Mr. Wayne Bingham reports
SUPERIOR PLUS CORP. CONFIRMS 2015 SECOND QUARTER RESULTS
Superior Plus Corp. has released its financial results for the second quarter of 2015.
Highlights:
-
For the quarter ended June 30, 2015, Superior generated adjusted
operating cash flow (AOCF) per share of 18 cents, compared with the prior-year
quarter of 26 cents per share before restructuring costs and 18 cents per
share after restructuring costs. Second quarter results are consistent
with the preliminary second quarter results issued on July 23, 2015.
Superior does not anticipate any restructuring costs in 2015;
- As previously communicated on July 23, 2015, Superior's 2015 financial
outlook of AOCF per share has been reduced to $1.65 to $1.85 from $1.80
to $2.10 per share, as provided in the first quarter of 2015. The
reduction in the 2015 financial outlook is due to a reduced outlook for
the specialty chemicals business for the second half of 2015, in addition
to lower than expected results for the second quarter of 2015. See the
financial outlook section of the specialty chemicals review and 2015
financial outlook for additional details on the reduction in the 2015
financial outlook;
- Superior's total debt to EBITDA (earnings before interest, taxes, depreciation and amortization) at June 30, 2015, was 3.4 times. Superior's
forecasted Dec. 31, 2015, total debt to EBITDA ratio is 3.4 times to 3.8 times,
compared with the range of three times to 3.4 times provided in the first quarter of
2015. The increase in the forecasted range is a result of the reduced
financial outlook for 2015 as noted above. See debt management update for additional details;
- Energy services results for the second quarter were consistent with the
prior-year quarter and management's expectations, as improved gross
profits were offset by higher operating costs, both of which were
impacted by a stronger U.S. dollar on the translation of U.S.-denominated gross profits and expenses. Retail propane and heating oil
gross profits benefited from a lower wholesale cost of propane and
heating oil in the current year quarter compared with the prior-year
quarter. In addition, results in the prior-year quarter benefited from
the recognition of a $3.7-million one-time insurance and litigation
settlement. Business improvement and cost reduction initiatives
throughout the energy services business continue to track consistent
with management's expectations;
- Specialty chemicals results for the second quarter were lower than the
prior-year quarter and below management's expectations. Sodium chlorate
gross profits were lower than the prior-year quarter as a result of
reduced sales volumes and higher average electricity costs. Sales
volumes were negatively impacted by higher than average customer
maintenance in the second quarter and a reduction in the nomination of
volume under the Tronox LLC supply agreement. Chloralkali gross
profits were lower than the prior-year quarter due primarily to reduced
hydrochloric acid pricing;
- The construction products distribution (CPD) business results were
higher than the prior-year quarter and consistent with management's
expectations. Second quarter results were impacted by continuing volume and
margin improvements in United States markets, the impact of a stronger U.S.
dollar, and modestly higher Canadian results.
SECOND QUARTER FINANCIAL SUMMARY
(in millions of dollars except per-share amounts)
Three months ended Six months ended
June 30, June 30,
2015 2014 2015 2014
Revenue $743.9 $895.4 $1,750.5 $2,177.7
Gross profit 192.8 196.0 482.5 486.2
EBITDA from operations (1)(2) 37.2 50.6 155.0 166.4
Interest expense (11.1) (11.6) (25.4) (24.5)
Corporate costs (2.2) (6.0) (9.8) (10.8)
Cash income tax expense (0.6) (0.5) (1.3) (0.9)
Adjusted operating cash flow before
restructuring costs 23.3 32.5 118.5 130.2
Restructuring costs -- (9.3) -- (11.1)
Adjusted operating cash flow 23.3 23.2 118.5 119.1
Adjusted operating cash flow per
share before restructuring costs,
basic (1)(2)(3)(4) $0.18 $0.26 $0.94 $1.03
Adjusted operating cash flow per
share before restructuring costs,
diluted (1)(2)(3)(4) $0.18 $0.26 $0.91 $1.00
Adjusted operating cash flow per
share, basic (1)(2)(3)(4) $0.18 $0.18 $0.94 $0.94
Adjusted operating cash flow per
share, diluted (1)(2)(3)(4) $0.18 $0.18 $0.91 $0.92
Dividends paid per share $0.18 $0.15 $0.36 $0.30
Notes:
(1) 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-GAAP financial measures"
in Superior's 2015 second quarter management's discussion and analysis.
