Superior Plus Corp. — Interim / Quarterly Report 2020

Nov 12, 2020

MANAGEMENT’S DISCUSSION AND ANALYSIS OF 2020 THIRD QUARTER RESULTS NOVEMBER 11, 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 and nine months ended September 30, 2020 and 2019, as well as forward-looking information about future periods. The information in this MD&A is current to November 11, 2020, and should be read in conjunction with Superior’s third quarter 2020 unaudited condensed interim consolidated financial statements and notes thereto as at and for the three and nine months ended September 30, 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 and nine months ended September 30, 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 and nine months ended September 30 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 chlor-alkali 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

During the first quarter, the rapid outbreak of the novel strain of the coronavirus, specifically identified as the COVID-19 pandemic, 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. Superior monitors applicable government relief programs to determine if Superior qualifies to participate in them. In the third quarter, Superior applied for the Canadian Emergency Wage Subsidy (“CEWS”) program wherein Superior was allowed to recover a portion of eligible employee costs incurred earlier in the year. The Government of Canada continues to make amendments to the CEWS program and Superior may be eligible for and make applications for future claims.

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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, so continued volatility in the price of oil could lead to disruptions in the supply of propane if the production of oil and natural gas is further curtailed. In addition to the risk on the supply of propane, demand for Superior’s products from our customers in the oil and gas industry have been impacted as the combined impact of COVID-19 and volatile oil prices has had a significantly negative impact on the energy industry. Despite the impact COVID-19 has had on natural gas processing and oil refining, U.S. propane inventories remain above the three-year average.

The future impact of these events on liquidity, volatility, credit availability and market and financial conditions generally, could change at any time. The duration and ultimate impact 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. At the current time, we expect an impact to our business as it relates to our customers that operate in industries governments have classified as non-essential and customers required to operate at reduced capacities. In the current period, the impact of these events has caused a decrease in sales volumes and sales prices for our Specialty Chemicals segment and sales volumes for our Canadian Propane Distribution operating segment and to a lesser extent our U.S. Propane Distribution operating segment. Management has taken steps to reduce capital and selling, distribution and administrative costs to minimize the impact these events has to our business. The impact of COVID-19 on the Canadian Propane Distribution and Specialty Chemicals business has been lessened by the CEWS recorded this quarter.

Superior’s operating segments provide 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 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. NonGAAP 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.

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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, 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 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 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.

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FINANCIAL OVERVIEW

Summary of AOCF

Summary of AOCF
	Three Months Ended		Nine Months Ended
	September 30		September 30
(millions of dollars except per share amounts)	2020	2019	2020	2019
Revenue(1)	399.4	450.1	1,690.4	2,031.9
Grossprofit(1)	166.3	195.0	785.3	847.0
EBITDA from operations(2)	45.9	53.6	346.7	374.3
Corporate administrative costs	(7.1)	(3.9)	(14.7)	(18.0)
Realized gains (losses) on foreigncurrencyhedging contracts	0.3	(1.5)	(5.9)	(8.5)
Adjusted EBITDA(2)	39.1	48.2	326.1	347.8
Interest expense	(22.5)	(26.5)	(73.9)	(79.5)
Cash income taxexpense	(4.1)	(2.5)	(11.0)	(7.1)
AOCF before transaction and other costs(2)	12.5	19.2	241.2	261.2
Transactionand othercosts (3)	(6.2)	(6.1)	(16.6)	(24.3)
AOCF(2)	6.3	13.1	224.6	236.9
AOCF per share before transaction and other costs(2)(3)(4)	$0.06	$0.11	$1.31	$1.49
AOCF per share(2)(3)(4)	$0.03	$0.07	$1.22	$1.35
Dividends declaredper common share	$0.18	$0.18	$0.54	$0.54

(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 “NonGAAP Financial Measures”.

(3) Transaction and other costs for the three and nine months ended September 30, 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 and nine months ended September 30, 2020 was 201.8 million and 184.2 million, respectively (three and nine months ended September 30, 2019 was 174.9 million). The weighted average number of shares assumes the conversion of the preferred shares into common shares. There were no other dilutive instruments with respect to AOCF per share and AOCF before transaction and other costs per share for the three and nine months ended September 30, 2020 and 2019.

Comparable GAAP Financial Information

	Three Months Ended	Three Months Ended	Nine Months Ended	Nine Months Ended
	September 30		September 30
(millions of dollars except per share amounts)	2020	2019	2020	2019
Net earnings (loss) for the period	(21.4)	(59.3)	(2.5)	68.0
Net earnings (loss) for the period attributable to common shareholders	(26.8)	(59.3)	(7.9)	68.0
Net earnings (loss) for the period attributable to non-controlling interest	5.4	–	5.4	–
Net earnings (loss) per share attributable to Superior, basic and diluted	($0.15)	($0.34)	($0.05)	$0.39
Cash flows from operating activities	17.2	39.2	289.6	314.9
Cash flows from operatingactivitiesper share(1)	$0.09	$0.22	$1.57	$1.80

(1) The weighted average number of shares outstanding for the three and nine months ended September 30, 2020 was 201.8 million and 184.2 million, respectively (three and nine months ended September 30, 2019 was 174.9 million). The weighted average number of shares assumes the conversion of the preferred shares into common shares. There were no other dilutive instruments with respect to AOCF and AOCF before transaction and other costs per share for the three and nine months ended September 30, 2020 and 2019.

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Segmented Information

Segmented Information
(millions of dollars)	Three Months Ended	Nine Months Ended
	September 30 September 30
	2020 2019 2020 2019
EBITDA from operations(1) Canadian Propane Distribution U.S. Propane Distribution Specialty Chemicals
	21.6 20.9 129.4 125.2
	(4.0) (7.0) 126.5 131.2
	28.3 39.7 90.8 117.9
	45.9 53.6 346.7 374.3

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

AOCF Reconciled to Cash Flows from Operating Activities[ (1) ]

AOCF Reconciled to Cash Flows from Operating Activities(1)
	Three Months Ended		Nine Months Ended
	September 30		September 30
(millions of dollars)	2020	2019	2020	2019
Cash flows from operating activities	17.2	39.2	289.6	314.9
Non-cash interest expense, loss on redemption and other	1.8	2.6	6.3	6.9
Changes in non-cash operating working capital	(26.0)	(42.5)	(80.1)	(96.4)
Income taxes paid	1.4	1.5	8.4	6.0
Interest paid	40.3	43.9	91.6	99.0
Cash income tax expense	(4.1)	(2.5)	(11.0)	(7.1)
Finance expenserecognizedin net earnings	(24.3)	(29.1)	(80.2)	(86.4)
AOCF(1)	6.3	13.1	224.6	236.9

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

ISSUANCE OF PREFERRED SHARES

On July 13, 2020, Superior issued 260,000 Preferred Shares (the “Preferred Shares”) by its wholly owned subsidiary Superior Plus US Holdings for gross proceeds of US$260 million (CDN $353.8 million) to an affiliate of Brookfield Asset Management Inc., on a private placement basis. The initial proceeds were recorded as a noncontrolling interest within equity and the issuance costs of US$13.4 million (CDN$18.1 million) were allocated to Superior’s deficit, see Shareholders’ Capital for further details.

ACQUISITIONS

On August 3, 2020, Superior acquired the assets of a retail propane distribution company, operating under the tradename, Champagne’s Energy (“Champagne”), for total consideration of approximately US$27.4 million (CDN $36.7 million). The purchase price was paid primarily with cash from Superior’s credit facility. Champagne is a retail distributor delivering approximately 41.0 million litres of propane and distillates annually to residential and commercial customers in Maine.

On September 1, 2020, Superior acquired the assets of a retail propane and heating oil distribution company, operating under the tradename, Rymes Propane and Oil (“Rymes”), for total consideration of approximately US$151.6 million (CDN $198.0 million). The purchase price was paid primarily with cash from Superior’s credit facility. Rymes is a retail distributor delivering approximately 204.0 million litres of propane and distillates annually to residential and commercial customers in New Hampshire, Maine, Massachusetts and Vermont.

On October 15, 2020, Superior acquired all of the equity interests of a Southern California propane distribution company, operating under the tradename, Central Coast Propane (“Central Coast”), for total consideration of approximately US$12.9 million (CDN $16.8 million). The purchase price was paid primarily with cash from Superior’s credit facility. Central Coast is a retail distributor delivering approximately 5.0 million litres of propane to approximately 2,800 residential and commercial customers in Southern California.

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2020 Third Quarter Results

On October 27, 2020, Superior acquired the assets of a retail propane distribution company, operating under the tradename, Petro Home Services (“Petro”), for total consideration of approximately US$6.1 million (CDN $8.1 million). The purchase price was paid primarily with cash from Superior’s credit facility. Petro is a retail distributor delivering approximately 11.0 million litres of propane annually to 11,000 customers in North Carolina, South Carolina, Georgia and Tennessee.

