability for restructuring in accordance with application IFRS standards. As a result, restructuring provisions recorded as part of the purchase price allocation under GAAP are charged to earnings under IFRS. Superior recognized various restructuring provisions which could not be recognized under IFRS, as such the related amounts were adjusted through goodwill and other payables.Under IFRS all direct acquisition costs incurred to complete a business combination are charged to earnings. As such, Superior has adjusted goodwill and earnings due to previously capitalizing acquisition costs under GAAP.Correction of historical GAAP differencesThe net impact of correcting historical GAAP differences was a decrease of $3.2 million in total assets, a $2.0 million increase in total liabilities and a $5.2 million decrease in total equity, as at January 1, 2010. The net impact as at December 31, 2010 was consistent with the above noted amounts. See below for further details on the corrected items.(j) Superior has reduced accounts receivables within the Specialty Chemicals segment due to previous revenue recognition differences with GAAP.(k) Superior has reduced inventories in order adjust for previous reconciliation issues associated with inventory balances within the Energy Services segment. Also inventories have been reduced due to a reclassification of parts related inventory within Specialty Chemicals into property, plant and equipment and retained earnings.(l) Superior has increased the value of its intangible assets in order to correct a previous revaluation issue under GAAP.(m) Superior has reclassified a portion of the Sunoco purchase equation under GAAP into property, plant and equipment as certain amounts were previously incorrectly grouped with goodwill.(n) Superior has decreased trade and other payables as certain liabilities under GAAP were not properly recognized.(o) Superior has adjusted the outstanding convertible debentures in order to comply with the effective interest rate method under GAAP.Presentation Reclassifications1) Prepaid expensesAll prepaid expenses are presented separately on the face of the balance sheet.2) Investment propertyUnder GAAP investment properties can be grouped with property, plant and equipment and under IFRS any amounts associated with investment property should be reclassified. Superior has grouped all investment property with intangible assets and investment property.3) Deferred taxes and Investment tax creditsSuperior has reclassified all current deferred tax amounts and investment tax credits with non-current deferred taxes on the face of the balance sheet.4) Contributed SurplusSuperior has reclassified all contributed surplus with share capital on the face of the balance sheet.Reconciliation of Net Loss and Comprehensive Loss for the three months ended December 31, 2010----------------------------------------------------------------------------(millions of dollars except per share amounts) Notes GAAP Adjustments Reclassifications ----------------------------------------------------------------------------Revenues (i) 1,009.2 0.1 1.9 Cost of products sold (a) (i) (761.9) 0.6 (25.2)Realized gains (losses) on derivative financial instruments (21.8) - 21.8 ----------------------------------------------------------------------------Gross profit 225.5 0.7 (1.5)----------------------------------------------------------------------------Operating and administrative costs (b) 162.3 (6.5) 21.8 (c) - 2.1 1.2 Deprecation of property, plant and equipment (d) 9.2 3.6 (12.8)Amortization of intangible assets (j) 8.7 1.4 (10.1)Interest on revolving term bank credits and term loan (e) 9.8 0.9 9.0 Interest on convertible unsecured subordinated debentures 7.4 - (7.4)Impairment of intangible assets and goodwill 89.5 - - Accretion of convertible debenture issue costs and asset retirement obligations 1.8 (0.4) (1.4)Unrealized losses (gains) on derivative financial instruments (29.0) - - ---------------------------------------------------------------------------- 259.7 1.1 (1.2)----------------------------------------------------------------------------Net loss before income taxes (34.2) (0.4) (0.3)Income tax recovery (expense) (f) 0.6 (24.8) 3.1 ----------------------------------------------------------------------------Net Loss (33.6) (25.2) 2.8 --------------------------------------------------------------------------------------------------------------------------------------------------------Net Loss (33.6) (25.2) 2.8 Other comprehensive income (loss): Unrealized foreign currency gains (losses) on translation of foreign operations (g) (17.5) (2.0) - Actuarial defined benefit gains (losses) (h) - 2.5 - Reclassification of derivative losses previously deferred - 2.9 - Income tax on comprehensive loss - (3.6) - ----------------------------------------------------------------------------Comprehensive Loss (51.1) (25.4) 2.8 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------(millions of dollars except per share amounts) IFRS IFRS Accounts ----------------------------------------------------------------------------Revenues 1,011.2 Revenues Cost of products sold (786.5) Cost of sales Realized gains (losses) on derivative financial instruments - ----------------------------------------------------------------------------Gross profit 224.7 Gross Profit ----------------------------------------------------------------------------Operating and administrative Selling, distribution and costs 177.6 administrative costs 3.3 Other expenses Deprecation of property, plant and equipment - Amortization of intangible assets - Interest on revolving term bank credits and term loan 18.2 Finance expense Interest on convertible unsecured subordinated debentures - Impairment of intangible assets and goodwill 89.5 Accretion of convertible debenture issue costs and asset retirement obligations - Unrealized losses (gains) on derivative financial Unrealized losses (gains) on instruments (29.0) derivative financial instruments ---------------------------------------------------------------------------- 259.6 ----------------------------------------------------------------------------Net loss before income taxes (34.9) Net loss before income taxes Income tax recovery (expense) (21.1) Income tax recovery (expense) ----------------------------------------------------------------------------Net Loss (56.0) Net Loss --------------------------------------------------------------------------------------------------------------------------------------------------------Net Loss (56.0) Net Loss Other comprehensive income (loss): - Unrealized foreign currency gains (losses) on Unrealized foreign currency gains translation of foreign (losses) on translation of operations (19.5) foreign operations Actuarial defined benefit Actuarial defined benefit gains gains (losses) 2.5 (losses) Reclassification of derivative losses Reclassification of derivative previously deferred 2.9 losses previously deferred Income tax on comprehensive loss (3.6) ----------------------------------------------------------------------------Comprehensive Loss (73.7) Comprehensive Loss --------------------------------------------------------------------------------------------------------------------------------------------------------Reconciliation of Net Earnings (Loss) and Comprehensive Income (Loss) for the Year Ended December 31, 2010----------------------------------------------------------------------------(millions of dollars except per share amounts) Notes GAAP Adjustments Reclassifications ----------------------------------------------------------------------------Revenues (i) 3,529.2 - 8.2 Cost of products sold (a) (i)(2,661.3) (1.3) (94.2)Realized gains (losses) on derivative financial instruments (80.3) - 80.3 ----------------------------------------------------------------------------Gross profit 787.6 (1.3) (5.7)----------------------------------------------------------------------------Operating and administrative costs (b) 624.4 (23.4) 75.4 (c) - 5.4 1.2 Deprecation of property, plant and equipment (d) 37.7 13.7 (51.4)Amortization of intangible assets (j) 25.0 3.0 (28.0)Interest on revolving term bank creditsand term loan (e) 39.6 4.4 31.2 Interest on convertible unsecuredsubordinated debentures 27.6 - (27.6)Accretion of convertible debenture issue costs and asset retirement obligations (k) 6.7 (0.4) (6.3)Impairment of goodwill and intangible assets 89.5 - - Unrealized losses (gains) on derivativefinancial instruments 2.2 - - ---------------------------------------------------------------------------- 852.7 2.7 (5.5)----------------------------------------------------------------------------Net loss before income taxes (65.1) (4.0) (0.2)Income tax recovery (expense) (f) 18.1 (24.8) 0.2 ----------------------------------------------------------------------------Net Loss (47.0) (28.8) - --------------------------------------------------------------------------------------------------------------------------------------------------------Net Loss (47.0) (28.8) - Other comprehensive income (loss): Unrealized foreign currency gains (losses) on translation of foreign operations (g) (25.0) (2.4) - Actuarial defined benefit gains (losses) (h) - (19.9) - Reclassification of derivative losses previously deferred 12.1 - - Income tax on other comprehensive income (2.9) 5.1 - ----------------------------------------------------------------------------Comprehensive Loss (62.8) (46.0) - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------(millions of dollars except per share amounts) IFRS IFRS Accounts ----------------------------------------------------------------------------Revenues 3,537.4 Revenues Cost of products sold (2,756.8) Cost of sales Realized gains (losses) on derivative financial instruments - ----------------------------------------------------------------------------Gross profit 780.6 Gross Profit ----------------------------------------------------------------------------Operating and administrative Selling, distribution and costs 676.4 administrative costs 6.6 Other expenses Deprecation of property, plant