(2) Superior has reclassified its 2014 second quarter results for the impact
of accounting adjustments, as disclosed in Superior's 2014 third quarter
earnings release dated Oct. 30, 2014. The impact of the adjustment
results in an increase in 2014 second quarter EBITDA from operations for
the energy services segment of $700,000 ($17.9-million on a total
basis compared with the previously reported $17.2-million). There is no
impact on operating cash flow per share of 18 cents for the comparative
quarter period. See Superior's 2015 second quarter MD&A for additional
details.
(3) The weighted average number of shares outstanding for the three months
ended June 30, 2015, is 126.7 million (2014 -- 126.2 million) and for the
six months ended June 30, 2015, is 126.4 million (2014 -- 126.2 million).
(4) See supplemental financial information for additional details on
diluted per share amounts.
SEGMENTED INFORMATION
(in millions of dollars)
Three months ended Six months ended
June 30, June 30,
2015 2014 2015 2014
EBITDA from operations
Energy services $14.5 $17.9 $97.8 $99.6
Specialty chemicals 10.0 24.7 40.5 54.3
Construction products distribution 12.7 8.0 16.7 12.5
37.2 50.6 155.0 166.4
COMPARABLE GAAP FINANCIAL INFORMATION (1)
(in millions of dollars except per-share amounts)
Three months ended Six months ended
June 30, June 30,
2015 2014 2015 2014
Net earnings $40.9 $5.9 $31.1 56.0
Net earnings per share basic $0.32 $0.05 $0.25 $0.44
Net earnings (loss) per share
diluted $0.25 $(0.02) $0.24 $0.44
Net cash flows from operating
activities 68.1 121.5 200.0 172.6
Net cash flows from operating
activities per share basic $0.54 $0.96 $1.58 $1.37
Net cash flows from operating
activities per share diluted $0.53 $0.93 $1.53 $1.32
(1) See "non-GAAP financial measures" in Superior's 2015 second quarter MD&A
for additional details.
Energy services:
- EBITDA from operations for the second quarter was $14.5-million compared
with $17.9-million in the prior-year quarter. Results were consistent with
the prior year after normalizing the prior-year quarter results, which
included a one-time litigation and insurance settlement of $3.7-million.
Results in the current-year quarter benefited from lower operating costs
and higher average retail margins, which more than offset reduced sales
volumes;
- The Canadian propane business generated gross profit of $47.7-million in
the second quarter compared with $47.5-million in the prior-year quarter,
as higher average sales margins were offset by a reduction in sales
volumes;
- Canadian propane average sales margins were 20.9 cents per litre in the
second quarter compared with 18.6 cents per litre in the prior-year
quarter. Average sales margins in the second quarter of 2015 benefited
from a low price environment for the wholesale cost of propane, improved
sales mix and the impact of continuing pricing management initiatives. The
low wholesale cost of propane is due largely to the reduced price of
crude oil as compared with the prior-year period, and higher than
historical propane inventory levels. Historically, a low price
environment is conducive to higher margins. Superior anticipates that
propane margins will moderate throughout the second half of 2015 as the
spread between retail pricing and the wholesale cost of propane
normalize;
- Canadian propane distribution sales volumes were 11 per cent lower than the
prior-year quarter, due primarily to reduced industrial and commercial
sales volumes. Industrial sales volumes were impacted by weaker oil
field sales volumes due to reduced customer activity as a result of the
decline in crude oil prices. Commercial sales volumes were negatively
impacted by warmer than average temperatures relative to the prior-year
quarter. Residential, agricultural and automotive sales volumes were
consistent with the prior-year quarter;
- Average weather across Canada, as measured by degree days, for the
second quarter was 12 per cent warmer than the prior year and 8 per cent warmer than the
five-year average. Due to the seasonal nature of heating-related volumes,
weather in the second quarter does not typically have a material impact
on the majority of end use sales volumes;
- The U.S. refined fuels business generated gross profits of $30.7-million
in the second quarter compared with $26.4-million in the prior-year
quarter. Gross profits benefited from improved average sales margins
offset by modestly lower sales volumes;
- U.S. refined fuels average sales margin of 9.1 cents per litre in the
second quarter was higher than the prior-year quarter of 7.6 cents per
litre. Similar to the Canadian propane business, average sales margins
benefited from the low price environment for both wholesale propane and
heating oil. In addition, residential margins benefited from continuing margin management initiatives and strategic supply initiatives;
- Sales volumes within the U.S. refined fuels business were lower than the
prior-year quarter, due to modest reductions in residential and
commercial sales volumes due to continuing heating oil customer attrition
and warmer than average temperatures. Additionally, commercial sales
volumes were negatively impacted by reduced agricultural volumes as a
result of unfavourable weather conditions;
- Average weather for the U.S. refined fuel business, as measured by
degree days, for the second quarter was 10 per cent warmer than the prior year
and 4 per cent warmer than the five-year average. Similar to the Canadian propane
business, the impact of weather on the second quarter results is
typically not material due to the seasonal nature of heating-related
volumes;
- The supply portfolio management business generated gross profits of $6.7-million in the second quarter compared with $7-million in the prior-year
quarter. Results in the current-year quarter benefited from the reduced
wholesale cost of propane compared with the prior-year quarter. Market
trading opportunities were consistent with the prior-year quarter.
