Superior Plus Corp. — Interim / Quarterly Report 2020

May 13, 2020

MANAGEMENT'S DISCUSSION AND ANALYSIS OF 2020 FIRST QUARTER RESULTS MAY 13, 2020

This Management's Discussion and Analysis (MD&A) contains information about the performance and financial position of Superior Plus Corp. (Superior) as at and for the three months ended March 31, 2020 and 2019, as well as forward-looking information about future periods. The information in this MD&A is current to May 13, 2020, and should be read in conjunction with Superior's first quarter 2020 unaudited condensed interim consolidated financial statements and notes thereto as at and for the three months ended March 31, 2020 and 2019.

The accompanying unaudited condensed interim consolidated financial statements of Superior were prepared by and are the responsibility of Superior's management. Superior's unaudited condensed interim consolidated financial statements as at and for the three months ended March 31, 2020 and 2019 were prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

All financial amounts in this MD&A are expressed in millions of Canadian dollars except where otherwise noted. All tables are for the three months ended March 31 of the period indicated, unless otherwise stated. This MD&A includes forward-looking statements and assumptions. See "Forward-Looking Information" for more details.

Overview of Superior

Superior 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 holds 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: Canadian Propane Distribution, U.S. Propane Distribution and Specialty Chemicals. The Canadian Propane Distribution segment includes the Canadian retail propane distribution business and the wholesale natural gas liquid marketing businesses with operations located in Canada and California. The U.S. Propane Distribution segment distributes propane gas and liquid fuels primarily in the Eastern United States, as well as the Midwest and California. Specialty Chemicals is a leading supplier of sodium chlorate and technology to the pulp and paper industry and a regional supplier of chloralkali products in the U.S. Midwest and Western Canada. Reportable segment information has also been restated to comply with the current presentation.

Current Economic Conditions

The rapid outbreak of the novel strain of the coronavirus, specifically identified as the COVID-19 pandemic, has caused governments worldwide to enact emergency measures and restrictions to combat the spread of the virus. These measures and restrictions, which include the implementation of travel bans, mandated and voluntary business closures, self-imposed and mandatory quarantine periods, isolation orders and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. For the first quarter of 2020, COVID-19 did not have a material impact on Superior's business, financial condition or results of operations. The future impact of the COVID-19 pandemic on liquidity, volatility, credit availability and market and financial conditions generally could change at any time. The duration and impact of the COVID-19 outbreak on the economy are unknown at this time, and, as a result, it is difficult to estimate the longer-term impact on our operations and the markets for our products. However, based on current information, including measures we have implemented to reduce capital and operating expenses, we only expect a modest impact to our business.

COVID-19 has also resulted in a significant decrease on global demand for crude oil. In addition to the impact of COVID-19, production levels during March and April by OPEC+ countries, contributed to excess global supply and caused the price of oil to be exceptionally volatile. Propane is a derivative of natural gas processing and oil refining, continued volatility in the price of oil could lead to disruptions in the supply of propane if the production of oil and gas is curtailed because it is uneconomic. In addition to the risk on the supply of propane, demand for Superior's products from our customers in the oil and gas industry could be impacted as the combined impact of COVID-19 and volatile oil prices has had a significantly negative impact on the energy industry.

Superior's operating segments are considered essential services in all provinces, states and territories in which Superior operates. In response to COVID-19 and in-line with recommendations from local health authorities, enhanced operating procedures and protocols were instituted to protect our employees and customers and to maintain our sites and facilities to even higher levels of cleanliness.

Management is continuing to monitor these situations and may be required to take further actions that may materially alter operations.

Non-GAAP Financial Measures

Throughout the MD&A, Superior has used the following terms that are not defined under generally accepted accounting principles (GAAP), but are used by management to evaluate the performance of Superior and its businesses: adjusted operating cash flow (AOCF) before and after transaction and other costs, earnings before interest, taxes, depreciation and amortization (EBITDA) from operations, Adjusted EBITDA, Total Debt to Adjusted EBITDA Leverage Ratio, Credit Facility EBITDA, Senior Debt and Adjusted Gross Profit. These measures may also be used by investors, financial institutions and credit rating agencies to assess Superior's performance and ability to service debt. Non-GAAP financial measures do not have standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. Securities regulations require that Non-GAAP financial measures are clearly defined, qualified and reconciled to their most comparable GAAP financial measures. Except as otherwise indicated, these Non-GAAP financial measures are calculated and disclosed on a consistent basis from period to period. Specific items may only be relevant in certain periods.

The intent of using Non-GAAP financial measures is to provide additional useful information to investors and analysts; the measures do not have standardized meaning under IFRS. The measures should not, therefore, be considered in isolation or used in substitute for measures of performance prepared in accordance with IFRS. Other issuers may calculate Non-GAAP financial measures differently. See "Non-GAAP Financial Measures" for more information about these measures.

Forward-Looking Information

Certain information included herein is forward-looking information within the meaning of applicable Canadian securities laws. Forward-looking information may include statements regarding the objectives, business strategies to achieve those objectives, expected financial results (including those in the area of risk management), economic or market conditions, and the outlook of or involving Superior, Superior LP and its businesses. Such information is typically identified by words such as "anticipate", "believe", "continue", "estimate", "expect", "plan", "forecast", "future", "outlook", "guidance", "may", "project", "should", "strategy", "target", "will" or similar expressions suggesting future outcomes.

Forward-looking information in this document includes: future financial position, consolidated and business segment outlooks, expected Adjusted EBITDA, the duration and anticipated impact of the COVID-19 pandemic and the expected economic recession, estimates of the impact COVID-19 may have on our operations, the markets for our products and our financial results, expected total debt to Adjusted EBITDA ratio, anticipated impact from the weaker Canadian dollar, anticipated uses of proceeds from the DRIP, business strategy and objectives, development plans and programs, organic growth, weather, economic activity in Western Canada, product pricing and sourcing, caustic soda and hydrochloric acid markets, caustic potash customer mix, volumes and pricing, wholesale propane market fundamentals, electricity costs, exchange rates, expected synergies from the acquisition of NGL and other acquisitions, improvements and the timing associated in North American chlor-alkali markets, expected seasonality of demand, and future economic conditions.

Forward-looking information is provided for the purpose of providing information about management's expectations and plans about the future and may not be appropriate for other purposes. Forward-looking information herein is based on various assumptions and expectations that Superior believes are reasonable in the circumstances. No assurance can be given that these assumptions and expectations will prove to be correct. Those assumptions and expectations are based on information currently available to Superior, including information obtained from third party industry analysts and other third-party sources, and the historic performance of Superior's businesses. Such assumptions include anticipated financial performance, current business and economic trends, the amount of future dividends paid by Superior, business prospects, utilization of tax basis, regulatory developments, currency, exchange and interest rates, future commodity prices relating to the oil and gas industry, future oil rig activity levels, trading data, cost estimates, our ability to obtain financing on acceptable terms, expected life of facilities and statements regarding net working capital and capital expenditure requirements of Superior or Superior LP, the assumptions set forth under the "Financial Outlook" sections in this MD&A. The forward-looking information is also subject to the risks and uncertainties set forth below.

By its very nature, forward-looking information involves numerous assumptions, risks and uncertainties, both general and specific. Should one or more of these risks and uncertainties materialize or should underlying assumptions prove incorrect, as many important factors are beyond our control, Superior's or Superior LP's actual performance and financial results may vary materially from those estimates and intentions contemplated, expressed or implied in the forward-looking information. These risks and uncertainties include incorrect assessments of value when making acquisitions, increases in debt service charges, the loss of key personnel, the anticipated impact of the COVID-19 pandemic and the expected economic recession, fluctuations in foreign currency and exchange rates, inadequate insurance coverage, liability for cash taxes, counterparty risk, compliance with environmental laws and regulations, reduced customer demand, operational risks involving our facilities, force majeure, labour relations matters, our ability to access external sources of debt and equity capital, and the risks identified in (i) this MD&A under "Risk Factors" and (ii) Superior's most recent Annual Information Form. The preceding list of assumptions, risks and uncertainties is not exhaustive.

When relying on Superior's forward-looking information to make decisions with respect to Superior, investors and others should carefully consider the preceding factors, other uncertainties and potential events. Any forward-looking information is provided as of the date of this document and, except as required by law, neither Superior nor Superior LP undertakes to update or revise such information to reflect new information, subsequent or otherwise. For the reasons set forth above, investors should not place undue reliance on forward-looking information.

FINANCIAL OVERVIEW

Summary of AOCF

	Three Months Ended
		March 31
(millions of dollars except per share amounts)	2020	2019
Revenue (1)	840.2	1,036.0
Gross profit (1)	399.2	428.3
EBITDA from operations (2)	223.9	249.3
Corporate operating and administrative costs	(0.6)	(5.6)
Realized losses on foreign currency hedging contracts	(4.0)	(3.8)
Adjusted EBITDA (2)	219.3	239.9
Interest expense	(27.1)	(26.5)
Cash income tax expense	(4.3)	(2.4)
AOCF before transaction and other costs (2)	187.9	211.0
Transaction and other costs (3)	(5.3)	(5.0)
AOCF(2)	182.6	206.0
AOCF per share before transaction and other costs (2)(3)(4)	$1.07	$1.21
AOCF per share (2)(3)(4)	$1.04	$1.18
Dividends declared per share (4)	$0.18	$0.18

(1) Revenue and gross profit have been presented excluding realized gains and losses on commodity derivative instruments and the comparative figures have been restated. These gains and losses are included in gains (losses) on derivatives and foreign currency translation of borrowings in the unaudited condensed interim consolidated financial statements. For purposes of determining margin per litre, gross profit has been adjusted to include realized gains and losses on commodity derivative instruments. See "Non-GAAP Financial Measures".

(2) EBITDA from operations, Adjusted EBITDA, AOCF before transaction and other costs, and AOCF are Non-GAAP measures. See "Non-GAAP Financial Measures".