Consolidated Statement of Net Earnings

Consolidated Statement of Net Earnings
	Three Months Ended		Nine Months Ended
	September 30		September 30
(millions of dollars except per share amounts)	2020	2019(1)	2020	2019(1)
Revenue	399.4	450.1	1,690.4	2,031.9
Cost ofsales (includes products and services)	(233.1)	(255.1)	(905.1)	(1,184.9)
Gross profit	166.3	195.0	785.3	847.0
Expenses
Selling, distribution and administrative costs ("SD&A")	(202.9)	(219.8)	(648.0)	(706.9)
Finance expense	(24.3)	(29.1)	(80.2)	(86.4)
Gains (losses) on derivatives and foreign currency
translationofborrowings	27.6	(27.9)	(21.8)	10.4
	(199.6)	(276.8)	(750.0)	(782.9)
Earnings (loss) before income taxes	(33.3)	(81.8)	35.3	64.1
Income tax recovery (expense)	11.9	22.5	(37.8)	3.9
Net earnings(loss)for theperiod	(21.4)	(59.3)	(2.5)	68.0
Net earnings (loss) for the period attributable to:
Superior	(26.8)	(59.3)	(7.9)	68.0
Non-controllinginterest	5.4	–	5.4	–
Net earnings(loss) per share attributable to Superior,basic and diluted	($0.15)	($0.34)	($0.05)	$0.39

(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”. See the unaudited condensed interim consolidated financial statements and notes thereto as at and for the three and nine months ended September 30, 2020 and 2019.

Q3 2020 Summary of Results Compared to the Prior Year Quarter

Adjusted EBITDA for the three months ended September 30, 2020 was $39.1 million, a decrease of $9.1 million or 19% compared to the prior year quarter Adjusted EBITDA of $48.2 million. The decrease is primarily due to lower EBITDA from operations and to a lesser extent higher corporate costs partially offset by a realized gain on foreign currency hedging contracts compared to a realized loss in the prior year quarter. EBITDA from operations decreased $7.7 million or 14% compared to the prior year quarter primarily due to lower Specialty Chemicals EBITDA from operations partially offset by higher U.S. Propane Distribution (U.S. Propane) and to a lesser extent higher Canadian Propane Distribution (Canadian Propane) EBITDA from operations. Specialty Chemicals EBITDA from operations was $28.3 million, a decrease of $11.4 million or 29% primarily due to lower sales volumes and lower average hydrochloric acid and caustic soda sales prices compared to the prior year quarter. U.S. Propane EBITDA from operations was ($4.0) million, an increase of $3.0 million or 43% compared to the prior year quarter primarily due to cost reductions, effective margin management in a lower wholesale price environment, and to a lesser extent, incremental synergies and the impact of acquisitions, partially offset by lower sales volumes related to decreased demand related to the impact of COVID-19.

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Canadian Propane EBITDA from operations was $21.6 million, an increase of $0.7 million or 3% compared to the prior year quarter primarily due to the impact of the CEWS recorded in the current period, partially offset by weaker propane market differentials, the impact of lower sales volumes related to the impact of COVID-19 and reduced oilfield activity in Western Canada. Superior realized a gain on foreign currency hedging contracts of $0.3 million compared to a loss of $1.5 million in the prior year quarter due to changes in foreign exchange rates relative to amounts hedged and timing of maturities of underlying financial instruments. Corporate administrative costs were $7.1 million, an increase of $3.2 million from the prior year quarter of $3.9 million primarily due to higher longterm incentive plan costs.

AOCF before transaction and other costs for the three months ended September 30, 2020 was $12.5 million, a decrease of $6.7 million or 35% from the prior year AOCF before transaction and other costs of $19.2 million. The decrease from the prior year quarter is primarily due to lower Adjusted EBITDA discussed above and to a lesser extent higher cash taxes, partially offset by lower interest costs. Interest expense decreased primarily due to the impact of lower average debt balances, and to a lesser extent, the impact of lower interest rates compared to the prior year quarter. AOCF per share before transaction and other costs was $0.06 per share, a decrease of $0.05 per share from the prior year quarter results of $0.11 per share, primarily due to lower AOCF before transaction and other costs discussed above and to a lesser extent an increase in weighted average shares outstanding. Weighted average shares outstanding were higher than the prior year quarter primarily due to the issuance of Preferred Shares that are reflected on an as converted basis and to a lesser extent the impact of shares issued under the Dividend Reinvestment and Optional Share Purchase Plan (“DRIP”).

AOCF for the three months ended September 30, 2020 was $6.3 million, a decrease of $6.8 million or 52% from the prior year AOCF of $13.1 million due to decreased AOCF before transaction and other costs discussed above. AOCF per share for the three months ended September 30, 2020 was $ 0.03 per share, a decrease of $0.04 per share from the prior year quarter results of $0.07 per share. Transaction and other costs for the three months ended September 30, 2020 were $6.2 million, $0.1 million more than the $6.1 million in the prior year quarter.

Revenue for the three months ended September 30, 2020, was $399.4 million, a decrease of $50.7 million or 11% due to lower revenue in Specialty Chemicals, U.S. Propane Distribution and Canadian Propane Distribution segments. Specialty Chemicals revenue for the three months ended September 30, 2020 was $142.6 million, a decrease of $26.2 million or 16% from the prior year quarter primarily due to lower sales volumes and lower average chlor-alkali sales prices. U.S. Propane Distribution revenue for the three months ended September 30, 2020 was $112.2 million, a decrease of $13.4 million or 11% from the prior year quarter primarily due to lower nonresidential sales volumes related to the impact of COVID-19 and lower wholesale propane prices, partially offset by the contribution from tuck-in acquisitions completed in the prior year and in 2020, and the impact of the weaker Canadian dollar on the translation of U.S. denominated revenues. Canadian Propane Distribution revenue for the three months ended September 30, 2020 was $144.6 million, a decrease of $11.1 million or 7% primarily due to lower sales volumes related to the impact of COVID-19 and a decline in oilfield activity in Western Canada.

Gross profit was $166.3 million, a decrease of $28.7 million or 15% from $195.0 million in the prior year quarter primarily due to lower Canadian Propane gross profit and Specialty Chemicals gross profit, partially offset by slightly higher U.S. Propane gross profit. Canadian Propane gross profit decreased due to lower sales volumes and weaker market fundamentals within the supply portfolio management business. Specialty Chemicals gross profit decreased due to lower sales volumes and chlor-alkali selling prices. U.S. Propane Distribution gross profit increased slightly primarily due to the impact of acquisitions and higher unit margins related to sales and marketing initiatives, including margin management in a lower wholesale propane price environment, and customer mix, partially offset by lower non-residential sales volumes due to COVID-19.

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Selling, distribution and administrative costs (SD&A) were $202.9 million for the three months ended September 30, 2020, a decrease of $16.9 million or 8% from the prior year quarter primarily due to decreases in SD&A in Canadian Propane and to a lesser extent U.S. Propane and Specialty Chemicals partially offset by an increase in corporate. Canadian Propane costs were $59.0 million for the three months ended September 30, 2020, a decrease of $13.7 million or 19% from $72.7 million in the prior year due primarily to the impact of the CEWS program recorded in the current period and to a lesser extent lower volume-related expenses and cost savings initiatives. U.S. Propane Distribution SD&A costs were $98.3 million, a decrease of $4.7 million from $103.0 million in the prior year quarter primarily due to the realization of incremental synergies, cost reductions in response to COVID-19, lower transaction and other costs, and to a lesser extent lower volume-related expense partially offset by the impact of acquisitions. Specialty Chemicals SD&A costs were $37.1 million for the three months ended, September 30, 2020, a decrease of $1.7 million or 4% from $38.8 million in the prior year quarter primarily due to lower freight costs related to lower sales volumes, the impact of the CEWS program recorded in the current period, partially offset by restructuring costs incurred in the quarter. Corporate SD&A costs were $8.5 million for the three months ended September 30, 2020, an increase of $3.2 million or 60% from $5.3 million in the prior year quarter primarily due to higher incentive plan costs compared to the prior year quarter.

Finance expense for the three months ended September 30, 2020 was $24.3 million, a decrease of $4.8 million or 16% from $29.1 million in the prior year quarter. The decrease is primarily due to lower average debt balances and lower variable interest rates partially offset by the impact of the weaker Canadian dollar on the translation of U.S. denominated finance expense. Debt balances are lower primarily as the net proceeds from the US$260 million Preferred Share issuance, see Share Capital, were used to reduce debt, partially offset by the impact of acquisitions completed in the quarter that were funded through the credit facility and deferred consideration.

Gains (losses) on derivative and foreign currency translation of borrowings consists of unrealized gains (losses) on derivative financial instruments and foreign currency translation of borrowings, net of realized gains (losses) on derivative financial instruments. Superior recognized a gain on derivatives and foreign currency translation of borrowings of $27.6 million for the three months ended September 30, 2020 compared to a loss of $27.9 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 and U.S. denominated debt. For additional details, refer to Note 12 of the 2020 unaudited condensed interim consolidated financial statements.

Total income tax recovery for the three months ended September 30, 2020 was $11.9 million, a decrease of $10.6 million from a $22.5 million income tax recovery in the prior year quarter. Current income tax expense was $4.1 million, an increase of $1.6 million from the prior year quarter expense of $2.5 million. Deferred income tax recovery was $16.0 million, a decrease of $9.0 million from a $25.0 million income tax recovery in the prior year quarter, due to the increased net earnings before income taxes in the current period compared to the prior year quarter.

The net loss for the three months ended September 30, 2020 was $21.4 million, a $37.9 million increase from the net loss of $59.3 million in the prior year quarter. The decrease from the prior year quarter is primarily due to the unrealized gain on derivatives and foreign currency translation of borrowings recorded in the current quarter compared to a loss in the prior year quarter and lower SD&A costs mainly due to the impact of the CEWS, partially offset by lower gross profit. Basic and diluted loss per share was $0.15, compared to a loss per share of $0.34 in the prior year quarter.

