Interest on Superior's convertible unsecured subordinated debentures ("Debentures" which include all series of convertible unsecured subordinated debentures) for the first quarter was $7.9 million compared to $9.2 million in the prior year quarter. The decrease was due to the redemption of $49.9 million of Superior's 5.75% convertible subordinated debentures due December 31, 2012 on August 1, 2012 and $50.0 million of Superior's 5.85% convertible subordinated debentures due October 31, 2015 on January 3, 2013.
Income Taxes
Total income tax recovery for the first quarter was $15.8 million and consists of $0.4 million in cash income tax expense and $15.4 million in deferred income tax expense, compared to a total income tax expense of $6.1 million in the prior year quarter, which consisted of $0.2 million in cash income tax expense and a $5.9 million deferred income tax expense.
Cash income tax expense for the first quarter was $0.4 million and consisted of income tax expense in the U.S. of $0.4 million (2012 Q1 - $0.2 million of U.S. cash tax expense). Deferred income tax expense for the first quarter was $15.4 million (2012 Q1 - $6.1 million deferred income tax expense), resulting in a corresponding net deferred income tax asset of $283.8 million as at March 31, 2013. The increase in deferred income tax expense was due to higher net earnings compared to the prior year quarter.
Canada Revenue Agency (CRA) Income Tax Update
As anticipated in Superior's previous disclosure, Superior received on April 2, 2013 from the CRA Notices of Reassessment for Superior's 2009 and 2010 taxation years reflecting the CRA's intent to challenge the tax consequences of Superior's corporate conversion transaction (Conversion) which occurred on December 31, 2008. The CRA's position is based on the acquisition of control rules, in addition to the general anti-avoidance rules in the Income Tax Act (Canada). The table below summarizes Superior's estimated tax liabilities and payment requirements associated with the received and anticipated Notices of Reassessment.
---------------------------------------------------------------------------- Taxes Payable 50% of the Taxes Taxation Year (1)(2) Payable (1)(2) Payment Dates---------------------------------------------------------------------------- 2009/2010 $13.0 $6.5 Paid in April 2013 2011 $10.0 (3) $5.0 Q2 2013 2012 $10.0 (3) $5.0 Q3 2013 2013 $20.0 (3) $10.0 Q3 2014---------------------------------------------------------------------------- Total $53.0 $26.5--------------------------------------------------------------------------------------------------------------------------------------------------------(4) In millions of dollars(5) Includes estimated interest and penalties.(6) Estimated based on Superior's previously filed tax returns and the midpoint of Superior's 2013 outlook.
Superior has 90 days from the initial Notice of Reassessment to prepare and file a Notice of Objection which would be reviewed by the CRA's appeals division. Superior anticipates filing a Notice of Objection in the next 30 days. After 90 days if the CRA has not responded or settled the Notice of Objection with Superior, then an application can be made to the Tax Court of Canada. Superior anticipates that if the application proceeds in the Tax Court of Canada a decision could be rendered by the end of fiscal 2014. If a decision of the Tax Court of Canada were to be appealed, the appeal process could reasonably be expected to take an additional 2 years. If Superior receives a positive decision then any taxes, interest and penalties paid to the CRA will be refunded plus interest and if Superior is unsuccessful then any remaining taxes payable plus interest and penalties will have to be remitted.
