ENERGY FUNDS / Superior Propane Income Fund - Distributable Cash Flow
Increases 7 Percent Over Prior Year
TSE SYMBOL: SPF.UN
AUGUST 5, 1998
CALGARY, ALBERTA--
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HIGHLIGHTS:
- Superior now wholly owned by the Fund.
- Superior agrees to purchase ICG Propane Inc.
- Distributable cash flow reaches $0.29 per trust unit, a 7 percent
increase over same period last year.
- Gross profit stable as improved margins offset lower weather related sales
volumes.
- Branch restructuring in Ontario, Quebec and Atlantic Canada completed.
Three Months Ended Six Months Ended
June 30 June 30
Proforma Proforma
(Amounts in thousands (x) (x)
except where noted) 1998 1997 1998 1997
------------------------------------
FINANCIAL
Cash generated from operations
before changes in net
working capital $14,021 $12,386 $38,787 $37,922
Less capital expenditures (1,082) (108) (1,328) (601)
------------------------------------
12,939 12,278 37,459 37,321
Less non-controlling
interests share (176) (6,139) (2,628) (18,661)
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Distributable cash flow $12,763 $ 6,139 $34,831 $18,660
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Distributable cash flow
per average trust unit
outstanding $0.29 $0.27 $0.82 $0.82
Distributions per trust
unit $0.27 $0.26 $0.71 $0.56
Trust units outstanding 45,743 22,879 45,743 22,879
Average trust units
outstanding 44,219 22,867 42,695 22,860
OPERATING
Volume of propane sold
(millions of litres) 255 300 632 732
Average propane sale
margin (cents per litre) 13.20 12.20 14.07 12.8
(x) See accompanying note for basis of proforma presentation.
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1998 SECOND QUARTER RESULTS:
During the second quarter of 1998, the Fund generated
distributable cash flow of $12.8 million or $0.29 per trust unit,
compared to $6.1 million or $0.27 per trust unit when the Fund's
ownership of Superior was 50 percent. The Fund declared a cash
distribution of $0.27 per trust unit payable July 15, 1998 to
unitholders of record on June 30, 1998. For the six month period
ended June 30, 1998, the Fund generated distributable cash flow of
$34.8 million or $0.82 per trust unit.
CORPORATE DEVELOPMENTS:
On May 28, 1998, a group of senior executives of Superior together
with funds managed by Enterprise Capital Management Inc., acquired
from Union Pacific Resources Inc. ("UPRI") a 10 percent ownership
of trust units in the Fund as well as UPRI's rights under
Management and Administrative agreements with Superior and the
Fund, respectively. As a result, Superior is now wholly owned by
the Fund and the management group is the Fund's largest
unitholder. The consolidation of the Fund's ownership of Superior
will ensure the continued favourable progress of Superior and
provide a base to pursue opportunities which will provide reliable
and consistent cash flow inside and outside of the propane
industry.
On July 20, 1998, Superior entered into an agreement with
Petro-Canada to acquire 100 percent of ICG Propane Inc. for net
consideration of approximately $175 million. The transaction is
expected to close on or prior to October 30 following review by
the Competition Bureau. An interim credit facility has been
arranged to finance the acquisition. Increased distributions to
unitholders are expected to result over time as Superior and ICG's
operations are combined and rationalized.
OPERATING RESULTS:
Superior's gross profit for the quarter was $42.7 million and was
comparable to the prior year. Propane sales volumes of 255 million
litres in the second quarter declined by 15 percent from the same
period last year due to lower auto propane and oil field service
sales volumes and continued warm weather conditions experienced
across Canada. The impact of lower sales volumes was fully offset
by improved sales margins due to an improved sales mix and focus
on margin management.
Expenses of $38.5 million were $2.8 million or 7 percent lower
than last year, reflecting lower variable delivery costs
associated with lower sales volumes. Branch rationalizations were
completed in Ontario, Quebec and Atlantic Canada during the
quarter and are expected to result in reduced fixed operating
costs in the future.
Capital expenditures for the quarter amounted to $1.1 million
compared to $0.6 million in the prior year period and were
directed predominantly towards Superior's information systems
replacement project. Capital expenditures are weighted towards the
second half of the year as the truck fleet, tanks, and cylinders
are renewed in preparation for the winter heating season. During
the quarter, Superior established stand alone credit facilities in
the amount of $70 million and has terminated its banking support
arrangement with UPRI.
OTHER:
Mr. Daryl Rudichuk has resigned as trustee of the Fund effective
June 30, 1998. Mr. Rudichuk has been a trustee since the
inception of the Fund in October 1996. His contributions in
helping to establish and administer the Fund are gratefully
acknowledged.
