FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange act of 1934
For the month of February 2003
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Marsulex Inc.
111 Gordon Baker Road, Suite 300
North York, ON
M2H 3R1
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F:
Form 20-F __X__ Form 40-F ______
Indicate whether the registrant by furnishing the information contained in
this Form is also thereby furnishing the information to the Commission
pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes ______ No ___X___
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DOCUMENT INDEX
Dcoument Page No.
- -------- --------
1. News Release dated February 27, 2003 4
2. Review of 2002 Operations and Fourth Quarter and
Year End 2002 Results 7
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Document 1
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MARSULEX ANNOUNCES FOURTH QUARTER AND YEAR END 2002 RESULTS
TORONTO, February 27, 2003 - Marsulex Inc. (TSX: MLX) today announced earnings
before interest, tax, depreciation and amortization (EBITDA1) from continuing
operations of $28.1 million for the year ended December 31, 2002, up $1.1
million from the pro forma EBITDA of $27.0 million for the previous year.
Revenue for the year was $138.3 million. The 2001 pro forma results exclude
the results of the eastern sulphur removal services assets sold to Chemtrade
Logistics Income Fund (the Chemtrade Transaction) on July 18, 2001.
The Company incurred a $0.2 million loss from continuing operations for the
year before the impact of unusual items that includes a write-off of
capitalized project costs of $9.5 million related to the previous announcement
that the Santee Cooper project would not proceed at this time. The net loss
for the year was $7.7 million ($0.24 per share basic) compared with net
earnings for 2001 of $63.5 million ($2.02 per share basic), which included a
net gain of $70 million on the Chemtrade Transaction.
For the three months ended December 31, 2002, EBITDA from continuing
operations was $7.0 million (2001: $6.9 million). Revenue was $33.0 million
(2001: $43.0 million) and earnings were $0.1 million before the write-off of
capitalized project costs. The net loss for the period was $9.4 million (2001:
$0.6 million).
Marsulex President and Chief Executive Officer, David Gee, said he was pleased
with the results, which met the Company's expectations of modest growth for
2002. "Our Refinery Services and Western Markets groups each performed well
under the difficult economic conditions faced by key customers, and the Power
Generation group continued to invest in new air quality control technologies
for power generators that are looking very promising."
"Our narrowed focus on our core business of providing innovative outsourced
solutions for our customers' environmental compliance needs generates
long-term fee-based relationships that result in sustainable high quality
earnings largely independent of business cycles and commodity price
fluctuations," Mr. Gee said. He noted that over 50% of the Company's revenue
is now fee-based compared with less than 40% in 2000, and in the Refinery
Services group, approximately 90% of EBITDA was generated from fees in 2002.
"The positive impact of this can be seen in our EBITDA margin which, on a
rolling four quarters basis, has increased in every quarter for the past two
years, rising from 14.6% in the first quarter of 2001 to 20.3% in the fourth
quarter of 2002."
At the end of the fourth quarter, Marsulex acquired the remaining 35% of
Sulconam Inc., which operates the Refinery Services group's Montreal facility,
for an aggregate price of $16.6 million. The acquisition will enable the
operations to be fully integrated into Marsulex and make a positive
contribution to net earnings. In 2002, the minority interest in Sulconam
reduced earnings attributable to Marsulex by $1.6 million ($0.05 per share
basic).
During the year the Company also repurchased $69.5 million (US$44.2 million)
principal amount of its 9-5/8% Senior Subordinated Notes, fulfilling an
obligation under the terms of the indenture that arose as a result of the
Chemtrade Transaction. The repurchase has reduced interest costs by
approximately $6.7 million (US$4.3 million) per year.
-more-
<page>
-2-
Comparison of the full year results for the Company and its operating groups
with the same period last year are affected by the Chemtrade Transaction and
by the disposition of the Power Generation group's parts and service business
at the end of January 2002 and its mechanical collectors business in the third
quarter of last year. Contributions of the eastern North American sulphur
removal services assets are included in Western Markets' results for the year
ended December 31, 2001 and the results of Refinery Services are similarly
impacted by changes to certain contractual relationships that were
restructured as a result of the Chemtrade Transaction.
Marsulex, which is based in Toronto, Ontario, is a global provider of
outsourced environmental compliance solutions. The company's services
encompass the complete outsourcing of environmental compliance activities
including the ownership and operation of compliance assets. Website:
www.marsulex.com.
