OFF-BALANCE SHEET ARRANGEMENTS
We do not have any material off-balance sheet arrangements.
SENSITIVITIES
Our stock-based compensation expense is sensitive to changes in our share price. At December 31, 2012, a $1 change in our share price between $12 per share and $18 per share has a $3.0 - $4.0 million direct impact on annual stock-based compensation reflected in SG&A. We anticipate that approximately 55% of stock-based compensation will be settled in cash in future periods.
Our revenue is sensitive to changes in commodity prices for crude oil, base oils and lead. These factors have both a direct and indirect impact on our business. The direct impact of these commodity prices is reflected in the revenue received from the sale of products such as crude oil, base oils and lead. Historically approximately 25% of our revenue is sensitive to direct impact of commodity prices. The indirect impact is the effect that the variations of these factors, including natural gas, has on activity levels of our customers and, therefore, demand for our services. Management actively manages the indirect impact by strategically geographically balancing mobile assets to meet demand and shifts in activity levels where necessary. The indirect impacts of these fluctuations previously discussed are not quantifiable.
The following table provides management's estimates of fluctuations in key inputs and prices and the direct impact on revenue from product sales and SG&A:
---------------------------------------------------------------------------- Change in Impact on benchmark ($) Annual Revenue ($)----------------------------------------------------------------------------LME lead price ($U.S./MT)(1)(2) 220 7.7 millionEdmonton Par crude oil price ($/bbl)(1) 1.00 0.3 millionBow River crude oil price ($/bbl)(1) 1.00 0.3 millionMotiva Base oil ($/litre)(3)(4) 0.05 0.8 million----------------------------------------------------------------------------
(1) Based on 2012 performance and volumes
(2) Excludes impact of LME on feedstock which offsets the impact of LME on revenue.
(3) In 2011, we changed our base oil benchmark from the Gulf Coast to Motiva to reflect the improved quality of our recycled oil.
(4) Based on 2012 volumes of 18 million litres
RISK MANAGEMENT
To effectively manage the risk associated with our business and strategic objectives, we continue to implement an enterprise risk management (ERM) system. This process provides the framework to understand and prioritize risks faced by our organization. We use a matrix to identify and analyze the potential impact, probability and risk mitigation strategy for each key risk. Risk categories identified include:
-- Strategic - risk to earnings, capital, and strategic objectives arising due to changes in the business environment-- Operational - risk of loss due to failed internal processes and systems, human and technical errors, or external events-- Financial - risk associated with financial processes, obligations, and assets-- People - risk to Business Plan due to recruiting, training, labour availability, union relations, and managerial structure-- Legal/Regulatory - risk of loss due to compliance with laws, ethical standards, disclosure, and contractual obligations-- Technology and Data - risk that IT systems are not adequate to support strategic and business objectives