and equipment - Amortization of intangible assets - Interest on revolving term bank creditsand term loan 75.2 Finance expense Interest on convertible unsecuredsubordinated debentures - Accretion of convertible debenture issue costs and asset retirement obligations - Impairment of goodwill and Impairment of goodwill and intangible assets 89.5 intangible assets Unrealized losses (gains) on derivativefinancial Unrealized losses (gains) on instruments 2.2 derivative financial instruments ---------------------------------------------------------------------------- 849.9 ----------------------------------------------------------------------------Net loss before income taxes (69.3) Net loss before income taxes Income tax recovery (expense) (6.5) Income tax recovery (expense) ----------------------------------------------------------------------------Net Loss (75.8) Net Loss --------------------------------------------------------------------------------------------------------------------------------------------------------Net Loss (75.8) Net Loss Other comprehensive income (loss): Unrealized foreign currency gains (losses) on Unrealized foreign currency gains translation of foreign (losses) on translation of operations (27.4) foreign operations Actuarial defined benefit Actuarial defined benefit gains gains (losses) (19.9) (losses) Reclassification of derivative losses Reclassification of derivative previously deferred 12.1 losses previously deferred Income tax on other Reclassification of derivative comprehensive income 2.2 losses previously deferred ----------------------------------------------------------------------------Comprehensive Loss (108.8) Comprehensive Loss --------------------------------------------------------------------------------------------------------------------------------------------------------The following narratives explain the significant differences between the previous historical GAAP accounting policies and the current IFRS policies applied by Superior.(a)Cost of products soldGAAP: Under GAAP, all manufacturing costs are absorbed into the carrying cost of manufactured inventory and flow through the income statement only once the related inventory has been sold. These manufacturing costs (depreciation and amortization included) will then become part of the entity's cost of products sold.IFRS: Under IFRS, inventory is accounted for in the same manner as under GAAP, with manufacturing costs being absorbed into the inventory's carrying value and expensed through the income statement as a cost of product sold. The depreciation and amortization component of inventory is larger under IFRS than GAAP, due to the componentization of Superior's property, plant & equipment described and the impairment reversal detailed above in note (b).(b) Operating and administrative costs & selling, distribution and administrative costsLeasesGAAP: To determine the appropriate classification of a lease as either capital or operating, an entity uses the following tests: the fair value versus the present value of the minimum lease payments, the lease term versus economic useful life, and the transfer or risks and rewards.IFRS: To determine the appropriate classification of a lease as either finance or operating, an entity uses the same tests as under GAAP keeping in mind that IFRS adds an additional criterion noting that leased assets of a highly specialized nature might also be an indicator of a finance lease. Although the tests are consistent with GAAP and IFRS, the criteria in IAS 17 Leases is not framed in the same context as they do not provide a "bright line" and leaves more room for judgment when assessing when a lease transfers substantially all of the risks and rewards incidental to ownership. As a result, on transition to IFRS, Superior re-evaluated its leases and determined the appropriate classification between finance and operating leases, any finance lease obligations have been grouped with current and non-current borrowings. The classification of a number of leases as finance type has resulted in decrease in operating costs as lease payments are now broken into principal repayments and interest costs.Componentization and Major inspection and repairsGAAP: The cost of an item of property, plant and equipment made up of significant separable component parts should be allocated to the component parts when practicable. Costs meeting the criteria to be classified as a betterment are capitalized. GAAP specifies that the costs incurred in the maintenance of the service potential of an item of property, plant and equipment is a repair, not a betterment.IFRS: An entity is required to separately depreciate each part of property, plant and equipment that is significant in relation to the total cost of the property, plant and equipment item. Also, major inspections or overhauls required at regular intervals over the useful life of an item of property, plant and equipment which allows the continued use of the asset are required to be capitalized. As a result operating costs were reduced