(3) Transaction and other costs for the three months ended March 31, 2020 and 2019 are related to acquisition activity, restructuring and the integration of acquisitions. See "Transaction and Other Costs" for further details.

(4) The weighted average number of shares outstanding for the three months ended March 31, 2020 and 2019 was 174.9 million and 174.9 million shares respectively. There were no dilutive instruments with respect to AOCF and AOCF before transaction and other costs per share for the three months ended March 31, 2020 and 2019.

Comparable GAAP Financial Information

	Three Months Ended
		March 31
(millions of dollars except per share amounts)	2020	2019
Net earnings for the period (1)	11.4	156.6
Net earnings per share, basic and diluted (1)	$0.07	$0.90
Cash flows from operating activities	84.8	112.2
Cash flows from operating activities per share, basic and diluted	$0.48	$0.64

(1) Net earnings has been restated to adjust amortization and depreciation expense as a result of finalizing the purchase price allocation of the NGL acquisition in the second quarter of 2019. See Note 2(b) in the unaudited condensed interim consolidated financial statements and notes thereto as at and for the three months ended March 31, 2020 and 2019.

Segmented Information

		Three Months Ended
		March 31
(millions of dollars)	2020	2019
EBITDA from operations(1)
Canadian Propane Distribution	86.6	84.3
U.S. Propane Distribution	103.4	125.4
Specialty Chemicals	33.9	39.6
	223.9	249.3

(1) EBITDA from operations is a Non-GAAP measure. See "Non-GAAP Financial Measures".

AOCF Reconciled to Cash Flows from Operating Activities (1)

	Three Months Ended
		March 31
(millions of dollars)	2020	2019
Cash flows from operating activities	84.8	112.2
Non-cash interest expense, loss on redemption and other	2.7	1.9
Changes in non-cash operating working capital	83.8	74.0
Income taxes paid	0.5	1.8
Interest paid	44.9	46.9
Cash income tax expense	(4.3)	(2.4)
Finance expense recognized in net earnings	(29.8)	(28.4)
AOCF(1)	182.6	206.0

(1) AOCF is a Non-GAAP measure. See "Non-GAAP Financial Measures".

Acquisition of Western Propane Service ("Western")

On January 9, 2020, Superior acquired a Southern California retail propane distribution company, operating under the tradename, Western for total consideration of US$22.7 million (C$29.8 million). The acquisition was funded by drawing on Superior's credit facility and deferring US$4.0 million (C$5.2 million) in payments over the next five years.

Consolidated Statement of Net Earnings

		Three Months Ended
		March 31
(millions of dollars except per share amounts)	2020	2019 (1)
Revenue	840.2	1,036.0
Cost of sales (includes products and services)	(441.0)	(607.7)
Gross profit	399.2	428.3
Expenses
Selling, distribution and administrative costs ("SD&A")	(231.1)	(236.1)
Finance expense	(29.8)	(28.4)
Gains (losses) on derivatives and foreign currency translation of borrowings	(116.0)	28.8
	(376.9)	(235.7)
Earnings before income taxes	22.3	192.6
Income tax (expense)	(10.9)	(36.0)
Net earnings for the period	11.4	156.6
Net earnings per share, basic and diluted (2)	$0.07	$0.90

(1) Revenue and gross profit has been presented excluding realized gains and losses on commodity derivative instruments and the comparative figures have been restated. These gains and losses are included in gains (losses) on derivatives and foreign currency translation of borrowings in the unaudited condensed interim consolidated financial statements. For purposes of determining margin per litre, gross profit has been adjusted to include realized gains and losses on commodity derivative instruments. See "Non-GAAP Financial Measures". SD&A has been restated to adjust amortization and depreciation expense as a result of finalizing the purchase price allocation of the NGL acquisition in the second quarter of 2019. See the unaudited condensed interim consolidated financial statements and notes thereto as at and for the three months ended March 31, 2020 and 2019.

(2) The weighted average number of shares outstanding for the three months ended March 31, 2020 and 2019 was 174.9 million and 174.9 million shares respectively. There were no dilutive instruments with respect to AOCF and AOCF before transaction and other costs per share for the three months ended March 31, 2020 and 2019.

Q1 2020 Financial Results Compared to the Prior Year Quarter

Adjusted EBITDA for the three months ended March 31, 2020 was $219.3 million, a decrease of $20.6 million or 9% compared to the prior year quarter Adjusted EBITDA of $239.9 million. The decrease is primarily due to lower EBITDA from operations and slightly higher realized losses on foreign currency hedging contracts partially offset by lower corporate costs. EBITDA from operations decreased $25.4 million or 10% compared to the prior year quarter primarily due to lower U.S. Propane EBITDA from operations and, to a lesser extent, lower Specialty Chemicals EBITDA from operations partly offset by higher Canadian Propane EBITDA from operations. U.S. Propane EBITDA from operations was $103.4 million, a decrease of $22.0 million or 18% primarily due to warmer weather, partially offset by the impact of tuck-in acquisitions completed in the past twelve months, the impact of effective margin management in a declining wholesale propane price environment, and additional synergies. Specialty Chemicals EBITDA from operations was $33.9 million, a decrease of $5.7 million or 14% primarily due to lower chlor-alkali sales volumes and prices partially offset by lower power costs and the impact of the weaker Canadian dollar on translation of U.S. denominated sales and working capital. Canadian Propane EBITDA from operations was $86.6 million, an increase of $2.3 million or 3% primarily due to stronger Canadian wholesale market fundamentals, compared to the prior year quarter, the impact of Butane losses in the prior year quarter, effective margin management in a declining wholesale propane price environment, partially offset by lower sales volumes due to warmer weather, and to a lesser extent the impact of low crude oil prices and COVID-19 on some of our customers. Superior's realized losses on foreign currency hedging contracts were $4.0 million, modestly higher than a realized loss of $3.8 million in the prior year quarter. Corporate operating and administrative costs were $0.6 million, a decrease of $5.0 million primarily due to lower incentive plan costs related to the share price depreciation.

AOCF before transaction and other costs for the three months ended March 31, 2020 was $187.9 million, a decrease of $23.1 million or 11% from the prior year quarter AOCF before transaction and other costs of $211.0 million. The decrease from the prior year quarter is primarily due to lower Adjusted EBITDA discussed above, and to a lesser extent, higher interest and cash income tax expenses. Interest expense increased $0.6 million or 2% primarily due to higher average debt balances and the impact of the weaker Canadian dollar on the translation of U.S. denominated finance costs. Cash income tax expense increased $1.9 million as a result of utilization of available tax pools and to a lesser extent the impact of the weaker Canadian dollar on the translation of U.S. denominated taxes. AOCF per share before transaction and other costs was $1.07 per share, a decrease of $0.14 per share or 12% from the prior year quarter primarily due to the lower AOCF before transaction and other costs discussed above.

AOCF for the three months ended March 31, 2020 was $182.6 million, a decrease of $23.4 million or 11% from the prior year quarter AOCF of $206.0 million due to the decreased AOCF before transaction and other costs discussed above. AOCF per share for the three months ended March 31, 2020 was $1.04 per share, a decrease of $0.14 per share or 12% from the prior year quarter. Transaction and other costs for the three months ended March 31, 2020 were $5.3 million, $0.3 million higher than the prior year quarter. Costs incurred in the current quarter related primarily to the integration of acquisitions and Specialty Chemicals strategic review are comparable to the integration and acquisition related costs incurred in the prior year quarter.

Revenue for the three months ended March 31, 2020 was $840.2 million, a decrease of $195.8 million or 19% due to lower revenue in the Canadian Propane Distribution, U.S. Propane Distribution, and Specialty Chemicals segments. Canadian Propane Distribution revenue for the three months ended March 31, 2020 was $340.6 million, a decrease of $95.2 million or 22% primarily due to the impact of lower wholesale propane prices and the impact of lower sales volumes. U.S. Propane Distribution revenue for the three months ended March 31, 2020 was $342.0 million, a decrease of $86.8 million or 20% primarily due to lower sales volumes related to warmer weather, and the impact of lower wholesale propane prices, partially offset by the additional revenues from the tuck-in acquisitions completed in 2019. Specialty Chemicals revenue for the three months ended March 31, 2020 was $157.6 million, a decrease of $13.8 million or 8% primarily due to lower chlor-alkali sales volumes and average sales prices. Consolidated gross profit was $399.2 million, a decrease of $29.1 million or 7% from $428.3 million primarily due to lower U.S. Propane and Canadian Propane gross profit and to a lesser extent Specialty Chemicals gross profit. Gross profit decreased due to the above reasons and was partially offset by effective margin management in a declining wholesale propane price environment, improved wholesale market fundamentals within the Canadian supply portfolio management business and lower average power costs in the Specialty Chemical segment.

SD&A was $231.1 million for the three months ended March 31, 2020, a decrease of $5.0 million or 2% from the prior year quarter primarily due to a decrease in Corporate SD&A, Specialty Chemicals SD&A and to a lesser extent Canadian Propane SD&A, partially offset by an increase in U.S. Propane SD&A. Corporate SD&A costs were $2.6 million, a decrease of $4.3 million from $6.9 million in the prior year quarter primarily due to lower incentive plan costs related to share price depreciation. Specialty Chemicals SD&A costs were $36.6 million for the three months ended March 31, 2020, a decrease of $2.5 million or 6% from $39.1 million primarily due to lower distribution costs, a gain on the translation of non-cash working capital and to a lesser extent lower incentive plan costs, partially offset by the impact of the weaker Canadian dollar on US denominated expenses. Canadian Propane Distribution SD&A costs were $82.1 million a decrease of $1.6 million or 2% from $83.7 million in the prior year quarter primarily due to lower distribution costs as a result of lower sales volumes and to a lesser extent lower incentive plan costs partially offset by higher depreciation expense. U.S. Propane Distribution SD&A costs were $109.8 million, an increase of $3.4 million from $106.4 million in the prior year quarter primarily due to the impact of tuck-in acquisitions completed in 2019 and to a lesser extent the impact of the weaker Canadian dollar on the translation of U.S. denominated SD&A, partially offset by incremental synergies.