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Year-to-date Comparison to the Prior Year-to-date

Adjusted EBITDA for the nine months ended September 30, 2020 was $326.1 million, a decrease of $21.7 million or 6% compared to the prior year Adjusted EBITDA of $347.8 million. The decrease is primarily due to lower EBITDA from operations and was partially offset by lower corporate costs and realized losses on foreign currency hedging contracts. EBITDA from operations decreased $27.6 million or 7% compared to the prior year primarily due to lower Specialty Chemicals EBITDA from operations and to a lesser extent, lower U.S. Propane EBITDA from operations, partially offset by higher Canadian Propane EBITDA from operations. Specialty Chemicals EBITDA from operations was $90.8 million, a decrease of $27.1 million or 23% primarily due to due to lower sales volumes and lower average hydrochloric acid and caustic soda sales prices compared to the prior year, partially offset by lower power costs and the impact of the CEWS program. U.S. Propane EBITDA from operations was $126.5 million, a decrease of $4.7 million or 4% primarily due to warm weather in the first quarter, 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. Canadian Propane EBITDA from operations was $129.4 million, an increase of $4.2 million or 3% primarily due to the impact of CEWS program, effective margin management in a declining wholesale propane price environment, partially offset by lower sales volumes due to the impact of COVID-19 on demand, the impact of low crude oil prices and the impact of the warmer weather in the first quarter. Superior realized losses on foreign currency hedging contracts of $5.9 million compared to a loss of $8.5 million in the prior year is due to the weaker Canadian dollar than the average hedge rate. Corporate administrative costs were $14.7 million compared to $18.0 million in the prior year to date period. The decrease is primarily due to lower incentive plan costs than in the prior year due to changes in the share price.

AOCF before transaction and other costs for the nine months ended September 30, 2020 was $241.2 million, a decrease of $20.0 million or 8% from the prior year AOCF before transaction and other costs of $261.2 million. The decrease from the prior year is primarily due to lower Adjusted EBITDA discussed above and higher cash taxes, partially offset by lower interest expense. Interest expense decreased by $5.6 million or 7% primarily to due to lower average debt balances and lower variable interest rates. Cash income tax expense increased by $3.9 million as a result of utilizing expiring Canadian federal tax credits. AOCF per share before transaction and other costs was $1.31 per share, a decrease of $0.18 per share or 12% from the prior year to date results of $1.49 per share primarily due to the lower AOCF before transaction and other costs discussed above and the increase in weighted average shares outstanding.

AOCF for the nine months ended September 30, 2020 was $224.6 million, a decrease of $12.3 million or 5% from the prior year AOCF of $236.9 million due to the decreased AOCF before transaction and other costs discussed above. AOCF per share for nine months ended September 30, 2020 was $1.22 per share, a decrease of $0.13 per share or 10% from the prior year quarter results of $1.35 per share. Transaction and other costs for the nine months ended September 30, 2020 were $16.6 million, $7.7 million lower than the prior year. Costs incurred in the current year related primarily to the integration of acquisitions compared to the Specialty Chemicals strategic review, the integration of acquisitions and acquisition related costs incurred in the prior comparable period.

Revenue for the nine months ended September 30, 2020 was $1,690.4 million, a decrease of $341.5 million or 17% due to lower revenue in the Canadian Propane Distribution, U.S. Propane Distribution, and Specialty Chemicals segments. Canadian Propane Distribution revenue for the nine months ended September 30, 2020 was $640.5 million, a decrease of $142.5 million or 18% primarily due to lower wholesale propane prices and the impact of lower sales volumes. U.S. Propane Distribution revenue for the nine months ended September 30, 2020 was $604.5 million, a decrease of $124.3 million or 17% primarily due to lower sales volumes related to warmer weather in the first quarter, and the impact of lower wholesale propane prices, partially offset by the additional revenues from acquisitions and the impact of the weaker Canadian dollar on U.S. denominated sales. Specialty Chemicals revenue for the nine months ended September 30, 2020 of $445.4 million, decreased by $74.7 million or 14% primarily due to lower sales volumes and lower chlor-alkali average sales prices.

Superior Plus Corp.

2020 Third Quarter Results

9

Consolidated gross profit was $785.3 million, a decrease of $61.7 million or 7% from $847.0 million primarily due to lower Specialty Chemicals and Canadian Propane gross profit and to a lesser extent U.S. Propane gross profit. Gross profit decreased due to the above reasons and was partially offset by lower average power costs due to the closure of the high-cost Saskatoon sodium chlorate plant in the prior year quarter and lower costs as a result of recording the CEWS in the Specialty Chemical segment and effective margin management in a low-cost wholesale propane price environment.

SD&A was $648.0 million for the nine months ended September 30, 2020, a decrease of $58.9 million or 8% from the prior year, primarily due to a decrease in Specialty Chemicals and Canadian Propane SD&A to a lesser extent U.S. Propane and Corporate SD&A. Specialty Chemicals costs of $113.1 million for the nine months ended September 30, 2020, decreased by $27.4 million or 20% from $140.5 million in the prior year primarily due to an impairment charge and a restructuring provision recorded in the prior year, the impact of the CEWS program in the current period, lower freight costs due to lower sales volumes and a gain on the translation of non-cash working capital compared to a loss in the prior year, partially offset by the impact of the weaker Canadian dollar on U.S. denominated expenses. Canadian Propane Distribution SD&A costs of $211.4 million decreased by $20.4 million or 9% from $231.8 million in the prior year due primarily to the impact of the CEWS program recorded in the current period, lower volume related expenses and cost savings initiatives partially offset by higher depreciation expense. U.S. Propane Distribution SD&A costs were $303.4 million, a decrease of $7.6 million or 2% from $311.0 million in the prior year primarily due to workforce optimization and to a lesser extent the realization of incremental synergies, lower transaction and restructuring costs and lower volume-related expenses, partially offset by the impact of the weaker Canadian dollar on the translation of U.S. denominated SD&A. Corporate SD&A costs were $20.1 million, a decrease of $3.5 million or 15% from $23.6 million in the prior year primarily due to lower incentive plan costs related to share price volatility and lower transaction costs.

Finance expense for the nine months ended September 30, 2020 was $80.2 million, a decrease of $6.2 million or 7% from $86.4 million in the prior year. The decrease is primarily due to lower average debt balances and lower variable interest rates, partially offset by the impact of the weaker Canadian dollar on the translation of U.S. denominated finance expense. Debt balances are lower due to the proceeds of the US$260 million Preferred Share issuance (see Shareholders’ Capital), partially offset by acquisitions completed in the year.

Gains (losses) on derivative and foreign currency translation of borrowings consists of unrealized gains (losses) on derivative financial instruments and foreign currency translation of borrowings, net of realized gains (losses) on derivative financial instruments. Superior incurred losses on derivatives and foreign currency translation of borrowings of $21.8 million for the nine months ended September 30, 2020 compared to a gain of $10.4 million in the prior year. 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 $37.8 million was $41.7 million higher than the prior year’s recovery of $3.9 million. Current income tax expense was $11.0 million, an increase of $3.9 million from the prior year’s expense of $7.1 million. Deferred income tax expense was $26.8 million, an increase of $37.8 million from the prior year recovery of $11.0 million primarily due to the impact of U.S. tax regulations enacted during the year.

The net loss for the nine months ended September 30, 2020 was $2.5 million, compared to $68.0 million net earnings in the prior year quarter. The decrease from the prior year is primarily due to lower gross profit, unrealized losses on derivatives and foreign currency translation of borrowings recorded in the current year to date period compared to unrealized gains on derivatives and foreign currency translation of borrowings in the prior year and an income tax expense compared to a recovery in the prior comparable period partially offset by lower SD&A costs. Basic and diluted loss per share was $0.05, compared to basic and diluted earnings per share of $0.39 in the prior year.

Superior Plus Corp.

2020 Third Quarter Results

10

RESULTS OF SUPERIOR’S OPERATING SEGMENTS

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

CANADIAN PROPANE DISTRIBUTION

Canadian Propane Distribution’s condensed operating results:

CANADIAN PROPANE DISTRIBUTION Canadian Propane Distribution’s condensed operating results:
	Three Months Ended		Nine Months Ended
	September 30		September 30
(millions of dollars)	2020	2019	2020	2019
Revenue(1)	144.6	155.7	640.5	783.0
Cost ofSales(1)	(84.6)	(80.5)	(354.7)	(468.8)
Gross profit(1)	60.0	75.2	285.8	314.2
Realized gains (losses) on derivatives related to commodity risk
management	0.7	0.7	(2.1)	(8.6)
Adjusted gross profit(1)	60.7	75.9	283.7	305.6
Selling, distribution and administrative costs	(59.0)	(72.7)	(211.4)	(231.8)
Add back (deduct):
Amortization and depreciation included in selling, distribution and
administrative costs	18.9	18.3	55.8	52.8
Transaction and other costs	0.2	0.3	0.5	0.5
(Gain)loss ondisposalofassets and other	0.8	(0.9)	0.8	(1.9)
EBITDA from operations(2)	21.6	20.9	129.4	125.2
Add back (deduct):
Gain (loss) on disposal of assets and other	(0.8)	0.9	(0.8)	1.9
Transaction and other costs	(0.2)	(0.3)	(0.5)	(0.5)
Amortization and depreciation included in selling, distribution and
administrative costs	(18.9)	(18.3)	(55.8)	(52.8)
Unrealized gains (losses) on derivative financial instruments	0.3	(7.5)	3.2	(4.9)
Finance expense	(1.0)	(1.3)	(3.4)	(3.4)
Earnings (loss) before income tax	1.0	(5.6)	72.1	65.5

(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 three months ended September 30, 2020 was $144.6 million, a decrease of $11.1 million or 7% primarily due to lower sales volumes and to a lesser extent lower wholesale propane prices exiting the third quarter. Wholesale propane supply prices were lower than the prior year exiting the quarter, primarily due to continued high propane inventory levels in the U.S., driven by decreased demand as a result of warm weather in the first quarter, reduced demand related to the impact of COVID-19, the impact from lower average West Texas Intermediate (“WTI”) crude oil prices compared to the prior year quarter. WTI crude oil prices decreased significantly at the end of the first quarter and remained lower than the prior year due to continued uncertainty around the global reaction to COVID-19.