Superior anticipates that annual profitability for the supply portfolio
management business in 2015 will be consistent with 2014;
- The fixed-price energy services business generated gross profits of $3.6-million compared with $3.1-million in the prior-year quarter. Natural gas
and electricity gross profits were consistent with the prior-year
quarter;
- Operating expenses were $81.4-million in the second quarter compared with
$74.3-million in the prior-year quarter. Operating expenses compared with the prior-year quarter were impacted by a stronger U.S. dollar on the
translation of U.S.-denominated expenses, and the inclusion of a $3.7-million one-time litigation and insurance settlement recognized in the
prior-year quarter. Operating costs continue to be positively impacted
by the implementation of the "Superior Way" business process initiatives
and reduced head count. Net of the impact of foreign currency translation
and the one-time settlement in the prior-year quarter, operating costs
were modestly lower than the prior-year quarter;
- Superior continues to make excellent progress on sustainably reducing
the cost structure of its energy services business as part of its
continuing expense reduction initiatives, including the implementation of
the "Superior Way" project, which was successfully implemented across all
operating regions in the second half of 2014. Superior anticipates
seeing continuing improvements in the cost structure relative to the prior-year quarter, in particular the Canadian propane business throughout
2015;
- EBITDA from operations for 2015 for the energy services business is
anticipated to be consistent to modestly higher than in 2014, consistent
with the forecast provided in first quarter 2015. EBITDA from the
Canadian propane and U.S. refined fuels businesses will benefit from
continuing operational improvements. Operating costs as a percentage of
gross profits are anticipated to benefit from a full-year run rate of
business initiatives and the "Superior Way" project, offset in part by
the impact of reduced oil field gross profits. Gross profits in the
Canadian propane and U.S. refined fuels business are anticipated to be
consistent with 2014, with the exception of industrial-related gross
profits in the Canadian propane business. Superior is forecasting a
modest reduction in gross profits related to oil and gas sales volumes
within the Canadian propane business as a result of continuing volatility
in crude oil. Gross profit from the supply portfolio management business
is anticipated to be similar to 2014, whereas gross profit from the
fixed-price energy business will be higher in 2015 than in 2014 due to
the absence of losses that resulted from the temperatures experienced in
the first quarter of 2014. Average weather, as measured by degree days,
for the remainder of 2015 is anticipated to be consistent with the five-year average period. Operating conditions for 2015 are anticipated to be
similar to 2014, with the exception of the decline in the wholesale cost
of propane, which Superior anticipates will persist throughout 2015.
Specialty chemicals:
- EBITDA from operations for the second quarter was $10-million compared
with $24.7-million in the prior-year quarter;
- Sodium chlorate gross profits were lower than the prior-year quarter due
to a reduction in sales volumes and average gross margins;
- Sodium chlorate sales volumes were 22 per cent lower than the prior-year quarter
due to a reduction in the nomination of volumes under the agreement with
Tronox, and reduced customer demand as a result of extended pulp producer
maintenance downtime in the second quarter relative to maintenance in
prior years. Historically, pulp producers complete normal course
maintenance throughout the second quarter. During the second quarter of
2015, the maintenance downtime was on average two to 2.5 times longer than historical averages for a majority of Superior's
customer base. It appears that pulp producers that have been operating at
very high utilization rates due to strong market conditions for pulp
were required to undertake more significant maintenance relative to
prior years. The pulp producer downtime has resulted in a tightening of
pulp inventories with a corresponding tightening of sodium chlorate
inventories, as production levels were reduced in light of reduced
customer demand. Tighter pulp and sodium chlorate inventory levels
should be supportive to pricing over the next several quarters;
- Gross margin per tonne was modestly lower than the prior year due to
higher electricity costs and a reduction in average realized selling
prices. Realized average selling prices include the impact of existing
foreign currency hedge contracts. Selling prices excluding the impact of
foreign currency hedging contracts were higher than the prior year.