Finance expense for the three months ended March 31, 2020 was $29.8 million, an increase of $1.4 million or 5% from $28.4 million in the prior year quarter. The increase is primarily due to higher debt as a result of tuck-in acquisitions completed in the past twelve months and to a lesser extent the impact of the weaker Canadian dollar on US denominated finance expense.

Gains (losses) on derivatives and foreign currency translation of borrowings consists of unrealized gains (losses) on derivative financial instruments net of realized gains (losses) on derivative financial instruments. Unrealized and realized losses on derivative financial instruments were $116.0 million for the three months ended March 31, 2020 compared to a gain of $28.8 million in the prior year quarter. This is mainly related to changes in market prices of commodities, timing of maturities of underlying financial instruments and foreign exchange rates relative to amounts hedged. For additional details, refer to Note 12 of the 2020 unaudited condensed interim consolidated financial statements.

Total income tax expense of $10.9 million was $25.1 million lower than the prior year quarter's expense of $36.0 million. Current income tax expense was $4.3 million, an increase of $1.9 million from the prior year quarter. Deferred income tax expense was $6.6 million, a decrease from the $33.6 million expense in the prior year quarter primarily due to lower earnings before tax.

The net earnings for the three months ended March 31, 2020 was $11.4 million, compared to a net earnings of $156.6 million in the prior year quarter. The decrease from the prior year quarter is primarily due to unrealized losses on derivative instruments and translation of foreign currency borrowings recorded in the current period compared to unrealized gains on derivative instruments and translation of foreign currency borrowings in the prior year quarter and the impact of the NGL, UPE and other tuck-in acquisitions. Basic and diluted earnings per share was $0.07, compared to basic and diluted earnings per share of $0.90 in the prior year quarter.

RESULTS OF SUPERIOR'S OPERATING SEGMENTS

Superior's operating segments consists of Canadian Propane which includes its wholesale business, U.S. Propane and Specialty Chemicals.

CANADIAN PROPANE DISTRIBUTION

Canadian Propane Distribution's condensed operating results:

	Three Months Ended
		March 31
(millions of dollars)	2020	2019
Revenue	340.6	435.8
Cost of Sales	(189.9)	(275.6)
Gross profit	150.7	160.2
Realized losses on derivatives related to commodity risk management	(0.3)	(8.4)
Adjusted gross profit(1)	150.4	151.8
Selling, distribution and administrative costs	(82.1)	(83.7)
Add back (deduct):
Amortization and depreciation included in selling, distribution and administrative costs	18.3	17.2
Transaction, restructuring, and other costs	0.2	–
(Gain) loss on disposal of assets and other	(0.2)	(1.0)
EBITDA from operations(2)	86.6	84.3
Add back (deduct):
Gain (loss) on disposal of assets and other	0.2	1.0
Transaction, restructuring, and other costs	(0.2)	–
Amortization and depreciation included in selling, distribution and administrative costs	(18.3)	(17.2)
Unrealized gain (losses) on derivative financial instruments	(5.9)	6.7
Finance expense	(1.4)	(1.0)
Earnings before income tax	61.0	73.8

(1) Revenue, cost of sales, and gross profit has been presented excluding realized gains and losses on commodity derivative instruments and the comparative figures have been restated. These gains and losses are included in gains (losses) on derivatives and foreign currency translation of borrowings in the unaudited condensed interim financial statements. For purposes of determining margin per litre gross profit has been adjusted to include realized gains and losses on commodity derivative instruments. See "Non-GAAP Financial Measures".

(2) EBITDA from operations is a Non-GAAP financial measure. See "Non-GAAP Financial Measures" and "Reconciliation of Earnings before Income Taxes to EBITDA from Operations".

Revenue for the three months ended March 31, 2020 was $340.6 million, a decrease of $95.2 million from the prior year quarter primarily due to lower wholesale propane prices and, to a lesser extent, lower sales volumes. Wholesale propane supply prices were lower primarily due to the increase in propane inventory levels in the U.S. compared to the prior year quarter, driven by decreased propane exports out of North America and the impact from lower average West Texas Intermediate ("WTI") crude oil prices compared to the prior year quarter.

Canadian Propane Adjusted Gross Profit

	Three Months Ended
		March 31
(millions of dollars)	2020	2019
Propane distribution	146.0	154.9
Realized losses on derivatives related to commodity risk management	(0.3)	(8.4)
Propane distribution adjusted gross profit	145.7	146.5
Other services	4.7	5.3
Adjusted gross profit	150.4	151.8

Propane distribution adjusted gross profit for the three months ended March 31, 2020 was $145.7 million, a decrease of $0.8 million, from the prior year quarter primarily due to lower sales volumes partially offset by improved wholesale market fundamentals compared to the prior year quarter and effective margin management in a lower wholesale propane price environment. Total sales volumes were 729 million litres, a decrease of 193 million litres or 21%, primarily due to warmer weather, competitive pressures and reduced demand. Average weather across Canada for the three months ended March 31, 2020, as measured by degree days was 10% warmer than the prior year quarter and 4% warmer than the five-year average. Residential sales volumes decreased by 9 million litres or 12% due to the impact of warmer weather than the prior year quarter. Commercial sales volumes decreased by 14 million litres or 10% due primarily to warmer weather, competitive pressures and to a lesser extent, the impact of COVID-19 and economic conditions in Western Canada. Oilfield volumes decreased by 9 million litres or 16%, largely due to warmer weather, weaker economic condition in Western Canada, and the loss of a large customer, after it was acquired by another company that is serviced by a competitor. Industrial volumes decreased by 4 million litres or 6% due to a reduction in propane consumption by mining customers, primarily due to warmer weather and competitive pressures. Motor fuels sales volumes decreased by 4 million litres or 10% from the prior year quarter due to competitive pressures, government incentives for electric forklifts, and to a lesser extent reduced demand due to the impact of COVID-19. Wholesale propane volumes were 146 million litres or 30% lower compared to the prior year quarter primarily due to warmer weather, and lower butane sales volumes as management reduces its exposure to butane as a result of weak results in the prior year.

Average propane sales margins for the three months ended March 31, 2020 were 20.0 cents per litre compared to 15.9 cents per litre in the prior year quarter due to improved wholesale market fundamentals compared to the prior year quarter and effective margin management in a lower wholesale propane price environment.

Other services gross profit primarily includes equipment rental, installation, repair and maintenance and customer minimum use charges. Other services gross profit was $4.7 million, a decrease of $0.6 million or 11% from the prior year quarter primarily due to a reduction in services activity and equipment rentals in Western Canada and to a lesser extent the impact of COVID-19 delaying non-essential service activity.

Canadian Propane Distribution Sales Volumes Volumes by End-Use Application

	Three Months
		March 31
(millions of litres)	2020	2019
Residential	66	75
Commercial	123	137
Oilfield	49	58
Industrial	64	68
Motor Fuels	36	40
Wholesale	347	493
Other	44	51
Total	729	922

Volumes by Region (1)

	Three Months
	March 31
(millions of litres)	20202019
Western Canada	280359
Eastern Canada	190156
Atlantic Canada	4442
United States	249331
Total	729922

(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; Atlantic Canada region consists of New Brunswick, Newfoundland & Labrador, Nova Scotia and Prince Edward Island. United States region consists primarily of California, Maine, Idaho, Kansas, Michigan, Washington, Alaska, North Dakota, Pennsylvania, and New York.

Selling, Distribution and Administrative Costs

Selling, distribution and administrative costs were $82.1 million, a decrease of $1.6 million or 2% over the prior year quarter primarily due to lower volume related expenses and to a lesser extent lower employee incentive costs, partially offset by higher depreciation and additional rail costs associated with rail blockades as a result of political protests in February.

Earnings

Earnings before income tax was $61.0 million, a decrease of $12.8 million over the prior year quarter, as a result of lower gross profit related primarily to lower sales volumes partially offset by, lower SD&A.

Financial Outlook

EBITDA from operations in 2020 for Canadian Propane Distribution is anticipated to be lower than 2019. The anticipated decrease in EBITDA is primarily due to an expected decrease in sales volumes in Western Canada and with customers impacted by COVID-19. Sales volumes in Western Canada are expected to decrease related to continued headwinds in the oil and gas sector and weaker economic activity.

In addition to the significant assumptions referred to above, refer to "Forward-Looking Information" and "Risk Factors to Superior" for a detailed review of significant business risks affecting the Canadian Propane Distribution business.

U.S. PROPANE DISTRIBUTION

U.S. Propane Distribution's condensed operating results:

	Three Months Ended
		March 31
(millions of dollars)	2020	2019(1)
Revenue	342.0	428.8
Cost of Sales	(146.5)	(221.2)
Gross profit	195.5	207.6
Realized gains (losses) on derivatives related to commodity risk management	(14.2)	(4.3)
Adjusted gross profit	181.3	203.3
Selling, distribution and administrative costs	(109.8)	(106.4)
Add back (deduct):
Amortization and depreciation included in selling, distribution and administrative costs	27.2	24.6
Transaction, restructuring, and other costs	3.6	3.7
Loss (gain) on disposal of assets and other	1.1	0.2
EBITDA from operations(2)	103.4	125.4
Add back (deduct):
(Loss) gain on disposal of assets and other	(1.1)	(0.2)
Transaction, restructuring, and other costs	(3.6)	(3.7)
Amortization and depreciation included in selling, distribution and administrative costs	(27.2)	(24.6)
Unrealized losses on derivative financial instruments	(5.3)	5.7
Finance expense	(1.7)	(1.0)
Earnings before income tax	64.5	101.6

(1) Revenue, cost of sales, and gross profit has been presented excluding realized gains and losses on commodity derivative instruments and the comparative figures have been restated. These gains and losses are included in gains (losses) on derivatives and foreign currency translation of borrowings in the unaudited condensed interim financial statements. For purposes of determining margin per litre gross profit has been adjusted to include realized gains and losses on commodity derivative instruments. See "Non-GAAP Financial Measures". SD&A has been restated to adjust amortization and depreciation expense as a result of finalizing the purchase price allocation of the NGL acquisition in the second quarter of 2019. See the unaudited condensed interim consolidated financial statements and notes thereto as at and for the three months ended March 31, 2020 and 2019.