Superior Plus Corp.

2020 Third Quarter Results

11

Canadian Propane Adjusted Gross Profit

Canadian Propane Adjusted Gross Profit
(millions of dollars)	Three Months Ended Nine Months Ended
	September 30 September 30
	2020 2019 2020 2019
Propane distribution Realized gains (losses) on derivatives related to commodity risk management	56.9 71.8 275.2 301.3
	0.7 0.7 (2.1) (8.6)
Propane distribution adjusted gross profit	57.6 72.5 273.1 292.7
Otherservices	3.1 3.4 10.6 12.9
Adjustedgrossprofit(1)	60.7 75.9 283.7 305.6

(1) Adjusted gross profit is a Non-GAAP financial measure. See “Non-GAAP Financial Measures”.

Canadian propane distribution adjusted gross profit for the three months ended September 30, 2020 was $57.6 million, a decrease of $14.9 million or 21% from the prior year quarter primarily due to lower sales volumes, and lower average margins related primarily to weaker wholesale propane market fundamentals compared to the prior year quarter.

Total sales volumes for the third quarter were 341 million litres, a decrease of 52 million litres or 13%, primarily due to reduced demand from Oilfield customers, the impact of COVID-19 and economic conditions in Western Canada. Average weather across Canada for the third quarter of 2020, as measured by degree days was 2% warmer than the prior year and 8% warmer than the five-year average. Sales volumes are highest in the first and fourth quarter due to the demand from heating end-use customers. The colder weather in the third quarter does not have a significant impact on total annual sales volumes. Residential sales volumes were slightly higher than prior year largely as a result of an increase in customers working from home due to COVID-19. Commercial sales volumes decreased by 7 million litres or 17% due primarily to the impact of COVID-19 and economic conditions in Western Canada. Oilfield volumes decreased by 20 million litres or 57%, largely due to low oil prices, the impact of COVID-19, and the loss of a large customer after it was acquired by another company that is serviced by a competitor. Industrial volumes were consistent with the prior year quarter as lower volumes from large industrial customers impacted by COVID-19 were offset by increased demand from resellers filling barbeque cylinders as a result of COVID-19 keeping more customers’ home warm. Motor fuels sales volumes decreased by 7 million litres or 17% from the prior year quarter due to reduced demand largely as a result of the impact of COVID-19, particularly on taxi fleet customers. Wholesale propane volumes were 19 million litres or 10% lower compared to the prior year quarter due to lower demand associated with the impact of COVID-19 partially offset by higher sales volumes in California. Wholesale propane sales volumes in California were higher than the prior year quarter due to refinery shutdowns that limited supply in the prior year quarter.

Average propane sales margins were 16.9 cents per litre, a decrease of 8% from 18.4 cents per litre in the prior year quarter due primarily to weaker wholesale propane market fundamentals partially offset by the impact of lower sales volumes from low-margin oilfield and wholesale customers.

Other services gross profit primarily includes equipment rental, installation, repair and maintenance and customer minimum use charges. Other services gross profit was $3.1 million, a decrease of $0.3 million or 9% from the prior year quarter primarily due to the impact COVID-19 on service technician activity and the impact of economic conditions on service technician activity and equipment rentals in Western Canada.

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2020 Third Quarter Results

12

Canadian Propane Distribution Sales Volumes - Volumes by End Use Application[(1) ]

Canadian Propane Distribution Sales Volumes Volumes by End-Use Application(1)
	Three Months Ended		Nine Months Ended
	September 30		September 30
(millions of litres)	2020	2019	2020	2019
Residential	20	20	113	121
Commercial	35	42	205	236
Oilfield	15	35	76	129
Industrial	52	52	171	173
Motor Fuels	35	42	103	126
Wholesale	171	190	690	890
Other	13	12	72	77
Total	341	393	1,430	1,752

Volumes by Region[ (1)]

	Three Months Ended	Three Months Ended	Nine Months Ended	Nine Months Ended
	September 30		September 30
(millions of litres)	2020	2019	2020	2019
Western Canada	100	149	498	655
Eastern Canada	77	86	320	380
Atlantic Canada	25	22	97	90
United States	139	136	515	627
Total	341	393	1,430	1,752

(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, Colorado, Delaware, Illinois, Kansas, Maine, Maryland, Michigan, Minnesota, Montana, Nevada, New Hampshire, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Texas, Utah and Washington.

Selling, Distribution and Administrative Costs

SD&A costs for the three months ended September 30, 2020 were $59.0 million, a decrease of $13.7 million or 19% lower than the prior year quarter primarily due to the impact of CEWS program recorded in the quarter, lower volume related expenses and cost saving initiatives, partially offset by a loss on disposal of assets in the current quarter compared to a gain in the prior year quarter. The Canadian Propane Distribution segment recorded a total of $13.7 million related to the CEWS program.

Earnings

Earnings before income tax of $1.0 million, increased by $6.6 million over the prior year quarter, due to the aforementioned reasons and the impact of an unrealized gain on derivative financial instruments in the current quarter compared to a loss in the prior year quarter.

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 customers impacted by COVID-19 and to a lesser extent, weaker propane market fundamentals, partially offset by reduced SD&A costs as a result of the impact of the CEWS program, lower volume-related costs, and cost savings initiatives. Sales volumes in Western Canada are expected to decrease as a result of 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.

Superior Plus Corp.

2020 Third Quarter Results

13

U.S. PROPANE DISTRIBUTION

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

U.S. PROPANEDISTRIBUTION U.S. Propane Distribution’s condensed operating results:
	Three Months Ended		Nine Months Ended
	September 30		September 30
(millions of dollars)	2020	2019	2020	2019(1)
Revenue(1)	112.2	125.6	604.5	728.8
Cost ofSales(1)	(51.5)	(65.5)	(254.1)	(377.5)
Gross profit(1)	60.7	60.1	350.4	351.3
Realizedlosses onderivativesrelated to commodityrisk management	(0.2)	(0.4)	(17.2)	(5.7)
Adjusted gross profit	60.5	59.7	333.2	345.6
Selling, distribution and administrative costs	(98.3)	(103.0)	(303.4)	(311.0)
Add back (deduct):
Amortization and depreciation included in selling, distribution and
administrative costs	30.0	31.9	85.0	81.6
Transaction and other costs	3.2	4.4	9.8	14.2
Loss ondisposalofassets and other	0.6	–	1.9	0.8
EBITDA from operations(2)	(4.0)	(7.0)	126.5	131.2
Add back (deduct):
Loss on disposal of assets and other	(0.6)	–	(1.9)	(0.8)
Transaction and other costs	(3.2)	(4.4)	(9.8)	(14.2)
Amortization and depreciation included in selling, distribution and
administrative costs	(30.0)	(31.9)	(85.0)	(81.6)
Unrealized gains (losses) on derivative financial instruments	2.2	(7.4)	11.4	(6.2)
Finance expense	(1.3)	(1.2)	(4.2)	(3.3)
Earnings (loss) before income tax	(36.9)	(51.9)	37.0	25.1

(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”.

Revenue for the three months ended September 30, 2020 was $112.2 million, a decrease of $13.4 million or 11% from the prior year quarter primarily due to lower wholesale distillate prices, and lower distillate sales volumes, partially offset by the impact of tuck-in acquisitions completed since the prior year quarter. Wholesale distillate supply prices were lower than the prior year, driven by decreased demand as a result of warm weather in the first quarter, reduced demand related to the impact of COVID-19 and the impact from lower average West Texas Intermediate (“WTI”) crude oil prices compared to the prior year quarter. WTI crude oil prices decreased significantly at the end of the first quarter and remained lower than the prior year due to continued uncertainty around the global reaction to COVID-19.

Superior Plus Corp.

2020 Third Quarter Results

14

U.S. Propane Adjusted Gross Profit

U.S. Propane Adjusted Gross Profit
	Three Months Ended		Nine Months Ended
	September 30		September 30
(millions of dollars)	2020	2019	2020	2019
Propane distribution	56.6	55.3	338.0	335.7
Realizedloss onderivativesrelated to commodityrisk management	(0.2)	(0.4)	(17.2)	(5.7)
Propane distribution adjusted gross profit	56.4	54.9	320.8	330.0
Otherservices(1)	4.1	4.8	12.4	15.6
Adjustedgrossprofit(2)	60.5	59.7	333.2	345.6

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

(2) Adjusted gross profit from operations is a Non-GAAP financial measure. See “Non-GAAP Financial Measures”.