Gross margin per tonne was also negatively impacted by a higher mix of
international sales volumes;
- Superior's foreign currency hedge contracts for the 2015 fiscal year
were entered into in prior years when the Canadian dollar was stronger
relative to the U.S. dollar. As a result, Superior's effective U.S.
exchange rate for 2015 is approximately $1.04 for
$1 (U.S.). Beginning in 2016, lower-value foreign currency
contracts roll-off and Superior's effective U.S. exchange rate will
significantly improve, which is expected to result in incremental
consolidated earnings of $15-million to $20-million in 2016 relative to 2015.
See "financial instruments -- risk management" in Superior's 2015 second
quarter MD&A for a summary of Superior's foreign currency hedge
contracts;
- As previously disclosed, specialty chemicals has provided notification
that it will not be nominating any volume for fiscal 2016 related to its
130,000-million-tonne sodium chlorate supply agreement with Tronox. During the
second quarter, Tronox provided formal notification to Superior that it
will be commencing with a decommissioning of the facility upon
completion of Superior's 2015 supply requirements. The decommissioning
of the facility will result in the acceleration of certain fees,
requiring Superior to make a payment to Tronox of approximately $3.3-million (U.S.) in the first quarter of 2016;
- With Tronox determining that it will cease sodium chlorate manufacturing
at the Hamilton, Miss., facility, the supply and demand
fundamentals for North American sodium chlorate would largely be
balanced when current exports are taken into consideration. The
potential for an improved supply and demand balance beginning in 2016
provides an improved environment for Superior to recover production cost
increases, particularly electricity cost increases, that Superior has
had to absorb over the last several years;
- Chloralkali gross profits were lower than the prior-year quarter due to
lower average realized sales prices, including the impact of foreign
currency hedge contracts; sales volumes were consistent with the prior-year quarter. Sales prices, before the impact of foreign currency
hedging contracts, for chlorine were higher than the prior year, for
caustic were consistent to modestly higher than the prior year, and for
hydrochloric acid were materially lower than the prior year.
Hydrochloric acid pricing has been negatively impacted by reduced demand
from the oil and gas industry. In addition to the impact of selling
prices, chloralkali gross margins were negatively impacted by higher
electricity costs and a higher proportion of lower margin hydrochloric
acid sales volumes compared with higher-margin caustic sales volumes in
the prior-year quarter;
- Operating expenses of $41.2-million were $38.9-million higher than the
prior-year quarter, due to the impact of a stronger U.S. dollar on the
translation of U.S.-denominated expenses and general inflationary
increases;
- Superior expects EBITDA from operations for 2015 to be approximately $30-million lower than in 2014. Superior's forecast for its specialty
chemicals business at the end of the first quarter of 2015 was for
results in 2015 to be modestly lower than in 2014. The reduction in the
2015 forecast is a result of lower than anticipated actual results in
the second quarter of 2015, in addition to a reduction in the
anticipated contribution for the third and fourth quarters of 2015. The
reduction in the forecast for the second half of 2015 is due in part to
lower than previously anticipated sodium chlorate gross profits as a
result of a reduction in sales volumes. The reduction in sodium chlorate
sales volumes is due largely to the impact of a stronger U.S. dollar, which has resulted in a higher effective price of pulp, resulting in
upward pressure on the price of paper and other pulp derivatives, which
is causing reduced demand, and therefore reduced demand for pulp and
sodium chlorate. Chloralkali gross profits are now anticipated to be
weaker than previously disclosed due to additional weakness in
hydrochloric acid sales volumes and pricing. Since the first quarter of
2015, there has been intense pressure on both pricing and sales volumes.