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SUPERIOR PROPANE INCOME FUND
Consolidated Statement of Earnings
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(unaudited, thousands of dollars)
Three Months Ended Six Months Ended
June 30 June 30
Proforma Proforma
(x) (x)
1998 1997 1997 1998 1997 1997
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REVENUES $81,160 $ $101,144 $202,671 $ $271,229
Cost of products
sold 38,428 58,345 95,729 162,908
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GROSS PROFIT 42,732 42,799 106,942 108,321
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EXPENSES
Operating and
administration 30,413 173 32,924 63,110 294 67,458
Depreciation and
amortization 9,871 7,767 20,010 14,772
Interest 698 248 1,745 779
Income taxes
of Superior (3,000) (3,073) 2,100 2,322
Non-controlling
interest 534 3,427 2,464 13,390
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38,516 173 41,293 89,429 294 98,721
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EARNINGS FROM INVESTMENT
IN SUPERIOR
Income on 13 percent
Shareholder Notes 6,239 12,410
Equity loss on
Common Shares (4,560) (2,516)
-----------------------------------------------
1,679 9,894
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Net income before
distributions to
unitholders $ 4,216 $1,506 $1,506 $17,513 $9,600 $9,600
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Consolidated Balance Sheet
--------------------------------------------------------------
(unaudited, thousands of dollars)
June 30, 1998 December 31, 1997
-----------------------------------
ASSETS
Net working capital $ 20,513 $ 30,574
Capital assets and goodwill 536,807 $513,258
-----------------------------------
$557,320 $543,832
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LIABILITIES AND UNITHOLDERS'
EQUITY
Bank indebtedness (cash) $ (998) $ 14,022
Distributions payable to
unitholders 12,351 11,115
Distributions payable to
non-controlling interest 1,262
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11,353 26,399
Deferred income taxes 30,197 31,397
Non-controlling interest
in Superior 18,090
Unitholders' equity 515,770 467,946
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$557,320 $543,832
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(x) See accompanying note for basis of proforma presentation.
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SUPERIOR PROPANE INCOME FUND
Consolidated Statement of Changes in Financial Position
--------------------------------------------------------------
(unaudited, thousands of dollars)
Three Months Ended Six Months Ended
June 30 June 30
Proforma Proforma
(2) (2)
1998 1997 1997 1998 1997 1997
-----------------------------------------------
OPERATING ACTIVITIES
Earnings before
distributions to
unitholders $4,216 $1,506 $1,506 $17,513 $9,600 $9,600
Items not
involving cash:
Equity loss on
Common Shares 4,560 3,301
Depreciation and
amortization 9,871 7,767 20,010 14,772
Non-controlling
interest 534 3,427 2,464 13,390
Deferred income
taxes of
Superior (600) (314) (1,200) 160
-----------------------------------------------
Cash generated
from operations
before changes
in working
capital 14,021 6,066 12,386 38,787 12,901 37,922
Increase (decrease)
in working
capital(x) 3,809 (106) (6,976) 9,257 (102)(17,670)
-----------------------------------------------
CASH FLOW FROM
OPERATING
ACTIVITIES 17,830 5,960 5,410 48,044 12,799 20,252
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INVESTING ACTIVITIES
Purchase of 10
percent interest
in Superior (1)
(60,772) (59,990)
Property, plant
and equipment
(net) (1,082) (108) (1,328) (601)
------------------------------------------------
(61,854) (108) (61,318) (601)
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FINANCING ACTIVITIES
Issuance of trust
units (1) 60,772 60,772
Distributions to
unitholders (12,351) (5,949) (5,949)(30,466)(12,805)(12,805)
Distributions to
non-controlling
interest (6,214) (2,012) (13,145)
Promissory note (100) (300)
------------------------------------------------
48,421 (5,949)(12,263) 28,294 (12,805)(26,250)
------------------------------------------------
Change in cash 4,397 11 (6,961) 15,020 (6) (6,599)
Cash (bank indebtedness)
at beginning
of period (3,399) (12) 438 (14,022) 5 76
------------------------------------------------
Cash (bank
indebtedness)
at end of
period 998 (1) (6,523) 998 (1) (6,523)
------------------------------------------------
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(x) Includes changes in net working capital and accrued
distributions to unitholders and non-controlling interest.
(1) Purchase of 10 percent interest in Superior:
On May 28, 1998, the Fund acquired from Union Pacific
Resources Inc. (UPRI) an additional 10 percent Shareholder Note
and Common Share interest in Superior in consideration for the
issuance of 4,570,695 trust units valued at $60.8 million,
pursuant to an exchange agreement between UPRI and the Fund dated
October 8, 1996. UPRI in turn, sold the trust units so acquired,
and its rights under Management and Administrative agreements with
Superior and the Fund respectively, to a group of senior
executives of Superior together with funds managed by Enterprise
Capital Management Inc. As a result of these transactions,
Superior is now wholly owned by the Fund.
(2) Pro-forma comparative presentation:
On September 5, 1997, the Fund acquired from UPRI an
additional 40 percent interest in Superior at a cost of $252.2
million, bringing the Fund's total interest in Superior to 90
percent. Consistent with the Fund's increased ownership of
Superior, the Fund began to consolidate its investment in Superior
effective September 5, 1997. Prior to that date, the Fund
accounted for its investment in Superior on the equity basis. The
proforma presentation reflects the results of the Fund presented
on a consolidated basis, based on the Fund's actual ownership
during the three and six month periods ended June 30, 1997.
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