U.S. Propane distribution adjusted gross profit for the three months ended September 30, 2020 was $56.4 million, an increase of $1.5 million or 3% from the prior year quarter primarily due to the impact of acquisitions completed since the prior year quarter and higher average margins, partially offset by lower sales volumes due to the impact of COVID-10 on customer demand and the impact of focusing on higher margin propane customers.

Total sales volumes were 155 million litres, a decrease of 3 million litres or 2% from the prior year quarter primarily due to the impact of COVID-19 on non-residential customer demand and customer attrition as a result of focusing on higher margin propane customers, partially offset by the impact of tuck-in acquisitions. Distillate sales volumes are lower than the prior year quarter primarily due to sales and marketing initiatives focusing on higher margin propane customers and less on lower margin commercial distillate customers and to a lesser extent the impact of COVID-19 on sales demand. Average weather, as measured by degree days, across markets where U.S. propane operates for the three months ended September 30, 2020 was 45% colder than the prior year quarter and 77% colder than the five-year average. Sales volumes are highest in the first and fourth quarter due to the demand from heating end-use customers. The colder weather in the third quarter does not have a significant impact on total annual sales volumes. Residential sales volumes decreased by 2 million litres or 3% from the prior year quarter primarily due to timing of customer deliveries relating to colder weather in the previous quarter partially offset by the impact of tuck-in acquisitions completed in the past twelve months. Commercial volumes increased by 1 million litres or 1% compared to the prior year quarter primarily due to impact of acquisitions completed partially offset by the impact of COVID-19 on commercial customers and to a lesser extent the impact of sales and marketing initiatives to shift focus away from low-margin customers. Wholesale volumes decreased by 2 million litres or 29% due to reduced demand related to the impact of COVID-19 and customer attrition as a result of focusing on higher margin propane customers.

U.S. propane average sales margins were 36.4 cents per litre an increase of 5% from 34.7 cents per litre in the prior year quarter primarily due to the impact of focusing on higher margin propane customers and the impact of the weaker Canadian dollar on the translation of U.S. denominated gross profit.

Other services gross profit primarily includes equipment rental, installation, repair and maintenance charges. Other services gross profit was $4.1 million, a decrease of $0.7 million over the prior year quarter primarily due to the impact of COVID-19 delaying non-essential service activity partially offset by the impact of acquisitions completed.

Superior Plus Corp.

2020 Third Quarter Results

15

U.S. Propane Distribution Sales Volumes

End-Use Application [(][1][)]

U.S. Propane Distribution Sales Volumes End-Use Application (1)
	Three Months Ended		Nine Months Ended
	September 30		September 30
(millions of litres)	2020	2019(2)	2020	2019(2)
Residential	59	61	413	458
Commercial	91	90	332	352
Wholesale	5	7	22	38
Total	155	158	767	848

(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 for the three months ended September 30, 2020 were $98.3 million, a decrease of $4.7 million or 5% over the prior year quarter. The decrease in SD&A costs is primarily due to workforce optimization initiatives, the realization of incremental synergies, lower volume-related expenses and lower transaction and restructuring costs partially offset by the impact of acquisitions and to a lesser extent the impact of the weaker Canadian dollar on the translation of U.S. denominated SD&A.

Earnings (loss) before tax

The loss before tax of $36.9 million, decreased by $15.0 million over the prior year quarter due to the aforementioned reasons and the impact of an unrealized gain on derivative financial instruments in the current quarter compared to a loss in the prior year quarter.

Financial Outlook

EBITDA from operations in 2020 for U.S. Propane is anticipated to be consistent to slightly higher than 2019. The contributions from tuck-in acquisitions completed in 2020, the impact of the weaker Canadian dollar on the translation of U.S. denominated EBITDA, achieving incremental synergies of US$4.0 or US$24 million in run-rate synergies exiting 2020 and further cost saving initiatives are expected to be offset by the impact from 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. 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.

Superior Plus Corp.

2020 Third Quarter Results

16

SPECIALTY CHEMICALS

Specialty Chemicals’ condensed operating results:

		Three Months Ended	Three Months Ended	Three Months Ended			Nine Months Ended	Nine Months Ended
			September 30				September 30
(millions of dollars except per metric
tonne (MT) amounts)(2)	2020		2019		2020		2019
		$ per MT		$ per MT		$ per MT		$ per MT
Revenue	142.6	784	168.8	804	445.4	808	520.1	831
Cost ofSales	(97.0)	(533)	(109.1)	(520)	(296.3)	(538)	(338.6)	(541)
Gross Profit(1)	45.6	251	59.7	284	149.1	270	181.5	290
Selling, distribution and administrative
costs (SD&A)	(37.1)	(204)	(38.8)	(185)	(113.1)	(205)	(140.5)	(224)
Add back (deduct):
Depreciation included in cost of sales	10.6	58	11.1	53	30.6	56	33.9	54
Loss on disposal of assets and impairment	–	–	0.3	1	–	–	16.9	27
Restructuring costs	1.7	9	–	–	1.5	3	4.2	7
Amortization and depreciation included
inSD&Acosts	7.5	41	7.4	35	22.7	41	21.9	35
EBITDA from operations(2)	28.3	155	39.7	188	90.8	165	117.9	189
Add back (deduct):
Loss on disposal of assets and impairment	–		(0.3)		–		(16.9)
Amortization and depreciation included
in SD&A costs	(7.5)		(7.4)		(22.7)		(21.9)
Depreciation included in cost of sales	(10.6)		(11.1)		(30.6)		(33.9)
Restructuring costs	(1.7)		–		(1.5)		(4.2)
Unrealized (loss) gain on foreign currency
translation of lease liabilities	1.0		(0.6)		(1.4)		1.9
Finance expense	(1.8)		(2.0)		(5.7)		(5.8)
Earnings before tax	7.7		18.3		28.9		37.1

(1) Gross Profit per MT after adding back depreciation included in cost of sales for the three and nine months ended September 30, 2020 was $309/MT and $326/MT respectively and for the three and nine months ended September 30, 2019 was $337/MT and $344/MT respectively.

(2) EBITDA from operations and per metric tonne amounts are Non-GAAP financial measures. See “Non-GAAP Financial Measures” and “Reconciliation of Net Earnings before Income Taxes to EBITDA from Operations”.

Sales Volumes by Product

	Three Months	Ended	Nine Months	Ended
	September 30		September 30
(thousands of MTs)	2020	2019	2020	2019
Sodium chlorate	103	122	328	360
Chlor-alkali	77	86	219	261
Chlorite	2	2	4	5
Total	182	210	551	626

Revenue for the three months ended September 30, 2020 was $142.6 million a decrease of $26.2 million or 16% from the prior year quarter. This was primarily due to lower sales volumes and to a lesser extent lower average chlor-alkali selling prices and was partially offset by higher sodium chlorate sales prices.

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2020 Third Quarter Results

17

Sodium chlorate sales volumes decreased by 19 MTs or 16% due primarily to the impact of COVID-19 on customer demand and customer maintenance outages. Sodium chlorate sales prices were 2% higher than the prior year quarter due to the impact of the weaker Canadian dollar on U.S. denominated sales, customer mix and contract price increases.

Chlor-alkali sales volumes decreased by 9 MTs or 10% due to lower hydrochloric acid and caustic sales volumes, and to a lesser extent, lower caustic potash and chlorine sales volumes. COVID-19 has negatively impacted chloralkali demand due to broad-based shutdowns and curtailed economic activity. Hydrochloric acid sales volumes decreased 18% due to continued lower demand from the U.S. oil and gas sector with the impact of COVID-19. Caustic soda sales volumes decreased 16% primarily due to North American market fundamentals caused by excess availability and the impact of COVID-19. Chlorine sales volumes decreased 6% due to the impact of COVID-19, termination of a contract at the end of the prior year quarter supplied from external purchases and were partially offset by increased demand due to reduced chlor-alkali production in the U.S. Gulf Coast related to Hurricane Laura. Caustic potash sales volumes decreased 4% primarily due to reduced agricultural demand in California. Average hydrochloric acid and caustic soda netbacks decreased by approximately 64% and 12% respectively for the aforementioned reasons partially offset by the impact of the weaker Canadian dollar on U.S. denominated sales. Chlorine netbacks increased 3% due to customer mix and the impact of the weaker Canadian dollar on U.S. denominated sales. Caustic potash netbacks were 7% lower than the prior year quarter due to customer mix partially offset by the impact of the weaker Canadian dollar on U.S. denominated sales.

Chlorite sales volumes were consistent with the prior year quarter. Sales prices were 3% higher than the prior year quarter due to customer mix and to a lesser extent the impact of the weaker Canadian dollar on US denominated sales.

Gross profit was $45.6 million, a decrease of $14.1 million or 24% from the prior year quarter due primarily to lower volumes and lower chlor-alkali sales prices partially offset by 7% lower North American sodium chlorate power costs, the impact of recording the CEWS and to a lesser extent the impact of the weaker Canadian dollar compared to the prior year quarter on U.S. denominated gross profit. Electricity costs were lower due to low system demand, low natural gas prices and to a lesser extent the impact of reduced production from a high cost plant in the prior year quarter. An amount of $2.3 million related to CEWS, was recorded as a reduction to cost of goods sold.