(2) EBITDA from operations is a Non-GAAP financial measure. See "Non-GAAP Financial Measures" and "Reconciliation of Earnings before Income Taxes to EBITDA from Operations".

Revenue for the three months ended March 31, 2020 was $342.0 million, a decrease of $86.8 million from the prior year quarter primarily due to lower sales volumes as a result of warmer weather and lower wholesale propane prices. Wholesale propane supply prices were lower primarily due to the increase in propane inventory levels in the U.S. compared to the prior year quarter, driven by lower exports out of North America and the impact from lower average WTI crude oil prices compared to the prior year quarter.

U.S. Propane Adjusted Gross Profit

	Three Months Ended
		March 31
(millions of dollars)	2020	2019
Propane distribution	190.8	201.6
Realized gains (losses) on derivatives related to commodity risk management	(14.2)	(4.3)
Propane distribution adjusted gross profit	176.6	197.3
Other services(1)	4.7	6.0
Adjusted gross profit	181.3	203.3

(1) Other services has been restated to align with Canadian Propane Distribution by excluding fees which form part of propane distribution margins.

Propane distribution adjusted gross profit for the three months ended March 31, 2020 was $176.6 million, a decrease of $20.7 million or 10% from the prior year quarter primarily due to the impact of warmer weather on sales volumes partially offset by effective margin management in a lower wholesale propane price environment and to a lesser extent the impact of tuck-in acquisitions completed in the past twelve months.

Total sales volumes were 422 million litres, a decrease of 67 million litres or 14% primarily due to the impact of warmer weather, partially offset by incremental volumes from tuck-in acquisitions. Average weather, as measured by degree days, across markets where U.S. Propane operates for the three months ended March 31, 2020 was 17% warmer than the prior year quarter and the five-year average. Residential sales volumes decreased by 48 million litres or 16% from the prior year quarter due primarily to warmer weather partially offset by the impact of the tuck-in acquisitions completed in the past twelve months. Commercial volumes decreased by 9 million litres or 6% compared to the prior year quarter primarily due to warmer weather. Wholesale volumes decreased by 10 million litres or 45% due to the impact of warmer weather during the quarter.

U.S. Propane average sales margins were 41.8 cents per litre an increase of 4% from 40.3 cents per litre in the prior year quarter. Average sales margins improved primarily due to sales and marketing initiatives, including effective margin management in a declining wholesale propane price environment, and to a lesser extent the impact of the weaker Canadian dollar on the translation of U.S. denominated gross profit.

Other services gross profit primarily includes equipment, installation, repair and maintenance charges. Other services gross profit was $4.7 million, a decrease of 22% over the prior year quarter primarily due to a strategic shift to focus on higher margin activities.

U.S. Propane Distribution Sales Volumes End-Use Application (1)(2)

		Three Months Ended
		March 31
(millions of litres)	2020	2019
Residential	257	305
Commercial	153	162
Wholesale	12	22
Total	422	489

(1) Includes heating oil, propane, diesel and gasoline sold in over twenty-two states primarily in the Eastern United States and California. Comparative figures have been reclassified to reflect the current period presentation.

(2) Comparative figures have been reclassified to conform with the current period presentation.

Selling, Distribution and Administrative Costs

SD&A costs were $109.8 million, an increase of $3.4 million or 3% over the prior year quarter. The increase in SD&A costs is primarily due to the impact of tuck-in acquisitions and to a lesser extent the impact of the weaker Canadian dollar on the translation of U.S. denominated SD&A compared to the prior year quarter, partially offset by the realization of incremental synergies.

Earnings

Earnings before tax of $64.5 million, decreased by $37.1 million over the prior year quarter primarily due to lower adjusted gross profit as described above and higher amortization and depreciation expense due to tuck-in acquisitions completed in 2019.

Financial Outlook

EBITDA from operations in 2020 for U.S. Propane is anticipated to be lower than 2019. The anticipated decrease in EBITDA is primarily due to the mild weather in the first quarter of 2020 and to a much lesser extent lower sales volumes related to the impact of COVID-19 partially offset by contributions from tuck-in acquisitions completed in 2020 and the impact of achieving incremental synergies of US$5.0 or US$24 million in run-rate synergies exiting 2020. Average weather for the remainder of 2020 in the Eastern U.S., as measured by degree days, is anticipated to be consistent with the five-year average.

In addition to the significant assumptions referred to above, refer to "Forward-Looking Information" and "Risk Factors to Superior" for a detailed review of significant business risks affecting the Propane Distribution businesses.

SPECIALTY CHEMICALS

Specialty Chemicals' condensed operating results:

			Three Months Ended
				March 31
(millions of dollars except per metric tonne (MT) amounts)	2020		2019
		$ per MT		$ per MT
Revenue	157.6	800	171.4	832
Cost of Sales	(104.6)	(531)	(110.9)	(538)
Gross Profit (1)	53.0	269	60.5	294
Selling, distribution and administrative costs (SD&A)	(36.6)	(186)	(39.1)	(190)
Add back (deduct):
Depreciation included in cost of sales	10.2	52	11.1	54
Loss on disposal of assets and impairment	–	–	(0.1)	–
Restructuring costs	(0.3)	(2)	–	–
Amortization and depreciation included in SD&A costs	7.6	39	7.2	35
EBITDA from operations(2)	33.9	172	39.6	193
Add back (deduct):
(Loss) on disposal of assets and impairment	–		0.1
Amortization and depreciation included in SD&A costs	(7.6)		(7.2)
Depreciation included in cost of sales	(10.2)		(11.1)
Restructuring costs	0.3		–
Unrealized (loss) gain on foreign currency translation of lease liabilities	(4.3)		1.4
Finance expense	(2.0)		(1.7)
Earnings before tax	10.1		21.1

(1) Gross Profit per MT after adding back depreciation included in cost of sales for the three months ended March 31, 2020 was $321/MT and for the 2019 was $348/MT.

(2) EBITDA from operations is a Non-GAAP financial measure. See "Non-GAAP Financial Measures" and "Reconciliation of Earnings before Income Taxes to EBITDA from Operations".

Sales Volumes by Product

	Three Months Ended
		March 31
(thousands of MTs)	2020	2019
Sodium chlorate	119	118
Chlor-alkali	77	87
Chlorite	1	1
Total	197	206

Revenue for the three months ended March 31, 2020 was $157.6 million a decrease of $13.8 million or 8% from the prior year quarter. This was primarily due to lower chlor-alkali sales volumes and selling prices and was partially offset by the impact of the weaker Canadian dollar on U.S. denominated sales.

Sodium chlorate sales volumes were consistent with the prior year, as a 4% reduction in exports related to challenges from COVID-19 were offset with increased Chilean and North American sales volumes. Sodium chlorate sales prices were consistent with the prior year quarter as the impact of the weaker Canadian dollar on US denominated sales were offset by customer mix.

Chlor-alkali sales volumes decreased by 10 thousand MTs or 11% due to lower hydrochloric acid, caustic soda and caustic potash sales volumes. Hydrochloric acid sales volumes decreased 12% primarily due to continued lower demand from the U.S. oil and gas sector related to less rig activity. Caustic soda sales volumes decreased 5% primarily due to competitive pressures related to North American market fundamentals. Caustic potash sales volume decreased 13% primarily due to an early close to the 2020 de-icing season. Average hydrochloric acid and caustic soda sales prices decreased by approximately 40% and 24% respectively for the aforementioned reasons. Caustic potash sales prices were consistent with the prior year as a decrease due to customer mix was offset with the impact of the weaker Canadian dollar on US denominated sales contracts.

Chlorite sales volumes were consistent with continued lower demand into the U.S. oil and gas market.

Gross profit was $53.0 million, a decrease of $7.5 million or 12% from the prior year quarter due primarily to lower chlor-alkali sales volumes and selling prices partially offset by 19% lower North American sodium chlorate power costs and to a lesser extent the impact of the weaker Canadian dollar compared to the prior year quarter on U.S. denominated sales. Power costs were lower due to milder weather, lower natural gas prices and to a lesser extent the impact of the closure of a high-power cost plant in the prior year.

SD&A costs were $36.6 million, a decrease of $2.5 million over the prior year quarter primarily due to a gain on translation of US denominated working capital in 2020, lower distribution costs, and lower employee incentive costs, partially offset by the impact of the weaker Canadian dollar on U.S. denominated expenses.

Earnings before tax for the three months ended March 31, 2020 was $10.1 million, a decrease of $11.0 million over the prior year quarter due to lower gross profit and an unrealized loss on the translation of U.S. denominated lease liabilities.

Financial Outlook

EBITDA from operations for Specialty Chemicals in 2020 is anticipated to be lower than 2019 due primarily to an expected decrease in chlor-alkali gross profit, partially offset by a modest increase in sodium chlorate gross profit and a modest decrease in operating expenses. Chlor-alkali gross profit is anticipated to be lower than 2019 due to continued weakness in hydrochloric acid demand and pricing driven by reduced oil and gas demand, a decrease in caustic potash sales volumes and pricing related to customer mix, and weakness in caustic soda pricing related to supply and demand fundamentals in North American markets. Sodium chlorate gross profit is anticipated to be modestly higher than 2019 as lower sales volumes will be more than offset with improved pricing driven by the weaker Canadian dollar and customer mix and decreases in electricity mill rates.

In addition to the significant assumptions detailed above, refer to "Forward-Looking Information" and to "Risk Factors to Superior" for a detailed review of the significant business risks affecting Superior's Specialty Chemicals segment.

CONSOLIDATED CAPITAL EXPENDITURE SUMMARY

Superior classifies its capital expenditures into three main categories: efficiency, process improvement and growthrelated; maintenance capital; and investment in finance leases.