- ----------------
A conference call with analysts to review the 2002 results will be webcast
live on www.newswire.ca/webcast on Friday, February 28, 2003 at 10:00 a.m.
-----------------------
(1) EBITDA is defined as earnings before interest, tax, depreciation and
amortization, and can be calculated using the financial statement items of
earnings (loss) from continuing operations before income taxes, minority
interest and amortization of goodwill adjusted to exclude the impact of
interest expense, amortization of deferred charges, foreign exchange gains
(losses), unusual gains (losses), depreciation gains (losses) on disposal
of property, plant and equipment and interest income. Management considers
EBITDA to be a meaningful indicator of the Company's ability to service
and/or incur debt, however, it is not a defined measure of operating
performance under Canadian generally accepted accounting principles
(GAAP). Marsulex's calculation of EBITDA may be different than the
calculation used by other entities.
This news release may contain forward-looking statements. These statements are
based on current expectations that are subject to risks and uncertainties, and
the Company can give no assurance that these expectations are correct. Various
factors could cause actual results to differ materially from those projected
in such statements, including financial considerations and those predicting
the timing and market acceptance of future products. The Company disclaims any
intention or obligation to revise forward-looking statements whether as a
result of new information, future developments or otherwise. All
forward-looking statements are expressly qualified in their entirety by this
Cautionary Statement.
# # # #
For further information:
David M. Gee or Laurie Tugman
President and CEO Executive Vice President & CFO
Tel: (416) 496-4178 Tel: (416) 496-4157
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Document 2
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MARSULEX INC.
Review of 2002 Operations
Refinery Services
For the year ended December 31, 2002, the Refinery Services group reported
EBITDA of $21.6 million (2001: $22.6 million), reflecting the tough operating
conditions faced by oil refiners for most of the year.
The group's Toledo spent acid plant had record throughput and reliability in
2002 and the Montreal facility also performed strongly throughout the year,
with improved contribution from H2S processing and sales of sodium bisulphite
by-product from the tail gas recovery plant.
In the third quarter, the new site emissions facility at the BP refinery in
Whiting, Indiana was completed and BP now operates the plant. Results for the
second half of the year reflect fees earned from the new facility.
Construction began during the year on the environmental compliance facilities
at the Syncrude Upgrader Expansion project in Mildred Lake, Alberta. The
facilities will utilize Marsulex's proprietary ammonium sulphate scrubber
technology and use internally generated waste ammonia to produce granular
ammonium sulphate, a highly saleable fertilizer. Marsulex will own and operate
a portion of the facilities.
As a result of fixed price contracts Marsulex has in place, it is not expected
that the current labour conditions in the Fort McMurray area will have any
impact on the timing or capital cost of the Company's project.
Western Markets
The Western Markets group had a record year, reporting EBITDA of $18.3 million
compared with $16.7 million in 2001 after allowing for the effects of the
inclusion of the eastern sulphur removal assets until July 18, 2001.
The group recorded higher product sales despite difficult market conditions
for the pulp and paper industry, one of its key customer segments. Revenue
also reflected strong seasonal demand for water treatment chemicals in the
spring. The group achieved cost reductions in the business, enabling it to
pass on some of the savings to customers and improve competitiveness and, at
the same time, margins.
Power Generation
The Power Generation group successfully completed the transition to an
outsourced environmental compliance services provider with the sale of its
parts and service business and licensing of Marsulex's wet limestone/gypsum
and dry lime FGD technologies to Hamon-Cottrell in January 2002. The
relationship with Hamon and other international licensees will continue to
generate licensing fees for the group.
The group reported revenue of $15.0 million for the year. After on-going
investment in strategic development of the business, EBITDA for the group in
2002 was a loss of $2.0 million compared to a loss of $1.4 million in 2001.
Marsulex made excellent progress during the year on development of its sulphur
trioxide control solution for power utilities. A strategic alliance was formed
with two industry leaders and the Company filed preliminary patents for the
process. Marsulex has trademarked the name CleanStack for the process and is
actively marketing the service to a targeted group of power generators.
<page>
Outlook
The Company's well-established core businesses are expected to perform well
and deliver improved overall results in 2003. It is anticipated that Refinery
Services will post higher results for the year as a result of the stability of
the Company's commercial agreements, strong plant performance, and the impact
of cost savings measures implemented late in 2002. Western Markets is expected
to return to more normal levels of operations, following the exceptionally
strong year in 2002.