SD&A costs were $37.1 million, a decrease of $1.7 million over the prior year quarter primarily due to lower freight costs related to lower sales volumes, the impact of the CEWS, partially offset by restructuring costs incurred in the quarter and the impact of the weaker Canadian dollar on U.S. denominated expenses. An amount of $1.3 million related to CEWS, was recorded as a reduction to SD&A.

Earnings before tax for the three months ended September 30, 2020 was $7.7 million, a decrease of $10.6 million over the prior year quarter due primarily to the aforementioned reasons partially offset by the impact of an unrealized gain on the foreign currency translation of lease liabilities compared to an unrealized loss in the prior year.

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 and to a lesser extent a decrease in sodium chlorate gross profit, partially offset by a modest decrease in SD&A costs including the impact of the CEWS and the impact of the weaker Canadian dollar on U.S. denominated earnings. 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, weakness in caustic soda pricing related to supply and demand fundamentals in North American markets, a general reduction in demand related to COVID-19 and a decrease in caustic potash sales volumes and pricing related to customer mix. Sodium chlorate gross profit is anticipated to be lower than 2019 as a result of lower demand due primarily to the impact of COVID-19, partially offset by decreases in electricity mill rates.

Superior Plus Corp.

2020 Third Quarter Results

18

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 leased assets.

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.

Investment in leased assets generally includes vehicles for the Energy Distribution segments to support growth and replace aging vehicles, renewing railcar leases in the Specialty Chemicals segment and the wholesale business and timing of renewing property leases across the entire company.

Superior’s capital expenditures:

	Three Months Ended	Three Months Ended	Nine	Months Ended
		September 30		September 30
(millions of dollars)	2020	2019	2020	2019
Efficiency, process improvement and growth-related	15.0	18.7	43.7	42.3
Maintenance capital	15.6	22.3	42.2	42.1
	30.6	41.0	85.9	84.4
Proceeds on disposition of assets	(1.5)	(2.5)	(7.8)	(5.9)
Property, plant and equipment acquired throughacquisition	84.2	–	92.7	15.6
Total net capital expenditures	113.3	38.5	170.8	94.1
Investment in leased assets net ofproceeds from refinanced	18.2	9.1	40.8	19.4
Total expenditures including finance leases	131.5	47.6	211.6	113.5

Efficiency, process improvement and growth-related expenditures were $15.0 million for the three months ended September 30, 2020 compared to $18.7 million in the prior year quarter. The decrease over the prior year quarter is primarily due to deferring expenditures to offset the impact of COVID-19 on cashflows and to a lesser extent timing of integration activity.

Maintenance capital expenditures were $15.6 million for the three months ended September 30, 2020 compared to $22.3 million in the prior year quarter, consisting primarily of required maintenance and general capital across Superior’s segments. The decrease is primarily due to deferring expenditures to offset the impact of COVID-19 on cashflows and to a lesser extent 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 prior year quarter.

Superior entered into new leases with capital-equivalent value of $19.0 million and refinanced previously acquired vehicles for gross proceeds of $0.8 million for the three months ended September 30, 2020. The net investment was $18.2 million, compared to $9.1 million in the prior year quarter. The increase is primarily due to timing of renewing property, railcar and vehicles leases.

Superior Plus Corp.

2020 Third Quarter Results

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

CORPORATE ADMINISTRATION COSTS

Corporate administration costs are $7.1 million for the three months ended September 30, 2020 an increase of $3.2 million, compared to $3.9 million in the prior year quarter. The increase from the prior year quarter is primarily due to higher long-term incentive plan costs related to the increase in the share price compared to the prior year, partially offset by $0.3 million related to CEWS and lower discretionary spending due to the impact of COVID-19. Corporate administration costs included in Adjusted EBITDA exclude depreciation, amortization and transaction and other costs which totalled $1.4 million and were consistent with the prior year quarter.

FINANCE EXPENSE

Finance expense was $24.3 million for the three months ended September 30, 2020, a decrease of $4.8 million, compared to $29.1 million in the prior year quarter. The decrease is primarily due to lower average debt balances, lower variable interest rates compared to the prior comparable quarter and lower non-cash financing charges.

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:

table below summarizes these costs:
	Three Months	Ended	Nine Months	Ended
	September 30		September 30
(millions of dollars)	2020	2019	2020	2019
Total transaction and other costs	6.2	6.1	16.6	24.3

For the three months ended September 30, 2020, Superior incurred $6.2 million in costs related primarily to the acquisition and integration of tuck-in acquisitions and other acquisition activity. The costs in the prior year quarter related primarily to the integration of NGL, the strategic review of Specialty Chemicals 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 recovery for the three months ended September 30, 2020 of $11.9 million, was comprised of $4.1 million cash income tax expense and $16.0 million deferred income tax recovery. This compares to a total income tax recovery of $22.5 million in the prior period, which consisted of cash income tax expense of $2.5 million and $25.0 million deferred income tax recovery.

Cash income taxes for the three months ended September 30, 2020 was $4.1 million (2019 – $2.5 million), consisting of income taxes in Canada of $1.7 million (2019 – $0.3 million), income taxes in the U.S. of $0.3 million (2019 – $0.7 million), income taxes in Chile of $1.5 million (2019 – $0.8 million), and income taxes in Luxembourg of $0.6 million (2019 – $0.7 million). Deferred income tax recovery for the three months ended September 30, 2020 was $16.0 million (2019 – $25.0 million), resulting in a net deferred income tax liability of $13.1 million as at September 30, 2020.

Superior Plus Corp.

2020 Third Quarter Results

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FINANCIAL OUTLOOK

Superior expects Adjusted EBITDA to remain within the previously disclosed guidance range of $475 million to $515 million despite the impacts from the COVID-19 pandemic and reduced oil and gas drilling activity in North America, as well as the impact of the significantly warmer weather in the first quarter. As a result of the ongoing impact of the COVID-19 pandemic and the impact from reduced oil and gas drilling activity to the broader macroeconomy, 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 begin to stabilize 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 $0.75 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;

• SD&A expenditures are expected to be lower due to the impact of the CEWS, 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 higher than 2019;

• Wholesale propane prices are not anticipated to significantly affect demand for propane and related services; and

• Continue to realize synergies from acquisitions primarily through supply chain efficiencies, margin management improvements and operational expense savings.

Specialty Chemicals

• Chlor-alkali netbacks for caustic soda and hydrochloric acid are anticipated to be lower than 2019;

• SD&A are expected to be lower due to the impact of the CEWS program;

• Average plant utilization will approximate 85%-90% 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.”

Superior Plus Corp.

2020 Third Quarter Results

21

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 3.4x as at September 30, 2020, compared to 3.7x at December 31, 2019. The decrease in the Total Debt to Adjusted EBITDA Leverage Ratio from December 31, 2019 is due to the issuance of 260,000 Preferred Shares (see Shareholders’ Capital) partially offset by acquisitions completed in the year, entering new or extending leases and to a lesser extent the impact of the weaker Canadian dollar on the translation of Superior’s U.S. denominated debt.

Superior expects to be at the higher end of the Total Debt to Adjusted EBITDA Leverage Ratio range of 3.0x to 3.5x as at December 31, 2020, which is consistent with Superior’s targeted range, primarily due to acquisitions completed in the third quarter.

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 $1,849.0 million as at September 30, 2020, a decrease of $107.1 million from $1,956.1 million as at December 31, 2019. The decrease is primarily due to proceeds from the issuance of Preferred Shares used to pay down borrowing, partially offset by acquisitions completed during the period, to a lesser extent the impact of the weaker Canadian dollar on U.S. denominated debt, and new leases.

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

As at September 30, 2020

			Letters of
	Total		Credit	Amount
(millions of dollars)	Amount	Borrowing	Issued	Available
Revolving term bank credit facilities(1)	750.0	329.2	39.8	381.0
Term loans(1)	1,236.2	1,236.2	–	–
Other debt(2)	24.8	24.8	–	–
Leaseliabilities	258.8	258.8	–	–
Total	2,269.8	1,849.0	39.8	381.0

(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 $(14.9) million as at September 30, 2020, a decrease of $64.8 million from $49.9 million as at December 31, 2019. Consolidated net working capital decreased by $29.0 million from $14.1 million as at September 30, 2019. The decrease from the prior year is due to the weaker Canadian dollar on U.S. denominated working capital, the impact of decreasing propane prices, and timing of customer receipts compared to disbursements, partially offset by the impact of recording the CEWS during the quarter.

Compliance

In accordance with the credit facility, Superior must maintain certain covenants and ratios that represent Non-GAAP financial measures. Superior is in compliance with the lender covenants as at September 30, 2020 and the covenant details are found in the credit facility documents filed in the System for Electronic Document Analysis and Retrieval (“SEDAR”).

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2020 Third Quarter Results

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Pension Plans

As at September 30, 2020, Superior had an estimated net defined benefit going concern surplus of approximately $22.2 million (December 31, 2019 – $25.9 million surplus) and a net pension solvency deficiency of approximately $1.0 million (December 31, 2019 – $11.0 million surplus) between its two defined benefit pension plans. Funding requirements 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.