Although pricing has generally been consistent with management's
expectations, there has been greater than anticipated volume declines
as inventories from other geographic and end use markets are being sold
into Superior's markets. Sales prices, and sales volumes of caustic and
chlorine are consistent with the previously provided forecast, and are
anticipated to be modestly higher than the prior year. Supply and demand
fundamentals in the chloralkali markets in which Superior operates are
anticipated to remain similar to 2014, with the exception of hydrochloric
acid as noted above.
Construction products distribution (CPD):
-
EBITDA from operations for the second quarter was $12.7-million compared
with $8-million in the prior-year quarter. Results in the second quarter
benefited from continuing improvements in U.S. markets, in addition to
normal weather and operating conditions in the current-year quarter, which positively impacted sales volumes and operating costs compared with the prior-year quarter. Prior-year quarter results were negatively
impacted by difficult weather conditions;
- Total gross profit of $59.5-million was $8.9-million higher than the
prior-year quarter due to improved sales volumes, higher average selling
prices, higher average sales margins and the impact of a stronger U.S.
dollar;
- Gypsum revenues were higher than the prior-year quarter due to improved
U.S. sales volumes as a result of continuing improvements in the U.S.
residential construction sector, higher average selling prices and the
impact of a stronger U.S. dollar on the translation of U.S.-denominated
revenues. Average sales margins in the U.S. were higher than the prior-year quarter due to continuing pricing and procurement initiatives,
improved market conditions, and the timing of the recognition of rebates
in 2015 compared with 2014, which more than offset the impact of a higher
mix of large industrial projects. Canadian revenues were higher than the
prior-year quarter due to improved weather and operating conditions
compared with the prior quarter, which were partially offset by a modest
decline in gross margins due to competitive pressures;
- Commercial and industrial insulation (C&I) revenues increased over the
prior-year quarter due to higher industrial market activity,
improvements in U.S. end use markets, an increase in market share due to
investments in sales and marketing, and the impact of a stronger U.S.
dollar on the translation of U.S.-denominated revenues. C&I gross
margins were consistent with the prior-year quarter;
- Operating expenses for the second quarter were $46.8-million compared with $42.6-million in the prior-year quarter. Operating costs were impacted
by higher sales volumes and the impact of a stronger U.S. dollar on the
translation of U.S.-denominated expenses. Operating expenses as a
percentage of sales were lower than the prior year;
- CPD has approved and begun a systems integration project that will
replace two legacy ERP systems with a single, standardized solution. The
updated system will provide enhanced procurement, pricing and
operational effectiveness, enabling CPD to further improve margins and
operating costs once complete. CPD anticipates that the project will be
completed over the next two years at a total cost of approximately $22-million (U.S.), which is split between capital investment of $12-million (U.S.) and
a one-time operating cost of $10-million (U.S.) ($3-million (U.S.) in 2015 and $7-million (U.S.) in 2016). Superior anticipates that approximately 60 per cent of these
costs will be incurred in 2015, with the remainder in 2016. Total costs
incurred to date are $2.7-million (U.S.), consisting of $2.1-million (U.S.) in
capital and $600,000 (U.S.) in operating expense;
- Superior anticipates that EBITDA from operations in 2015 will be higher
than in 2014 due to continued improvements in the U.S. residential
market, the product expansion of drywall into ceiling-only branches, and
benefits resulting from continuing pricing and procurement initiatives.
Superior anticipates that the U.S. commercial market will be modestly
improved in 2015 compared with 2014, and that the Canadian residential
market will continue to be challenging.
Corporate related:
-
Interest expense for the second quarter was $11.1-million compared with
$11.6-million in the prior-year quarter. Interest expense was lower than
the prior-year quarter due to lower average interest rates and lower
average debt levels. Superior's average interest rate was positively
impacted by settlements on interest rate swaps, which more than offset
the impact of higher rates due to Superior's seven-year, $200-million, 6.5-per-cent senior unsecured note offering, which closed on Dec. 9, 2014.
Superior anticipates that interest costs will be consistent with the
prior year for the remaining two quarters of 2015 due to reduced debt
levels and lower effective interest rates;
- On June 30, 2015, Superior completed the redemption of the entire $172.5-million outstanding principal amount of its 5.75-per-cent convertible debentures, utilizing funds from its existing credit facility to finance the
redemption;
- Corporate costs were $2.2-million in the second quarter, which was $3.8-million lower than the prior-year quarter. The decrease in corporate
costs is due to reduced long-term incentive plan costs relative to the
prior-year quarter as a result of fluctuations in Superior's share
price. Additionally, corporate costs in the prior-year quarter included
one-time costs associated with the potential CPD sales process;
- Superior's total debt (including convertible debentures) to compliance
EBITDA before restructuring costs was 3.4 times as at June 30, 2015 (3.4 times after restructuring costs), compared with 3.5 times as at Dec. 31, 2014
(3.6 times after restructuring costs). The reduction in leverage is due to
lower debt levels as a result of reduced working capital requirements.