Efficiency, process improvement and growth-related expenditures include expenditures such as the acquisition of new customer equipment to facilitate growth, system upgrades and initiatives to facilitate improvements in customer service. The capital expenditures are discretionary and non-recurring.

Maintenance capital expenditures include required regulatory spending on tank refurbishments, replacement of chlorine railcars, replacement of plant equipment and any other required expenditures related to maintaining operations.

Superior's capital expenditures:

	Three Months Ended
		March 31
(millions of dollars)	2020	2019
Efficiency, process improvement and growth-related	13.7	10.2
Maintenance capital	15.0	7.1
	28.7	17.3
Proceeds on disposition of assets and proceeds on refinancing vehicle leases	(4.4)	(2.0)
Property, plant and equipment acquired through acquisition	8.1	–
Total net capital expenditures	32.4	15.3
Investment in leased assets net of proceeds from refinanced vehicles	15.7	1.4
Total expenditures including finance leases	48.1	16.7

Efficiency, process improvement and growth-related expenditures were $13.7 million for 2020 compared to $10.2 million in the prior year quarter. The increase over the prior year quarter is primarily due to costs incurred to expand a chlorate plant located in Quebec, Georgia and to a lesser extent integration activity and timing of expenditures.

Maintenance capital expenditures were $15.0 million for 2020 compared to $7.1 million in the prior year quarter, consisting primarily of required maintenance and general capital across Superior's segments. The increase is primarily due to timing of expenditures.

Property, plant and equipment acquired through acquisition is the allocation of fair value to these assets related to the acquisitions completed during the quarter.

Superior entered into new leases with capital-equivalent value of $29.4 million, net of refinancing previously acquired vehicles for $13.7 million for a net value of $15.7 million for 2020, compared to $1.4 million in the prior year quarter. The increase is primarily due to timing renewing property, railcar and vehicles leases. Generally, leased assets include vehicles for the Energy Distribution segments to support growth and replace aging vehicles, renewing railcar leases in the Specialty Chemicals segment and timing of renewing property leases across the businesses.

Capital expenditures were funded from a combination of operating cash flow, revolving-term bank credit facilities and credit provided through the lease liability.

CORPORATE ADMINISTRATION COSTS

Corporate administration costs are $2.6 million for 2020 a decrease of $4.3 million, compared to $6.9 million in the prior year quarter. The decrease from the prior year quarter is primarily due to lower incentive plan costs related to the decline in the share price.

FINANCE EXPENSE

Finance expense was $29.8 million for the three months ended 2020 an increase of $1.4 million, compared to $28.4 million in the prior year quarter. The increase is primarily due to higher average debt for the year compared to the prior year quarter primarily due to financing tuck-in acquisitions completed in 2019 and to a lesser extent the impact of the weaker Canadian dollar on U.S. denominated finance expense.

TRANSACTION AND OTHER COSTS

Superior's transaction and other costs have been categorized together and excluded from segmented results. The table below summarizes these costs:

	Three Months Ended
	March 31
2020	2019
5.3	5.0

For the three months ended March 31, 2020, Superior incurred $5.3 million in costs related primarily to the integration of NGL, and the strategic review of Specialty Chemicals. The costs in the prior year quarter related primarily to the integration of NGL and tuck-in acquisitions.

INCOME TAXES

Consistent with prior periods, Superior recognizes a provision for income taxes for its subsidiaries that are subject to current and deferred income taxes, including Canadian, U.S., Luxembourg, and Chilean income tax.

Total income tax expense for the three months ended March 31, 2020 of $10.9 million, was comprised of $4.3 million cash income tax expense and $6.6 million deferred income tax expense. This compares to a total income tax expense of $36.0 million in the prior period, which consisted of cash income tax expense of $2.4 million and $33.6 million deferred income tax expense.

Cash income taxes for the three months ended March 31, 2020 was $4.3 million (2019 – $2.4 million), consisting of income taxes in Canada of $1.7 million (2019 – $0.1 million), in the U.S. of $1.2 million (2019 – $0.9 million), in Chile of $0.8 million (2019 – $0.8 million), and in Luxembourg of $0.6 million (2019 – $0.6 million). Deferred income tax expense for the three months ended March 31, 2020 was $6.6 million (2019 – $33.6 million), resulting in a net deferred income tax asset of nil as at March 31, 2020.

FINANCIAL OUTLOOK

Superior expects to be at the lower end of the previously communicated 2020 Adjusted EBITDA guidance range of $475 million to $515 million primarily due to the significantly warmer than average weather experienced in the first quarter, as well as the anticipated impact from the COVID-19 pandemic and the low price of oil on our business and our customers. The impact of COVID-19 and low oil prices is based on management's current view of the demand environment. As a result of the ongoing impact of the COVID-19 pandemic and the impact of low oil prices to the broader macro-economy, results may differ from these assumptions.

Achieving Superior's Adjusted EBITDA depends on the operating results of its segments. In addition to the operating results of Superior's segments, significant assumptions underlying the achievement of Superior's 2020 guidance are:

• Weather for the remainder of 2020 is expected to be consistent with the average temperature for the last five years;
• Economic growth in Canada and the U.S. is expected to be negative in Q2 and begin stabilizing in Q4;
• Superior is expected to continue to attract capital and obtain financing on acceptable terms;
• Superior estimates maintenance and non-recurring capital expenditures net of disposals and including vehicle leases to be in the range of $110 million to $130 million in 2020;
• Superior is substantively hedged for its estimated U.S. dollar exposure for 2020, and due to the hedge position, a change in the Canadian to U.S, dollar exchange rate for 2020 would not have a material impact to Superior.
• The foreign currency exchange rate between the Canadian dollar and U.S. dollar is expected to average $0.71 for the remainder of 2020 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;
• Canadian, Chilean and U.S. based cash taxes are expected to be in the range of $10 million to $20 million for 2020 based on existing statutory income tax rates and the ability to use available tax basis.

Canadian Propane Distribution

• Wholesale propane and natural gas liquid fundamentals related to basis differentials are not anticipated to be as strong as 2019;
• Wholesale propane prices are not anticipated to significantly affect demand for propane and related services;
• Operating costs are expected to be lower due to continuous improvement initiatives and restructuring activities.

U.S. Propane Distribution

• Wholesale propane prices are anticipated to be consistent to modestly higher than 2019, impacting margin opportunities;
• Tuck-in acquisition opportunities are anticipated to be consistent with 2019;
• Wholesale propane prices are not anticipated to significantly affect demand for propane and related services; and
• Continue to realize synergies from the NGL acquisition and tuck-in acquisitions primarily through supply chain efficiencies, margin management improvements and operational expense savings.

Specialty Chemicals

• Chlor-Alkali sales prices for caustic soda and hydrochloric acid are anticipated to be lower than 2019 but are expected to recover in the later portion of 2020 from fourth quarter levels;
• Average plant utilization will approximate 90%-95% in 2020.

In addition to Superior's significant assumptions detailed above, refer to "Forward-Looking Information" and for a detailed review of Superior's significant business risks, refer to "Risk Factors to Superior."

LIQUIDITY AND CAPITAL RESOURCES

Debt Management Update

Superior remains focused on managing both its debt and its Total Debt to Adjusted EBITDA Leverage Ratio. Superior's Total Debt to Adjusted EBITDA Leverage Ratio for the trailing twelve months was 4.0x as at March 31, 2020, compared to 3.7x at December 31, 2019. The increase in the Total Debt to Adjusted EBITDA Leverage Ratio from December 31, 2019 was due to the impact of the weaker Canadian dollar on the translation of Superior's U.S. denominated debt, entering new or extending leases and to a lesser extent the acquisition of Western, partially offset by cash generated from operations. Superior anticipates its Total Debt to Adjusted EBITDA Leverage Ratio to be in the range of 3.6x to 4.0x as at December 31, 2020. The increase in the range is due to lower Adjusted EBITDA in the first quarter and the expected impact from a weaker Canadian dollar on US denominated debt.

Total Debt to Adjusted EBITDA Leverage Ratio is a Non-GAAP measure, see "Non-GAAP Financial Measures".

Borrowing

Superior's revolving syndicated bank facility (credit facility), term loans and lease obligations (collectively borrowing) before deferred financing fees was $2,045.1 million as at March 31, 2020, an increase of $89.0 million from $1,956.1 million as at December 31, 2019. The increase is primarily due to the impact of the weaker Canadian dollar on U.S. denominated debt, new leases and the Western acquisition.

Superior's total and available sources of credit are detailed below:

				As at March 31, 2020
			Letters of
	Total		Credit	Amount
(millions of dollars)	Amount	Borrowing	Issued	Available
Revolving term bank credit facilities(1)	750.0	484.7	33.2	232.1
Term loans(1)	1,262.2	1,262.2	–	–
Other debt (2)	32.6	32.6	–	–
Lease liabilities	265.6	265.6	–	–
Total	2,310.4	2,045.1	33.2	232.1

(1) Revolving term bank credit facilities and term loan balances are presented before deferred financing fees.

(2) Accounts receivable factoring and deferred consideration.

Net Working Capital

Consolidated net working capital was $ 144.7 million as at March 31, 2020 an increase of $94.8 million from $49.9 million as at December 31, 2019. The differences are primarily due to timing of customer receipts building in the heating season compared to the timing of supplier payments. Consolidated net working capital decreased by $44.4 million from $189.1 million as at March 31, 2019. The decrease from the prior year is due to the weaker Canadian dollar on US denominated working capital, the impact of decreasing propane prices and timing of customer receipts compared to disbursements.

Compliance

In accordance with the credit facility, Superior must maintain certain covenants and ratios that require Non-GAAP financial measures. Superior is in compliance with the lender covenants as at March 31, 2020 and the covenant details are found in the credit facility documents filed in the System for Electronic Document Analysis and Retrieval ("SEDAR").

Pension Plans

As at March 31, 2020, Superior had an estimated defined benefit going concern surplus of approximately $7.8 million (December 31, 2019 – $25.9 million surplus) and a pension solvency deficiency of approximately $11.5 million (December 31, 2019 – $11.0 million surplus). 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 audited consolidated financial statements.