Contractual Obligations and Other Commitments

			As at September 30,	As at September 30,	2020
(millions ofdollars)	Note (1)	Total	Current	Years2-3	Years4-5	Thereafter
Borrowing	10	1,590.2	7.0	12.8	1,104.2	466.2
Lease Liabilities	12	258.8	52.0	88.6	55.6	62.6
Operating leases(2)	12	8.6	4.0	4.5	0.1	–
US$ foreign currency forward sales contracts	12	435.1	223.6	172.5	39.0	–
US$/CAD call options(3)	12	42.0	–	30.0	12.0	–
Natural gas, diesel, WTI, butane, propane, and
heating oil(4)	12	109.2	89.2	20.0	–	–
Total contractual obligations		2,443.9	375.8	328.4	1,210.9	528.8

(1) Notes to the September 30, 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 expire 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

As at September 30, 2020, the following shares were issued and outstanding:

	Common shares	Common shares	Preferred shares	Preferred shares
	Issued		Issued
	number	Share	number	Share
	(Millions)	capital	(Millions)	capital
Balance as at December 31, 2019	174.9	$2,339.9	–	$–
Common shares issued under dividend reinvestment plan	1.1	10.4	–	–
Preferred shares issued by a subsidiary	–	–	0.3	353.8
Balance as at September 30, 2020	176.0	$2,350.3	0.3	$353.8

Dividends Declared to Common Shareholders

Dividends declared to Superior’s common 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.

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2020 Third Quarter Results

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Dividends declared to common shareholders for the three months ended September 30, 2020 were $31.8 million or $0.18 per common share compared to $31.4 million or $0.18 per common share 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. Superior suspended the DRIP after payment of the May dividend on June 15, 2020. Superior’s DRIP program will remain in place should Superior elect to reactivate the DRIP, subject to regulatory approval, at a future date.

Preferred Shareholders

On July 13, 2020, Superior issued 260,000 Preferred Shares (the “Preferred Shares”) by its wholly owned subsidiary Superior Plus US Holdings for gross proceeds of US$260 million (CDN $353.8 million). The initial proceeds were recorded as a non-controlling interest within equity and the issuance costs of US$13.4 million (CDN $18.1 million) were allocated to Superior’s deficit.

The Preferred Shares entitle the holders to a cumulative dividend of 7.25% per annum through to the end of Superior’s second fiscal quarter in 2027. If dividends are paid on the common shares, Superior is required to pay the dividend in cash on the Preferred Shares, otherwise, the Preferred Share dividends can be paid or accrued at Superior’s option. In the event that Superior declares a dividend on its common shares in excess of $0.06 per month, the holders of the Preferred Shares shall be entitled to an equivalent amount. Superior has the option to redeem all, but not less than all, the Preferred Shares at a date that is seven years after the issue date with not less than 30 days prior written notice to the holders of the Preferred Shares. The preferred shares can be redeemed at US$1,000 per share plus accrued and unpaid dividends. If Superior does not redeem the Preferred Shares, the dividend rate increases by 0.75% per annum for the next four years to a maximum of 10.25%. If the dividends are not paid in cash, the cumulative dividend increases by 1.0% per annum to a maximum of 14.25%.

The Preferred Shares may be exchanged, at the holder’s option, into 30 million common shares of Superior (“Common Shares”) or at Superior’s option, on or after the third anniversary of the issue date if the volumeweighted average price of Superior’s common shares during the then preceding 30 consecutive trading day period, converted to U.S. dollars at the applicable exchange rate, must be greater than 145% of the exchange price. On an as-exchanged basis, the investment currently represents approximately 15% of the diluted outstanding Common Shares. The exchange price of the Preferred Shares will be subject to adjustment from time to time in accordance with the terms of the Preferred Shares. These potential adjustments relate primarily to accrued and unpaid dividends, increased or additional dividends to common shareholders, in instances where there is a share split, share consolidation or a reorganization, the participation rate on the dividend reinvestment plan is greater than 35% and if common shares are issued below market value.

Holders of Preferred Shares will be entitled to vote on an as-exchanged basis for all matters on which holders of Common Shares vote, and to the greatest extent possible, will vote with the holders of Common Shares as a single class.

In the event of any liquidation, winding up or dissolution of Superior, the holders of Preferred Shares are entitled to receive prior, and in preference to, any distribution to the holders of common shares, an amount equal to the greater of a liquidation rate per share of US$1,400 plus accrued and unpaid dividends or the amount receivable had the preferred shares been converted to common shares immediately prior to the liquidation event. In the event that upon liquidation or dissolution, the assets and funds of Superior are insufficient to permit the payment to the holders of Preferred Shares of the full preferential amounts, then the entire assets and funds of Superior legally available for distribution are to be distributed ratably among the holders of Preferred Shares in proportion to the full preferential amount each is otherwise entitled to receive. After the distributions described above have been paid in full, the remaining assets of Superior available for distribution shall be distributed pro-rata to the holder of common shares.

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Dividends to preferred shareholders for the three months ended September 30, 2020 were US$4.1 million (CDN $5.4 million) or US$15.71 (CDN $20.77) per preferred share.

SUMMARY OF CASH FLOW

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

Superior’s primary sources and uses of cash are detailed below:
	Three Months	Ended	Nine Months	Ended
	September 30		September 30
(millions of dollars)	2020	2019	2020	2019
Cash flows from operating activities	17.2	39.2	289.6	314.9
Investing activities:
Purchase of property, plant and equipment and intangible assets	(30.6)	(41.0)	(85.9)	(84.4)
Proceeds on disposal of property, plant and equipment	1.5	2.5	7.8	5.9
Acquisitions,net ofcashacquired	(234.7)	–	(258.4)	(41.1)
Cash flows used in investing activities	(263.8)	(38.5)	(336.5)	(119.6)
Financing activities:
Net repayment of revolving term bank credits and other debt	(26.5)	29.1	(172.7)	(80.2)
Proceeds received from vehicle refinancing	0.8	–	18.1	–
Principal repayment of lease obligations	(13.8)	(8.4)	(39.0)	(30.1)
Proceeds from share issuance, net of costs	335.7	–	335.7	–
Debt issuance costs	–	–	–	(0.5)
Dividends paid to shareholders	(35.1)	(31.4)	(87.6)	(94.4)
Cash flows used in financing activities	261.1	(10.7)	54.5	(205.2)
Net increase (decrease) in cash and cash equivalents during the
period	14.5	(10.0)	7.6	(9.9)
Cash and cash equivalents, beginning of the period	20.8	23.9	26.5	23.9
Effect of translation of foreign currency-denominated cash and
cashequivalents	(1.9)	(0.2)	(0.7)	(0.3)
Cash and cash equivalents, end of theperiod	33.4	13.7	33.4	13.7

Cash flows from operating activities for the three months ended September 30, 2020 were $17.2 million, a decrease of $22.0 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 lower cash-inflows from changes in non-cash operating working capital compared to the prior year quarter due to timing of customer receipts relative to supplier payments.

Cash flow used in investing activities for the three months ended September 30, 2020 was $263.8 million, an increase of $225.3 million from the prior year quarter due to acquisitions completed during the current period compared to none in the prior year quarter partially offset by lower capital expenditures compared to the prior year quarter.

Cash flow from financing activities for the three months ended September 30, 2020 was $261.1 million, an increase of $271.8 million from the prior year quarter, due to the issuance of 260,000 Preferred Shares partially offset by a net repayment of the revolving term bank credit facilities.

Superior Plus Corp.

2020 Third Quarter Results

25

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 September 30, 2020 Superior has hedged approximately 92.5% of estimated U.S. dollar exposure for calendar 2020 and approximately 57.7% 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.

		As at September 30, 2020	As at September 30, 2020	As at September 30, 2020
(US$millions except exchangerates)	Current	2022	2023	2024	2025	Total
Net US$ forward sales	223.6	100.5	72.0	33.0	6.0	435.1
USD/CAD Call Options	–	–	30.0	12.0	–	42.0
Net average external US$/CDN$exchange rate	1.33	1.33	1.36	1.35	1.34	1.34

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 and nine months ended September 30, 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 in the period ended September 30, 2020.

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Effectiveness

An evaluation of the effectiveness of Superior’s DC&P and ICFR was conducted as at September 30, 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 September 30, 2020 with the following exception:

Section 3.3(1) of National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings, states that a company may limit its design of disclosure controls and procedures and internal controls over financial reporting for a business that it acquired not more than 365 days before the end of the financial period to which the certificate relates. Under this section, Superior’s CEO and CFO have limited the scope of the design, and subsequent evaluation, of DC&P and ICFR to exclude controls, policies and procedures of Rymes effective September 1, 2020. Summary financial information pertaining to this acquisition that was included in the unaudited condensed consolidated financial statements of Superior as at September 30, 2020, is as follows:

	Three months ended September 30, 2020 Nine months ended September 30, 2020
Sales Net earnings for theperiod	6.5 6.5 0.2 0.2
	September 30, 2020
Current assets Non-current assets Current liabilities Non-current liabilities	6.6 201.8 5.1 –

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 as well as IAS 20, Government Grants (“IAS 20”) below. 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.

IAS 20, Government Grants

Government grants are recognized initially at fair value when there is reasonable assurance that it will be received and the Company will comply with the conditions associated with the grant. Government grants related to profit or loss are presented as part of Superior’s unaudited condensed consolidated statements of net earnings (loss) and total comprehensive earnings (loss) as a reduction of the related expense.

