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Equity Price Risk
Equity price risk is the risk of volatility in earnings as a result of volatility in Superior's share price. Superior has equity price risk exposure to the notional shares that it issues under various forms of share based-compensation programs, which affect earnings when outstanding shares are revalued at each reporting period. Superior uses equity derivatives to manage volatility derived from its share-based compensation program.
As at December 31, 2012, Superior estimates that a 10% increase in its share price would have resulted in a $0.8 million increase in earnings due to the revaluation of equity derivative contracts.
Superior's contractual obligations associated with its financial liabilities are as follows:
2018 and 2013 2014 2015 2016 2017 Thereafter Total----------------------------------------------------------------------------Borrowing 59.7 48.0 368.3 158.4 4.0 1.2 639.6Convertible unsecured subordinated debentures 50.0 67.4 24.1 72.0 167.6 144.0 525.1US$ foreign currency forward sales contracts (US$) 218.0 171.0 144.0 92.4 24.0 - 649.4US$ foreign currency forward purchases contracts (US$) (39.0) (27.0) - - - - (66.0)CDN$ natural gas purchases 15.5 2.8 0.8 0.4 0.2 - 19.7US$ heating oil purchases (US$) 0.2 - - - - - 0.2CDN$ propane purchases (CDN$) 3.3 0.1 0.1 - - - 3.5US$ propane purchases (US$) 1.3 - - - - - 1.3Fixed-price electricity purchase commitments - 17.7 17.7 17.7 17.7 - 70.8--------------------------------------------------------------------------------------------------------------------------------------------------------
Superior's contractual obligations are considered normal-course operating commitments and do not include the impact of mark-to-market fair values on financial and non-financial derivatives. Superior expects to fund these obligations through a combination of cash flow from operations, proceeds on revolving term bank credits and proceeds on the issuance of share capital. Superior's financial instruments' sensitivities as at December 31, 2012 are consistent with those disclosed in Superior's 2011 annual consolidated financial statements.
14. 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 United States income tax and Chilean income tax.
Total income tax (expense) recovery, comprised of current taxes and deferred taxes for the three and twelve months ended December 31, 2012 was $0.9 million and $(9.0) million, respectively, compared to $43.7 million and $50.4 million in the comparative periods. Income taxes were impacted by higher net earnings and the prior year period was impacted by the impairment charge of $78.0 million. For the three and twelve months ended December 31, 2012, deferred income tax recovery (expense) from operations in Canada, the United States and Chile was $1.2 million and $(7.9) million, respectively, which resulted in a corresponding total net deferred income tax asset of $300.6 million. The deferred income tax recovery for the three and twelve months ended December 31, 2011 was a $45.1 million and $51.9 million, respectively.
