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. Refer to Superior's 2012 Annual MD&A for further details on financial instrument risk management.
As at March 31, 2013, Superior has hedged approximately 84% of its estimated US dollar exposure for 2013. The estimated sensitivity of adjusted operating cash flow for Superior, including divisional US exposures and the impact on US-denominated debt with respect to a $0.01 change in the Canadian to United States exchange rate for 2013 is $0.3 million after giving effect to United States forward contracts for 2013, as shown in the table below. Superior's sensitivities and guidance are based on an anticipated average Canadian to US dollar foreign currency exchange rate for 2013 of par.
----------------------------------------------------------------------------(US$ millions except 2018 and exchange rates) 2013 2014 2015 2016 2017 Thereafter Total----------------------------------------------------------------------------Energy Services - US$ forward sales 14.0 26.0 26.0 - - - 66.0Construction Products Distribution - US$ forward sales 18.0 12.0 12.0 12.0 - - 54.0Specialty Chemicals - US$ forward sales 112.5 175.0 130.0 101.4 51.0 - 569.9Corporate - US$ forward purchases (39.0) (27.0) - - - - (66.0)----------------------------------------------------------------------------Net US $ forward sales 105.5 186.0 168.0 113.4 51.0 - 623.9--------------------------------------------------------------------------------------------------------------------------------------------------------Energy Services - Average US$ forward sales rate 1.05 1.01 1.01 - - - 1.02Construction Products Distribution - Average US$ forward sales rate 1.07 1.00 1.00 1.03 - - 1.03Specialty Chemicals - Average US$ forward sales rate 1.04 1.03 1.00 1.04 1.04 - 1.03Corporate - US$ forward purchases rate 1.01 1.01 - - - - 1.01----------------------------------------------------------------------------Net average external US$/CDN$ exchange rate 1.05 1.02 1.00 1.04 1.04 - 1.03--------------------------------------------------------------------------------------------------------------------------------------------------------
For additional details on Superior's financial instruments, including the amount and classification of gains and losses recorded in Superior's third quarter condensed 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 consolidated financial statements.