In response to COVID-19, the Government of Canada implemented the CEWS program. The CEWS program offers qualifying organizations government assistance in the form of a payroll subsidy to offset the cost of employees. The payroll subsidy was recognized as an offset to salary expense as follows:

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	Three	Months Ended	Nine	Months Ended
		September 30		September 30
	2020	2019	2020	2019
Cost of products and services	2.3	–	2.3	–
Selling, distributionand administrative costs	15.3	–	15.3	–
Total	17.6	–	17.6	–

There are no unfulfilled conditions attached to this government assistance. As of September 30, 2020, the above amount is included in trade and other receivables.

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 latter periods. The changes in accounting policies and disclosures that are applicable to Superior are described in Note 2 (D) 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 nonrecurring. 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 a 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.

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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.

Adjusted EBITDA is a significant performance measure used by management and investors to evaluate Superior’s ongoing performance of its businesses. Adjusted EBITDA 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 Adjusted EBITDA.

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.

Per metric tonne amounts

The amounts shown on a per metric tonne (MT) basis are calculated by dividing the dollar amount by the total sales volumes for that respective period. This information is provided for amounts included in the Speciality Chemicals condensed operating results. This information assists users of the financial information to determine trends such as pricing or the average cost to manufacture a MT in the current period compared to prior periods.

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QUARTERLY FINANCIAL AND OPERATING INFORMATION

GAAP Measures

GAAP Measures
(millions of dollars, except per share amounts)	Q3 2020 Q2 2020 Q1 2020	Q4 2019 Q3 2019 Q2 2019 Q1 2019 Q4 2018
Revenue(2)	399.4 450.8 840.2	821.0 450.1 545.8 1036.0 889.2 366.0 195.0 223.7 428.3 323.5 74.6 (59.3) (29.3) 156.6 (48.3) 0.43 (0.34) (0.17) 0.90 (0.28) 0.43 (0.34) (0.17) 0.90 (0.28) 49.9 14.1 48.8 189.1 97.3
Gross profit(2)	166.3 219.8 399.2
Net earnings (loss)	(21.4) 7.5 11.4
Per share, basic	$(0.15) 0.04 0.07
Per share, diluted	$(0.15) 0.04 0.07
Net workingcapital(deficit) (1)	(14.9) (0.8) 144.7

(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, except	Q3	Q2	Q1	Q4	Q3	Q2	Q1	Q4
per share amounts)	2020	2020	2020	2019	2019	2019	2019	2018
Adjusted EBITDA	39.1	67.7	219.3	176.7	48.2	59.7	239.9	153.0
AOCF before transaction
and other costs	12.5	40.8	187.9	145.0	19.2	31.0	211.0	132.7
Per share, basic	$0.06	0.23	1.07	0.83	0.11	0.18	1.21	0.76
Per share, diluted	$0.06	0.23	1.07	0.83	0.11	0.18	1.21	0.76
AOCF	6.3	35.7	182.6	139.4	13.1	17.8	206.0	125.2
Per share, basic	$0.03	0.20	1.04	0.80	0.07	0.10	1.18	0.72
Per share,diluted	$0.03	0.20	1.04	0.80	0.07	0.10	1.18	0.72

(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 see Note 4 in the 2020 unaudited condensed interim consolidated financial statements.

Volumes

Volumes
	Q3 2020	Q2 2020	Q1 2020	Q4 2019	Q32019	Q2 2019	Q1 2019	Q4 2018
Canadian propane sales
volumes (millions of litres)	341	360	729	753	393	437	922	765
U.S. propane sales volumes
(millions of litres)	155	190	422	361	158	201	489	391
Chemical sales volumes
(thousands of MT)	182	172	197	199	210	210	206	202

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Canadian propane sales by end-use application are as follows:	Canadian propane sales by end-use application are as follows:	Canadian propane sales by end-use application are as follows:	Canadian propane sales by end-use application are as follows:	Canadian propane sales by end-use application are as follows:
(millions of litres)	Q3 2020	Q2 2020	Q1 2020	Q4	2019	Q32019	Q2 2019	Q1 2019	Q4 2018
Residential	20	27	66		59	20	26	75	59
Commercial	35	47	123		102	42	57	137	105
Oilfield	15	12	49		55	35	36	58	59
Industrial	52	55	64		58	52	53	68	60
Motor Fuels	35	32	36		41	42	44	40	44
Wholesale	171	172	347		375	190	207	493	385
Other	13	15	44		63	12	14	51	53
Total	341	360	729		753	393	437	922	765

U.S. propane sales by end-use application are as	U.S. propane sales by end-use application are as	U.S. propane sales by end-use application are as	**follows(1): **
(millions of litres)	Q3 2020	Q2 2020	Q1 2020	Q4 2019	Q32019	Q2 2019	Q1 2019	Q4 2018
Residential	59	97	257	215	61	92	305	239
Commercial	91	88	153	137	90	100	162	132
Wholesale	5	5	12	9	7	9	22	20
Total	155	190	422	361	158	201	489	391

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

Specialty Chemicals sales volumes by product are as follows:	Specialty Chemicals sales volumes by product are as follows:	Specialty Chemicals sales volumes by product are as follows:	Specialty Chemicals sales volumes by product are as follows:	Specialty Chemicals sales volumes by product are as follows:	Specialty Chemicals sales volumes by product are as follows:	Specialty Chemicals sales volumes by product are as follows:
(thousands of MT)	Q3 2020	Q2 2020		Q1 2020		Q4 2019		Q32019	Q2 2019	Q1 2019	Q4 2018
Sodium chlorate	103		106	119			120	122	120	118	117
Chlor-alkali	77		65	77			78	86	88	87	84
Chlorite	2		1	1			1	2	2	1	1
Total	182		172	197			199	210	210	206	202

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

	(millions of dollars)	Canadian	Canadian
	For the Three Months Ended	Propane U.S. Propane Specialty
	September 30, 2020	Distribution Distribution Chemicals		Corporate Total
	Earnings (loss) before income taxes	1.0 (36.9) 7.7		(5.1)	(33.3)
	Add: Depreciation and amortization included in
	selling, distribution and administrative costs	18.9 30.0 7.5		0.3	56.7
	Depreciation included in cost of sales	– – 10.6		–	10.6
	Loss on disposal of assets and other	0.8 0.6 –		–	1.4
	Finance expense	1.0 1.3 1.8		20.2	24.3
	Unrealized gains on derivative financial
	instruments	(0.3) (2.2) (1.0)		(23.3)	(26.8)
	Transactionand othercosts	0.2	3.2 1.7	1.1	6.2
	Adjusted EBITDA	21.6	(4.0) 28.3	(6.8)	39.1

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	Canadian
(millions of dollars)	Propane	U.S. Propane	Specialty
FortheThreeMonthsEnded September30,2019	Distribution	Distribution	Chemicals	Corporate	Total
Earnings (loss) before income taxes	(5.6)	(51.9)	18.3	(42.6)	(81.8)
Add: Depreciation and amortization included in
selling, distribution and administrative costs	18.3	31.9	7.4	–	57.6
Depreciation included in cost of sales	–	–	11.1	–	11.1
Loss on disposal of assets and other	(0.9)	–	0.3	–	(0.6)
Finance expense	1.3	1.2	2.0	24.6	29.1
Unrealized losses on derivative financial
instruments	7.5	7.4	0.6	11.2	26.7
Transactionand othercosts	0.3	4.4	–	1.4	6.1
Adjusted EBITDA	20.9	(7.0)	39.7	(5.4)	48.2
(millions of dollars)	Canadian		Specialty
For the Nine Months Ended	Propane	U.S. Propane	Specialty
September 30, 2020	Distribution	Distribution	Chemicals	Corporate	Total
Earnings (loss) before income taxes	72.1	37.0	28.9	(102.7)	35.3
Add: Depreciation and amortization included in
selling, distribution and administrative costs	55.8	85.0	22.7	0.6	164.1
Depreciation included in cost of sales	–	–	30.6	–	30.6
Loss on disposal of assets and other	0.8	1.9	–	–	2.7
Finance expense	3.4	4.2	5.7	66.9	80.2
Unrealized (gains) losses on derivative financial
instruments	(3.2)	(11.4)	1.4	9.8	(3.4)
Transactionand othercosts	0.5	9.8	1.5	4.8	16.6
Adjusted EBITDA	129.4	126.5	90.8	(20.6)	326.1
(millions of dollars)	Canadian Propane	U.S. Propane	Specialty
Forthe NineMonthsEnded September30,2019	Distribution	Distribution	Chemicals	Corporate	Total
Earnings (loss) before income taxes	65.5	25.1	37.1	(63.6)	64.1
Add: Depreciation and amortization included in
selling, distribution and administrative costs	52.8	81.6	21.9	0.2	156.5
Depreciation included in cost of sales	–	–	33.9	–	33.9
(Gain) loss on disposal of assets and other	(1.9)	0.8	16.9	–	15.8
Finance expense	3.4	3.3	5.8	73.9	86.4
Unrealized gains (losses) on derivative financial
instruments	4.9	6.2	(1.9)	(42.4)	(33.2)
Transactionand othercosts	0.5	14.2	4.2	5.4	24.3
Adjusted EBITDA	125.2	131.2	117.9	(26.5)	347.8

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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

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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

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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 natural gas, electricity and fuel oil, 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 aftermarket 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.

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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

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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

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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 26% 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.

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