					12 months ended March 31
(millions of dollars)	Note (1)	Total	Current	Years 2-3	Years 4-5	Thereafter
Borrowing	10	1,779.5	10.0	15.4	1,261.9	492.2
Lease Liabilities	12	265.6	54.0	84.5	54.7	72.4
Operating leases(2)	12	10.9	4.8	6.0	0.1	–
US$ foreign currency forward sales contracts	12	524.9	241.4	190.5	93.0	–
US$/CAD call options(3)	12	36.0	–	–	36.0	–
Natural gas, diesel, WTI, butane, propane, and
heating oil (4)	12	91.5	51.7	39.8	–	–
Total contractual obligations		2,708.4	361.9	336.2	1,445.7	564.6

Contractual Obligations and Other Commitments

(1) Notes to the March 31, 2020 unaudited condensed interim consolidated financial statements.

(2) Operating leases comprise Superior's off-balance-sheet obligations and are contracts that do not meet the definition of a lease under IFRS 16 or are exempt.

(3) USD/CAD call options expiring in December 2023 with strikes ranging from 1.40 to 1.47 settling in 2024.

(4) Does not include the impact of financial derivatives.

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' CAPITAL

	Issued number ofcommon shares(Millions)	Share Capital
Balance as at December 31, 2019	174.9	$2,339.9
Common shares issued under dividend reinvestment plan	0.3	2.7
Balance as at March 31, 2020	175.2	$2,342.6

As at March 31, 2020, the following common shares were issued and outstanding:

Dividends Declared to Shareholders

Dividends declared to Superior's shareholders depend on its cash flow from operating activities with consideration for Superior's changes in working capital requirements, investing activities and financing activities. See "Summary of AOCF" for 2020, above, and "Summary of Cash Flow" for additional details.

Dividends declared to shareholders for the three months ended March 31, 2020 were $31.2 million or $0.18 per share compared to $31.5 million or $0.18 for the prior year quarter. Dividends to shareholders are declared at the discretion of Superior's Board of Directors.

Superior has a Dividend Reinvestment and Optional Share Purchase Plan ("DRIP") that was not utilized in 2019. On January 28, 2020 Superior reinstated the DRIP that commenced with the February dividend which was paid on March 13, 2020.

SUMMARY OF CASH FLOW

Superior's primary sources and uses of cash are detailed below:

	Three Months Ended
		March 31
(millions of dollars)	2020	2019
Cash flows from operating activities	84.8	112.2
Investing activities:
Purchase of property, plant and equipment and intangible assets	(28.7)	(17.3)
Proceeds on disposal of property, plant and equipment	4.4	2.0
Acquisitions, net of cash acquired and assets sold	(23.7)	–
Cash flows used in investing activities	(48.0)	(15.3)
Financing activities:Net proceeds (repayment) of revolving term bank credits and other debt	0.1	(57.9)
Proceeds received from vehicle refinancing	13.7	–
Repayment of finance lease obligation	(12.0)	(13.4)
Dividends paid to shareholders	(28.5)	(31.5)
Cash flows (used in) from financing activities	(26.7)	(102.8)
Net increase (decrease) in cash and cash equivalents during the periodCash and cash equivalents , beginning of the period	10.126.5	(5.9)23.9
Effect of translation of foreign currency-denominated cash	(2.3)	(0.6)
Cash and cash equivalents, end of the period	34.3	17.4

Cash flows from operating activities for 2020 was $84.8 million, a decrease of $27.4 million, from the prior year quarter. The decrease is primarily a result of a lower EBITDA from operations compared to the prior year quarter, and partially offset by the lower cash-outflows from changes in non-cash operating working capital compared to the prior year quarter due to timing of supplier payments relative to customer receipt.

Cash flows used in investing activities for 2020 was $48.0 million, an increase from the prior year quarter primarily due to the Western acquisition in January, higher capital expenditures and offset by the cash inflow from assets disposed and refinanced vehicle leases.

Cash flows used in financing activities was $26.7 million, a decrease of $76.1 million from the prior year quarter, due to lower net borrowing on the revolving term bank credit facilities due to decreased acquisition activity compared to the prior year quarter and lesser dividends paid as a result of the DRIP.

FINANCIAL INSTRUMENTS – RISK MANAGEMENT

Derivative and non-financial derivatives are used by Superior to manage its exposure to fluctuations in foreign currency exchange rates, interest rates, share-based compensation 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.

As at March 31, 2020 Superior has hedged approximately 94% of estimated U.S. dollar exposure for calendar 2020 and approximately 63% for calendar 2021. A summary of Superior's U.S. dollar forward contracts and options for the rolling twelve months is provided in the table below.

	12 months ended March 31
(US$ millions except exchange rates)	Current	2022	2023	2024	2025	Total
Net US$ forward sales	241.4	123.5	67	48.0	45.0	524.9
Sold USD/CAD Call Options	0.0	0.0	0.0	9.0	27.0	36.0
Net average external US$/CDN$ exchange rate	1.33	1.33	1.32	1.38	1.40	1.35

For additional details on Superior's financial instruments, including the amount and classification of gains and losses recorded in Superior's unaudited condensed interim 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 12 to the unaudited condensed interim consolidated financial statements for the three months ended March 31, 2020.

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING

Disclosure controls and procedures (DC&P) are designed by or under the supervision of Superior's President and Chief Executive Officer (CEO) and the Executive Vice President and Chief Financial Officer (CFO) in order to provide reasonable assurance that all material information relating to Superior is communicated to them by others in the organization as it becomes known and is appropriately disclosed as required under the continuous disclosure requirements of securities legislation and regulation. In essence, these types of controls are related to the quality, reliability and transparency of financial and non-financial information that is filed or submitted under securities legislation and regulation. The CEO and CFO are assisted in this responsibility by a Disclosure Committee, which is composed of senior leadership of Superior. The Disclosure Committee has established procedures so that it becomes aware of any material information affecting Superior in order to evaluate and discuss this information and determine the appropriateness and timing of its public release.

Internal Controls over Financial Reporting (ICFR) are also designed by or under the supervision of Superior's CEO and CFO and effected by Superior's Board of Directors, management and other personnel in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that its objectives are met. Due to inherent limitations in all such systems, no evaluation of controls can provide absolute assurance that all control issues within a company have been detected. Accordingly, Superior's disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of the corporation's disclosure control system are met.

Changes in Internal Controls over Financial Reporting

No changes were made in Superior's ICFR that have materially affected, or are reasonably likely to materially affect, Superior's ICFR for the three months ended March 31, 2020.

Effectiveness

An evaluation of the effectiveness of Superior's DC&P and ICFR was conducted as at March 31, 2020 by and under the supervision of Superior's management, including the CEO and CFO. Based on this evaluation, the CEO and CFO have concluded that Superior's DC&P and ICFR were effective at March 31, 2020.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Superior's audited consolidated financial statements were prepared in accordance with IFRS. The significant accounting policies are described in the audited consolidated financial statements for the year ended December 31, 2019. 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. Superior's critical accounting estimates relate to the allowance for doubtful accounts, employee future benefits, deferred income tax assets and liabilities, the valuation of financial and non-financial derivatives, asset impairments, the purchase price allocation for business combinations and the assessment of potential provision for asset retirement obligations.

Recent Accounting Pronouncements

Certain new standards, interpretations, amendments and improvements to existing standards were issued by the IASB or the International Financial Reporting Interpretations Committee effective for accounting periods beginning on or after January 1, 2020, or later periods. The changes in accounting policies and disclosures that are applicable to Superior are described in Note 2 (C) of the unaudited condensed consolidated financial statements.

NON-GAAP FINANCIAL MEASURES

Throughout the MD&A, Superior has used the following terms that are not defined by GAAP, but are used by management to evaluate the performance of Superior and its business. These measures may also be used by investors, financial institutions and credit rating agencies to assess Superior's performance and ability to service debt. Non-GAAP financial measures do not have standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. Securities regulations require that Non-GAAP financial measures be clearly defined, qualified and reconciled to their most comparable GAAP financial measures. Except as otherwise indicated, these Non-GAAP financial measures are calculated and disclosed on a consistent basis from period to period. Specific items may only be relevant in certain periods.

The intent of non-GAAP financial measures is to provide additional useful information to investors and analysts, and the measures do not have any standardized meaning under IFRS. The measures should not, therefore, be considered in isolation or used in substitute for measures of performance prepared in accordance with IFRS. Other issuers may calculate non-GAAP financial measures differently. Investors should be cautioned that AOCF, EBITDA from operations, and Adjusted EBITDA should not be construed as alternatives to net earnings, cash flow from operating activities or other measures of financial results determined in accordance with GAAP as an indicator of Superior's performance. Non-GAAP financial measures are identified and defined as follows:

AOCF and AOCF per Share

AOCF 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. Interest expense included in AOCF is equal to finance expense as defined by IFRS, adjusted for unwinding of discount on debentures, borrowing and decommissioning liabilities and other non-recurring items. Superior may deduct or include additional items in its calculation of AOCF; these items would generally, but not necessarily, be infrequent in nature and could distort the analysis of trends in business performance. Excluding these items does not imply they are non-recurring. AOCF and AOCF per share are presented before and after transaction and other costs.

AOCF per share before transaction and other costs is calculated by dividing AOCF before transaction and other costs by the weighted average number of shares outstanding. AOCF per share is calculated by dividing AOCF by the weighted average number of shares outstanding.

AOCF is the main performance measure used by management and investors to evaluate Superior's ongoing performance of its businesses and ability to generate cash flow. AOCF 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. AOCF is also used as one component in determining short-term incentive compensation for certain management employees.

The seasonality of Superior's individual quarterly results must be assessed in the context of annualized AOCF. Adjustments recorded by Superior as part of its calculation of AOCF include, but are not limited to, the impact of the seasonality of Superior's businesses, principally the Propane Distribution segments, by adjusting for non-cash working capital items, thereby eliminating the impact of the timing between the recognition and collection/payment of Superior's revenue and expenses, which can differ significantly from quarter to quarter.