due to the capitalization of various expenditures for major inspections and overhauls.Employee benefit expenseFair Value of Expected Return on Plan AssetsGAAP: The expected return on plan assets is the product of the expected long-term rate of return on plan assets and a market-related fair value of plan assets. The market-related fair value recognized changes in the fair value of plan assets over a five year period.IFRS: The expected return on plan assets is a product of the expected long-term rate of return on plan assets and the fair value of plan assets on the balance sheet date. As a result, Superior adjusted its pension expense to reflect an expected return on plan assets using the fair value of its plan assets at the end of each reporting period. This adjustment has resulted in a reduction of the annual employee benefits expense during the period.(c) Other expensesAcquisition related costsGAAP: If certain conditions are met, the costs of restructuring an acquisition can be included in the purchase price and the allocation of the acquisition costs. Also direct costs incurred to complete an acquisition can be included in the allocation of acquisition costs to the assets acquired.IFRS: Under IFRS all direct acquisition costs incurred to complete a business combination are charged to earnings. As such, Superior has increased other expenses due to the recognition in earnings of previously capitalizing acquisition costs under GAAP.(d) Depreciation of property, plant and equipmentGAAP: When an entity owns complex assets that are comprised of numerous parts, each of the asset's major components must be separated and depreciated over its particular useful life. A component should be separately tracked if its individual cost is significant in relation to the total cost of the asset. Although this concept was theoretically included in Canadian GAAP, it was only required to be applied when practical to do so.IFRS: In contrast to GAAP's treatment of limiting the application of componentization to situations where such application is practical, IFRS requires that an entity will apply componentization to all of its assets.Reversal of impairment of property, plant and equipmentGAAP: Reversal of impairment losses in not permitted.IFRS: Reversal of impairment losses is required for assets other than goodwill if certain criteria are met. As a result, Superior reversed the impairment on Specialty Chemicals Valdosta, Georgia sodium chlorate facility due changes in the North American chlorate market. The reversal of the impairment has increased the amount of depreciation of property, plant and equipment.Capitalized assets related to finance leasesGAAP: To determine the appropriate classification of a lease as either capital or operating, an entity uses the following tests: the fair value versus the present value of the minimum lease payments, the lease term versus economic useful life, and the transfer or risks and rewards.IFRS: To determine the appropriate classification of a lease as either finance or operating, an entity uses the same tests as under GAAP keeping in mind that IFRS adds an additional criterion noting that leased assets of a highly specialized nature might also be an indicator of a finance lease. Although the tests are consistent with GAAP and IFRS, the criteria in IAS 17 Leases is not framed in the same context as they do not provide a "bright line" and leaves more room for judgment when assessing when a lease transfers substantially all of the risks and rewards incidental to ownership. As a result, on transition to IFRS, Superior re-evaluated its leases and determined the appropriate classification between finance and operating leases. For those resulting finance leases, certain assets were capitalized and associated liabilities were recorded related to Energy Services and Construction Products Distribution. Depreciation of property, plant and equipment has increased due to the capitalization of various finance type leases as part of the transition to IFRS.(e) Finance expenseGAAP: Consistent with note (d) to the above reconciliation of comprehensive income (loss), the criteria for capitalization of leases are narrower and less judgmental than under IFRS. Consequently, fewer leases were capitalized under GAAP as compared to IFRS, resulting in a smaller interest expense on Superior's leasing obligations.IFRS: Consistent with note (d) to the above reconciliations of financial position, the criteria for capitalization of leases are broader and more judgmental under IFRS than GAAP. Consequently, upon transition to IFRS, Superior has capitalized numerous Energy Services and Construction Products Distribution leases under IFRS that were classified as operating leases under GAAP. The increased interest expense is reflective of the interest incurred on these additional leasing obligations.(f) Income tax recovery (expense)Superior has adjusted income tax recovery (expense) due to the impact of the various adjustments made to Superior balance sheet as a result of the transition to IFRS. Specifically, the changes to income taxes are primarily related to the impact of reversing any amounts associated with previously recognized deferred credits and adjustments to property, plant and equipment.