See debt management update for additional details;
- As disclosed on June 17, 2015, Wayne Bingham, chief financial
officer, is expected to retire no later than February, 2016. Mr.
Bingham joined Superior in the capacity of CFO in October, 2006. Mr.
Bingham will remain with Superior until February, 2016, or until his
retirement date to assist in the transition of the new CFO, as well as
the corporate office relocation to Toronto, which is anticipated in the
fourth quarter of 2015. Superior has commenced a search for a successor
to Mr. Bingham;
- On June 29, 2015, Standard & Poor's confirmed Superior's corporate credit rating as BB and Superior Plus LP's senior secured debt
rating as BBB minus, and Superior Plus LP's senior unsecured debt rating as
BB. The outlook for the long-term corporate rating remains stable;
- On June 26, 2015, DBRS confirmed Superior's corporate credit
rating as BB high (stable), Superior Plus LP's senior secured rating as
BB high (stable) and Superior Plus LP's senior unsecured debt rating as
BB low (stable).
CRA (Canada Revenue Agency) income tax update
As previously disclosed, on April 2, 2013, Superior received from the CRA notices of reassessment for Superior's 2009 and 2010 taxation years, reflecting the CRA's intent to challenge the tax consequences of the conversion. On Nov. 7, 2014, Superior received the notices of reassessment for the 2011 to 2013 taxation years. The CRA's position is based on the acquisition of control rules and the general anti-avoidance rules in the Income Tax Act (Canada).
The attached table summarizes Superior's estimated tax liabilities and payment requirements associated with the received and anticipated notices of reassessment. Upon receipt of the notices of reassessment, 50 per cent of the taxes payable pursuant to such notices of reassessment must be remitted to the CRA.
Taxes payable 50% of the taxes Month/year
Taxation year (1)(2) payable(1)(2) paid/payable
2009/2010 $13.0 $6.5 April, 2013
2011 $12.8 $6.4 February, 2015
2012 $8.8 $4.4 February, 2015
2013 $9.4 $4.7 February, 2015
2014 $13.0 (3) $6.5 2015
2015 $12.0 (3) $6.0 2016
Total $69.0 $34.5
(1) In millions of dollars.
(2) Includes estimated interest and penalties.
(3) Estimated based on Superior's previously filed tax returns, 2014
financial results and the midpoint of Superior's 2015 financial outlook.
On May 8, 2013, and Aug. 7, 2013, respectively, Superior filed a notice of objection and a notice of appeal with respect to the notice of reassessments received on April 2, 2013. On Feb. 4, 2015, Superior filed a notice of objection with respect to the notice of reassessments received on Nov. 7, 2014. Superior anticipates that if the case proceeds in the Tax Court of Canada, the case could be heard within two years, with a decision rendered six to 12 months after completion of the court hearings. If a decision of the Tax Court of Canada were to be appealed, the appeal process could reasonably be expected to take an additional two years. If Superior receives a positive decision, then any taxes, interest and penalties paid to the CRA will be refunded plus interest. If Superior is unsuccessful, then any remaining taxes payable plus interest and penalties will have to be remitted to the CRA.
Superior remains confident in the appropriateness of its tax filing position and the expected tax consequences of the conversion, and intends to vigorously defend such position and to file its future tax returns on a basis consistent with its view of the outcome of the conversion.
Interim tax payments made by Superior will be recorded to the balance sheet, and will not materially impact either adjusted operating cash flow or net earnings.
Based on the midpoint of Superior's 2015 financial outlook of AOCF per share of $1.75, if the tax pools from the conversion were not available to Superior, the impact would be an increase to cash income taxes of approximately $12-million or nine cents per share for 2015. As previously stated, Superior intends to file its future income tax returns on a basis consistent with its view of the outcome of the conversion.