Adjusted EBITDA

Adjusted EBITDA represents earnings before interest, taxes, depreciation, amortization, losses (gains) on disposal of assets, finance expense, restructuring costs, transaction and other costs, and unrealized gains (losses) on derivative financial instruments. Adjusted EBITDA is used by Superior and investors to assess its consolidated results and ability to service debt. Adjusted EBITDA is reconciled to earnings before income taxes.

EBITDA from operations

EBITDA from operations is defined as Adjusted EBITDA excluding costs that are not considered representative of Superior's underlying core operating performance, including gains and losses on foreign currency hedging contracts, corporate costs and transaction and other costs. Management uses EBITDA from operations to set targets for Superior (including annual guidance and variable compensation targets). EBITDA from operations is reconciled to earnings before income taxes.

Adjusted Gross Profit

Adjusted gross profit represents revenue less cost of sales adjusted for realized gains and losses on commodity derivative instruments related to risk management. Managements uses Adjusted Gross Profit to set margin targets and measure results. Unrealized gains and losses on commodity derivative instruments are excluded because of the accounting mis-match that exists as a result of the customer contract not being included in the determination of the fair value for this risk management activity.

Total Debt to Adjusted EBITDA Leverage Ratio and Pro Forma Adjusted EBITDA

Adjusted EBITDA for the Total Debt to Adjusted EBITDA leverage ratio is defined as Adjusted EBITDA calculated on a 12-month trailing basis giving pro forma effect to acquisitions and dispositions adjusted to the first day of the calculation period ("Pro Forma Adjusted EBITDA"). Pro Forma Adjusted EBITDA is used by Superior to calculate its Total Debt to Adjusted EBITDA Leverage Ratio.

To calculate the Total Debt to Adjusted EBITDA Leverage Ratio divide the sum of borrowings before deferred financing fees and lease liabilities by Pro Forma Adjusted EBITDA. Total Debt to Adjusted EBITDA Leverage Ratio is used by Superior and investors to assess its ability to service debt.

QUARTERLY FINANCIAL AND OPERATING INFORMATION

GAAP Measures

(millions of dollars,	Q1	Q4	Q3	Q2	Q1	Q4	Q3	Q2
except per share amounts)	2020	2019	2019	2019	2019	2018	2018	2018
Revenue (2)	840.2	821.0	450.1	545.8	1036.0	889.2	486.7	486.1
Gross profit (2)	399.2	366.0	195.0	223.7	428.3	323.5	174.6	162.7
Net earnings (loss)	11.4	74.6	(59.3)	(29.3)	156.6	(48.3)	(39.8)	9.1
Per share, basic	$0.07	0.43	(0.34)	(0.17)	0.90	(0.28)	(0.23)	0.06
Per share, diluted	$0.07	0.43	(0.34)	(0.17)	0.90	(0.28)	(0.23)	0.06
Net working capital (deficit) (1)	144.7	49.9	14.1	48.8	189.1	97.3	(10.6)	(5.1)

(1) Net working capital as at the quarter-end is comprised of trade and other receivables, prepaid expenses and deposits and inventories, less trade and other payables, contract liabilities, and dividends payable.

(2) Revenue and gross profit have been presented excluding realized gains and losses on commodity derivative instruments. These gains and losses are included in gains (losses) on derivatives and foreign currency translation of borrowings in the unaudited condensed consolidated financial statements. See "Non-GAAP Financial Measures".

Non-GAAP Financial Measures (1)

(millions of dollars, exceptper share amounts)	Q12020	Q42019	Q32019	Q22019	Q12019	Q42018	Q32018	Q22018
Adjusted EBITDA	219.3	176.7	48.2	59.7	239.9	153.0	25.9	42.8
AOCF before transaction
and other costs	187.9	145.0	19.2	31.0	211.0	132.7	2.2	29.3
Per share, basic	$1.07	0.83	0.11	0.18	1.21	0.76	0.01	0.21
Per share, diluted	$1.07	0.83	0.11	0.18	1.21	0.76	0.01	0.21
AOCF	182.6	139.4	13.1	17.8	206.0	125.2	(13.4)	20.3
Per share, basic	$1.04	0.80	0.07	0.10	1.18	0.72	(0.08)	0.14
Per share, diluted	$1.04	0.80	0.07	0.10	1.18	0.72	(0.08)	0.14

(1) Net AOCF before transaction and other costs, AOCF and the related per share amounts, are Non-GAAP financial measures.

Fluctuations in Superior's individual quarterly results is subject to seasonality. 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 of heating from end-use customers. They then decline through the second and third quarters, rising seasonally again in the fourth quarter with heating demand. In addition, acquisitions and divestitures may impact quarterly results. For information on acquisitions and divestments see Note 4 in the 2020 unaudited condensed interim consolidated financial statements.

Volumes

	Q1 2020	Q4 2019	Q3 2019	Q2 2019	Q1 2019	Q4 2018	Q3 2018	Q2 2018
Canadian propane salesvolumes (millions of litres)	729	753	393	437	922	765	340	380
U.S. propane sales volumes(millions of litres)	422	361	158	201	489	391	161	157
Chemical sales volumes(thousands of MT)	197	199	210	210	206	202	212	208

Canadian propane sales by end-use application are as follows:

(millions of litres)	Q1 2020	Q4 2019	Q3 2019	Q2 2019	Q1 2019	Q4 2018	Q3 2018	Q2 2018
Residential	66	59	20	26	75	59	20	29
Commercial	123	102	42	57	137	105	45	58
Oilfield	49	55	35	36	58	59	46	47
Industrial	64	58	52	53	68	60	51	55
Motor Fuels	36	41	42	44	40	44	45	47
Wholesale	347	375	190	207	493	385	121	127
Other	44	63	12	14	51	53	12	17
Total	729	753	393	437	922	765	340	380

U.S. propane sales by end-use application are as follows (1):

(millions of litres)	Q1 2020	Q4 2019	Q3 2019	Q2 2019	Q1 2019	Q4 2018	Q3 2018	Q2 2018
Residential	257	215	61	92	305	239	78	39
Commercial	153	137	90	100	162	132	68	76
Wholesale	12	9	7	9	22	20	15	42
Total	422	361	158	201	489	391	161	157

(1) Comparative figures have been reclassified to reflect the current period presentation of end use.

Specialty Chemicals sales volumes by product are as follows:

(thousands of MT)	Q1 2020	Q4 2019	Q3 2019	Q2 2019	Q1 2019	Q4 2018	Q3 2018	Q2 2018
Sodium chlorate	119	120	122	120	118	117	121	115
Chlor-alkali	77	78	86	88	87	84	88	91
Chlorite	1	1	2	2	1	1	3	2
Total	197	199	210	210	206	202	212	208

RECONCILIATION OF EARNINGS (LOSS) BEFORE INCOME TAXES TO ADJUSTED EBITDA

(millions of dollars)For the three months ended March 31, 2020	Canadian PropaneDistribution	U.S. PropaneDistribution	SpecialtyChemicals	Corporate	Total
Earnings (loss) before income taxes	61.0	64.5	10.1	(113.3)	22.3
Add: Depreciation and amortization included in
selling, distribution and administrative costs	18.3	27.2	7.6	0.2	53.3
Depreciation included in cost of sales	–	–	10.2	–	10.2
(Gain) loss on disposal of assets and other	(0.2)	1.1	–	–	0.9
Finance expense	1.4	1.7	2.0	24.7	29.8
Unrealized loss on derivative financial
instruments	5.9	5.3	4.3	82.0	97.5
Transaction, restructuring and other costs	0.2	3.6	(0.3)	1.8	5.3
Adjusted EBITDA	86.6	103.4	33.9	(4.6)	219.3

(millions of dollars)	Canadian Propane	U.S. Propane	Specialty
For the three months ended March 31, 2019	Distribution	Distribution	Chemicals	Corporate	Total
Earnings (loss) before income taxes	73.8	101.6	21.1	(3.9)	192.6
Add: Depreciation and amortization included in
selling, distribution and administrative costs	17.2	24.6	7.2	–	49.0
Depreciation included in cost of sales	–	–	11.1	–	11.1
(Gain) loss on disposal of assets and other	(1.0)	0.2	(0.1)	–	(0.9)
Finance expense	1.0	1.0	1.7	24.7	28.4
Unrealized gain on derivative financial
instruments	(6.7)	(5.7)	(1.4)	(31.5)	(45.3)
Transaction, restructuring and other costs	–	3.7	–	1.3	5.0
Adjusted EBITDA	84.3	125.4	39.6	(9.4)	239.9

RISK FACTORS TO SUPERIOR

The risks factors and uncertainties detailed below are a summary of Superior's assessment of its material risk factors as detailed in Superior's most recent Annual Information Form ("AIF") under "Risks associated with our business" which is filed on the Canadian Securities Administrators' website, www.sedar.com, and on Superior's website, www.superiorplus.com. The AIF describes some of the most material risks to Superior's business by type of risk: financial; strategic; operational; and legal.

General risks to Superior are as follow:

Catastrophic Events, Natural Disasters, Severe Weather and Disease

Superior may be negatively impacted to varying degrees by a number of events which are beyond our control, including cyber-attacks, unauthorized access, energy blackouts, pandemics, terrorist attacks, acts of war, earthquakes, hurricanes, tornados, fires, floods, ice storms or other natural or manmade catastrophes. While we engage in emergency preparedness, including business continuity planning, to mitigate risks, such events can evolve very rapidly and their impacts can be difficult to predict. As such, there can be no assurance that in the event of such a catastrophe that our operations and ability to carry on business will not be disrupted. The occurrence of such events may not release us from performing our obligations to third parties. A catastrophic event, including an outbreak of infectious disease, a pandemic or a similar health threat, such as the evolving 2019 Novel Coronavirus outbreak, or fear of any of the foregoing, could adversely impact us by causing operating or supply chain delays and disruptions, labour shortages, expansion project delays and facility shutdowns which could have a negative impact on our ability to conduct our business and increase our costs. In addition, liquidity and volatility, credit availability and market and financial conditions generally could change at any time as a result. Any of these events in isolation or in combination, could have a material negative impact on our financial condition, operating results and cash flows.