(g) Unrealized foreign currency gains (losses) on translation of foreign operationsThe change in unrealized foreign currency gains (losses) on translation of foreign operations is due to the revaluation of IFRS related adjustments recognized in Superior's foreign operations.(h) Amortization of actuarial defined benefit gains (losses)Canadian GAAP: Actuarial gains and losses that arise in calculating the present value of the defined benefit obligation and the fair value of plan assets are recognized on a systematic and consistent basis, subject to a minimum required amortization based on a "corridor" approach. The corridor was 10% of the greater of the accrued benefit obligation at the beginning of the year and the fair value of plan assets at the beginning of the year, with the excess being amortized into the income statement over the expected average remaining life of the active employees participating in the plans.IFRS: An entity may adopt any systematic method that results in faster recognition of actuarial gains and losses than the 10% corridor method, provided that the same basis is applied to both gains and losses and is applied consistently from period to period. Superior has elected to recognize the entirety of actuarial gains and losses during the period in which they occur. If an entity adopts a policy of recognizing actuarial gains and losses in the period in which they occur, it may recognize them in other comprehensive income, provided that it does so for all of its defined benefit plans and for all of its actuarial gains and losses. Consistent with this, Superior's actuarial gains and losses are now included in its accumulated other comprehensive income.Correction of historical GAAP related itemsThe net impact of correcting the historical GAAP differences was a $3.0 million increase in amortization of intangible assets and a $0.2 million decrease in accretion of convertible debentures, for the twelve months ended December 31, 2010. The pro rata net impact on the three months ended December 31, 2010 was consistent with the above noted amounts. See below for further details on the corrected items.(i)Revenues and cost of products soldThe increase in revenue and cost of products sold was due to adjusting Specialty Chemical's revenue recognition policy in accordance with GAAP.(j) Amortization of intangible assetsThe increase in amortization of intangible assets is due to an increase in Specialty Chemicals' amortization of patents due to the correction of a prior period revaluation issue under GAAP.(k) Accretion of convertible debenturesThe decrease in accretion of the convertible debentures and borrowings is due the impact of adoption of the interest rate method under GAAP.Presentation ReclassificationReclassification of realized gains (losses) on derivative financial instrumentsSuperior has chosen to present expenses in the statement of comprehensive income on the nature of the expense. As such any realized gains (losses) have been allocated between revenue and cost of sales based on their nature.Reclassification of depreciation of property, plant and equipment and amortization of intangible assetsSuperior has chosen to present expenses in the statement of comprehensive income on the nature of the expense. As such any depreciation and amortization amounts have been allocated to selling, distribution and administrative costs based on their nature.Reclassification of interest on revolving term bank credits, interest on convertible debentures and accretion of debenture issues costsSuperior has chosen to present expenses in the statement of comprehensive income on the nature of the expense. As such any interest and accretion amounts associated with obligations have been allocated to finance expense based on their nature.Impact of IFRS on Superior's Statement of Cash FlowsThe significant changes to Superior's cash flow statement from CGAAP to IFRS are as follows;Capitalized assets related to finance leasesAs noted above, Superior has capitalized approximately $60.0 million of lease due to the transition to IFRS, as such under IFRS any repayment of those leases will be included in the cash flow statement as compared to an operating expense under GAAP.Presentation changesUnder IFRS, income taxes and interest paid during the period are deducted from cash flow from operating activities and under GAAP there was such requirement to include such amounts within the cash flow reconciliation.FOR FURTHER INFORMATION PLEASE CONTACT: Wayne BinghamSuperior Plus Corp.Executive Vice-President and Chief Financial Officer(403) 218-2951 or Toll Free: 1-866-490-PLUS (7587)(403) 218-2973 (FAX)wbingham@superiorplus.comORJay BachmanSuperior Plus Corp.Vice-President, Investor Relations and Treasurer(403) 218-2957 or Toll Free: 1-866-490-PLUS (7587)(403) 218-2973 (FAX)jbachman@superiorplus.comwww.superiorplus.com