Financial outlook
for 2015
As previously disclosed on July 23, 2015, Superior's 2015 financial outlook of AOCF per share has been reduced to $1.65 to $1.85 from $1.80 to $2.10 per share, as provided in the first quarter of 2015. The reduction in the 2015 financial outlook is due to a reduced outlook for the specialty chemicals business for the second half of 2015, in addition to lower than expected results for the second quarter of 2015. The reduction in the outlook and second quarter results for the specialty chemicals business is due to weaker than anticipated hydrochloric acid pricing and sales volumes, and a reduction in second quarter sodium chlorate sales volumes due to longer than anticipated pulp mill plant maintenance closures.
For additional details on the assumptions underlying the 2015 financial outlook, see Superior's 2015 second quarter MD&A.
Debt management update
Superior remains focused on managing both its total debt and its total debt to EBITDA. Superior is currently forecasting a total debt to EBITDA ratio at Dec. 31, 2015, of 3.4 times to 3.8 times, compared with the previously provided range of three times to 3.4 times forecasted at the first quarter of 2015. The change to Superior's forecasted debt and leverage levels is due to a reduction in Superior's 2015 financial outlook. See "financial outlook for 2015" for additional details.
Superior's anticipated debt repayment for 2015 and total debt to EBITDA leverage ratio as at Dec. 31, 2015, based on Superior's 2015 financial outlook, is detailed in the attached table.
Dollar per Millions of
share dollars
Financial outlook for 2015 AOCF per share
-- midpoint (1) 1.75 222.0
Maintenance capital expenditures, net (0.39) (50.0)
Capital lease obligation repayments (0.20) (25.0)
Cash flow available for dividends and debt
repayment before growth capital 1.16 147.0
Growth capital expenditures (0.21) (27.0)
CPD system integration costs (0.11) (14.0)
Tax payments to CRA (50 per cent) (0.17) (22.0)
Estimated 2015 free cash flow available for
dividends and debt repayment 0.67 84.0
Conversion of 7.5-per-cent convertible debentures to
equity -- callable no earlier than Oct. 31, 2015 0.59 75.0
Dividends (0.72) (92.0)
Total estimated reduction in debt 0.54 67.0
Estimated total debt to EBTIDA as at
Dec. 31, 2015 3.4 to 3.8 times 3.4 to 3.8 times
Dividends 0.72 92.0
Calculated payout ratio after maintenance
capital and capital lease repayments 62% 62%
Calculated payout ratio after all capital
(excluding tax payments to CRA) 86% 86%
(1) See "financial outlook" in Superior's 2015 second quarter MD&A for
additional details including assumptions, definitions and risk factors.
Superior's total debt (including convertible debentures) to compliance EBITDA before restructuring costs was 3.4 times as at June 30, 2015 (3.4 times after restructuring costs), lower than the 3.5 times as at Dec. 31, 2014 (3.6 times after restructuring costs). Debt levels and the total leverage ratio as at June 30, 2015, were lower than Dec. 31, 2014, levels, due to debt repayment as a result of free cash flow generation in the first and second quarters of 2015. Superior continues to focus on reducing its total leverage through continuing debt reduction, including reducing working capital requirements and improving business operations.
Detailed second quarter 2015 results
Superior's 2015 second quarter management's discussion and analysis is available on Superior's website under the investor relations section.
Second quarter 2015 conference call
Superior will be conducting a conference call and webcast for investors, analysts, brokers and media representatives to discuss the 2015 second quarter results at 8:30 a.m. Mountain Time on Friday, July 31, 2015. To participate in the call, dial 1-800-396-7098. An archived recording of the call will be available for replay until midnight on Sept. 30, 2015. To access the recording, dial 1-800-408-3053 and enter passcode 7316441 followed by the pound key. Internet users can listen to the call live, or as an archived call, on Superior's website.
Supplemental financial information
Diluted AOCF per share
There were no dilutive instruments for the three months ended June 30, 2015, and 2014. For the six months ended June 30, 2015, the dilutive impact of the 7.5-per-cent, Oct. 31, 2016, convertible debentures was 6.1 million shares (132.5 million total shares on a dilutive basis), with a resulting impact on AOCF of $2.6-million ($121.1-million total on a dilutive basis). For the six months ended June 30, 2014, the dilutive impact of the 7.5-per-cent, Oct. 31, 2016, convertible debentures was 6.6 million shares (132.8 million total shares on a dilutive basis), with a resulting impact on AOCF of $2.8-million ($121.9-million total on a dilutive basis).
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