Cash Dividends to Shareholders are Dependent on the Performance of Superior LP

Superior depends entirely on the operations and assets of Superior LP. Superior's ability to make dividend payments to its shareholders depends on Superior LP's ability to make distributions on its outstanding limited partnership units, as well as on the operations and business of Superior LP.

There is no assurance regarding the amount of cash to be distributed by Superior LP or generated by Superior LP and, therefore, there is no assurance regarding funds available for dividends to shareholders. The 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., the general partner of Superior LP, 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.

Additional Shares

In the event 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.

Access to Capital

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 and to make necessary principal payments and debenture redemptions under its term credit facilities may be impaired.

Interest Rates

Superior maintains floating interest rate exposure through a combination of floating interest rate borrowing and uses derivative instruments at times, to mitigate this risk. Demand for a significant portion of Propane Distribution's sales and substantially all of Specialty Chemicals' sales are affected by general economic trends. Generally speaking, when the economy is strong, interest rates increase, as does demand from Superior's customers, thereby increasing Superior's sales and its ability to pay higher interest costs. The opposite is also true. In this way, there is a common relationship among economic activity levels, interest rates and Superior's ability to pay higher or lower rates. Increased interest rates will, however, affect Superior's borrowing costs, which will have an adverse effect.

Foreign Exchange Risk

A portion of Superior's net cash flow is denominated in U.S. dollars. Accordingly, fluctuations in the Canadian/U.S. dollar exchange rate can impact profitability. Superior attempts to mitigate this risk with derivative financial instruments.

Changes in Legislation and Expected Tax Profile

There can be no assurance 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 CRA (or a provincial tax agency), the U.S. Internal Revenue Service (or a state or local tax agency), the Chilean Internal Revenue Service or the Luxembourg Tax Authorities (collectively, the "tax agencies") will agree with how Superior calculates its income for tax purposes or that these various tax agencies referenced herein will not change their administrative practices to the detriment of Superior or its shareholders.

Acquisitions and Divestitures

Superior may not be able to find or buy appropriate acquisition targets on economically acceptable terms. Superior's acquisition agreements will contain certain representations, warranties and indemnities from the respective vendors subject to certain applicable limitations and thresholds and Superior will conduct due diligence prior to completion of such acquisitions. If, however such representations and warranties are inaccurate or limited in applicability or if any liabilities that are discovered exceed such limits or are not covered by the representations, warranties or indemnities, or the applicable vendors default in their obligations or if certain liabilities are not identified in such agreements, Superior could become liable for any such liabilities which may have an adverse effect on Superior. In addition, there may be liabilities or risks that were not discovered in such due diligence investigations which could have an adverse effect on Superior.

Acquiring complementary businesses is required to optimally execute Superior's business strategy. Distribution systems, technologies, key personnel or businesses of companies Superior acquires may not be effectively assimilated into its business, or its alliances may not be successful. There is also no assurance regarding the completion of a planned acquisition as Superior may be unable to obtain shareholder approval for a planned acquisition or Superior may be unable to obtain government and regulatory approvals required for a planned acquisition, or required government and/or regulatory approvals may result in delays. There may be penalties associated with not completing a planned acquisition. Superior may not be able to successfully complete certain divestitures on satisfactory terms, if at all. Divestitures may reduce Superior's total revenue and net earnings by more than the sales price. The terms and conditions, representations, warranties and indemnities, if any, associated with divestiture activity may hold future risks.

Information Technology and Cyber Security

Superior utilizes a number of information technology systems for the management of its business and the operation of its facilities. The reliability and security of these systems is critical. If the function of these systems is interrupted or fails and cannot be restored quickly, or if the technologies are no longer supported, Superior's ability to operate its facilities and conduct its business could be compromised. Superior has continued to mature its approach to technology planning. Superior continually assesses and monitors its cyber security risk. In an effort to mitigate such risks, Superior has employed a fully managed third party cyber security service that deploys industry leading technology, conducted comprehensive employee training and utilizes monitoring software to protect its systems.

Although the technology systems Superior utilizes are intended to be secure and Superior has employed various methods to mitigate cyber risks, there is still a risk that an unauthorized third party could access the systems. Such a security breach could lead to a number of adverse consequences, including but not limited to, the unavailability, disruption or loss of key function within Superior's control systems and the unauthorized disclosure, corruption or loss of sensitive company, customer or personal information. Superior attempts to prevent such breaches through the implementation of various technology security measures, segregation of control systems from its general business network, engaging skilled consultants and employees to manage Superior's technology applications, conducting periodic audits and adopting policies and procedures as appropriate.

To date, Superior has not been subject to a cyber-security breach that has resulted in a material impact on its business or operations; there is no guarantee, however, that the measures it takes to protect its business systems and operational control systems will be effective in protecting against a breach in the future.

RISKS TO SUPERIOR'S SEGMENTS

Risks associated with the Propane Distribution business are set out below.

CANADIAN PROPANE DISTRIBUTION AND U.S. PROPANE DISTRIBUTION

Competition

Propane 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 with natural gas service. 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 future of the propane industry in general and Canadian propane distribution in particular. The trend towards increased conservation measures and technological advances in energy efficiency may have a detrimental effect on propane demand and Canadian Propane Distribution's sales. Increases in the cost of propane encourage customers to reduce fuel consumption and to invest in more energy efficient equipment, reducing demand. Propane commodity prices are affected by crude oil and natural gas commodity prices.

Automotive propane demand depends on propane pricing, the market's acceptance of propane conversion options and the availability of infrastructure. Superior Propane has strategic partnerships with companies focused on after-market conversion technologies. This segment has been impacted by 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.

Competition in the U.S. propane distribution business' markets generally occurs on a local basis between large, fullservice, national marketers and smaller, independent local marketers. Marketers primarily compete based on price and service and tend to operate in close proximity to customers, typically within a 60 kilometer marketing radius from a central depot, in order to minimize delivery costs and provide prompt service.

Volume Variability, Weather Conditions and Economic Demand

Weather, general economic conditions and the volatility in the cost of propane affect propane market volumes. Weather influences the demand for propane, primarily for home and facility heating uses and also for agricultural applications, such as crop drying.

Harsh weather can create conditions that exacerbate demand for propane, impede the transportation and delivery of propane, or restrict the ability of Superior to obtain propane from its suppliers. Such conditions may also increase Superior's operating costs and may reduce customers demand for propane, any of which may have an adverse effect on Superior. Conversely, low prices tend to make customers less price sensitive and less focused on their consumption volume.

Spikes in demand caused by weather or other factors can stress the supply chain and hamper Superior's ability to obtain additional quantities of propane. Transportation providers (railways and trucking companies) have limited ability to provide resources in times of extreme peak demand. Changes in propane supply costs are normally passed through to customers, but timing lags (between when Superior purchases the propane and when the customer purchases the propane) may result in positive or negative gross margin fluctuations. For U.S. propane distribution, demand from end-use heating applications is predictable. Weather and general economic conditions, however, affect distillates and propane market volumes. Weather influences the immediate demand, primarily for heating, while longer-term demand declines due to economic conditions as customer's trend towards conservation and supplement heating with alternative sources such as electricity and to a lesser extent wood pellets and solar energy.

Demand, Supply and Pricing

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 customer's 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. Current unit margins may not be sustainable if market conditions change significantly.

Health, Safety and Environment

Superior's operations are subject to the risks associated with handling, storing and transporting propane in bulk. To mitigate risks, Superior has established a comprehensive environmental, health and safety protection program. It 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. propane distribution 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 pose the risk of spills which could adversely affect the soil 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 could either be more favourable to competing energy sources or increase compliance costs or otherwise negatively affect the operations of Propane Distribution in comparison with such competing energy sources. Any such changes could have an adverse effect on the operations of Propane Distribution.

Employee and Labour Relations

Approximately 20% of Superior's Canadian propane distribution business employees and 2% of the U.S. propane distribution business 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 renegotiation process that could have an adverse impact on Superior.

SPECIALTY CHEMICALS

Risks associated with the Specialty Chemicals business are as follows:

Competition

Specialty Chemicals competes with sodium chlorate, chlor-alkali 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 the segment's control, along with market pricing for pulp.

Supply Arrangements

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 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 Nutrien Inc. (formerly Potash Corporation of Saskatchewan). Specialty Chemicals has limited ability to source KCl from additional suppliers.

Foreign Currency Exchange

Specialty Chemicals is exposed to fluctuations in the U.S. dollar and the Euro versus the Canadian dollar. Specialty Chemicals manages its exposure to fluctuations between foreign currencies and the Canadian dollar by entering into hedge contracts with external third parties and internally with other Superior businesses.

Health, Safety and Environment

Specialty Chemicals' operations involve the handling, production, transportation, treatment and disposal of materials that are classified as hazardous and are regulated by environmental, health and safety laws, regulations and requirements. There is potential for the release of highly toxic and lethal substances, including chlorine from a facility or transportation equipment. 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 segment's facilities unsafe, they may order that such facilities be shut down.

Regulatory

Specialty Chemicals' operations and activities in various jurisdictions require regulatory approval for the handling, production, transportation and disposal of chemical products and waste substances. The failure to obtain or comply fully with such applicable regulatory approval may materially adversely affect Specialty Chemicals.

Manufacturing and Production

Specialty Chemicals' production facilities maintain complex process and electrical equipment. The facilities have existed for many years and undergone upgrades and improvements. 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 at the affected facility. Although the segment has insurance to mitigate substantial loss due to equipment outage, Specialty Chemicals' reputation and its ability to meet customer requirements could be harmed by a major electrical equipment failure.

Employee and Labour Relations

Approximately 25% 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 negotiation process that could have an adverse impact on Superior.