The Company's continuing investment in compliance solutions for the power
generation sector, including the launch of its new SO3 control technology, is
expected to somewhat offset the core businesses gains, yielding overall
results comparable to 2002.
MARSULEX INC.
Consolidated Balance Sheets
(in thousands of dollars)
- ------------------------------------------------------------------------------------- -------------------- ---------------------
December 31, December 31,
2002 2001
- ------------------------------------------------------------------------------------- -------------------- ---------------------
Assets
Current assets:
Cash and cash equivalents $ 7,940 $118,148
Accounts receivable 25,332 32,050
Due from Chemtrade Logistics (note 5c) 900 4,000
Note from Chemtrade Logistics (note 5c) -- 4,305
Inventories 1,888 3,217
Future tax asset 267 1,171
Prepaid expenses and other assets 1,102 931
- ------------------------------------------------------------------------------------- -------------------- ---------------------
37,429 163,822
Property, plant and equipment 134,424 111,873
Deferred charges and other assets, net of accumulated amortization 5,337 8,698
Goodwill and intangible assets, net of accumulated amortization (notes 3b and 7a) 61,831 58,899
- ------------------------------------------------------------------------------------- -------------------- ---------------------
$239,021 $343,292
===================================================================================== ==================== =====================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 9,207 $ 11,274
Accrued liabilities 11,348 21,259
Income taxes payable 838 1,453
Current portion of long-term debt -- 41,885
- ------------------------------------------------------------------------------------- -------------------- ---------------------
21,393 75,871
Long-term debt 95,943 125,654
Deferred revenues 1,818 2,113
Other liabilities 9,888 9,993
Future tax liability 17,844 18,512
Minority interest (note 7a) -- 9,995
Shareholders' equity:
Capital stock (note 8) 57,625 57,505
Retained earnings 31,865 39,552
Foreign currency translation adjustment 2,645 4,097
- ------------------------------------------------------------------------------------- -------------------- ---------------------
92,135 101,154
- ------------------------------------------------------------------------------------- -------------------- ---------------------
$239,021 $343,292
===================================================================================== ==================== =====================
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MARSULEX INC.
Consolidated Statements of Operations
(in thousands of dollars, except per share amounts)
- ---------------------------------------------------------------------------------------------------------------------------------
Three months ended Year ended
December 31 December 31
(unaudited)
- ---------------------------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
(restated (restated
note 3c) note 3c)
- ---------------------------------------------------------------------------------------------------------------------------------
Revenue $ 33,043 $ 43,038 $138,291 $236,714
Cost of sales and services 20,753 31,720 89,970 170,354
- ---------------------------------------------------------------------------------------------------------------------------------
Gross profit 12,290 11,318 48,321 66,360
Selling, general, administrative and other costs 5,256 4,378 20,178 26,744
Loss on disposal of property, plant and equipment -- 59 20 59
Depreciation 4,642 3,192 15,607 15,117
Unusual items (note 4) 9,848 (1,445) 7,487 (55,556)
Foreign exchange loss (gain) (note 3c) -- (77) -- 968
Amortization of deferred charges (4) 146 387 1,074
Interest income (228) (1,010) (1,942) (3,141)
Interest expense 1,770 4,006 11,112 17,020
- ---------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations before income taxes, (8,994) 2,069 (4,528) 64,075
minority interest and amortization of goodwill
Income taxes (recovery):
Current 1,002 1,543 2,706 5,491
Future (1,003) 327 (1,155) 6,784
- ---------------------------------------------------------------------------------------------------------------------------------
(1) 1,870 1,551 12,275
- ---------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations before minority interest
and amortization of goodwill (8,993) 199 (6,079) 51,800
Minority interest 414 365 1,595 1,403
- ---------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations before amortization of
goodwill (9,407) (166) (7,674) 50,397
Amortization of goodwill, net of income taxes (note 3b) -- 400 -- 3,555
- ---------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations (9,407) (566) (7,674) 46,842
Earnings from discontinued operations, net of tax (note 5b) -- -- -- 16,644
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ (9,407) $ (566) $ (7,674) $ 63,486
==================================================================================================================================
Earnings (loss) per share Basic:
Before amortization of goodwill $(0.30) $(0.01) $(0.24) $1.60
From continuing operations $(0.30) $(0.02) $(0.24) $1.49
Net earnings (loss) $(0.30) $(0.02) $(0.24) $2.02
Diluted:
Before amortization of goodwill $(0.30) $(0.01) $(0.24) $1.59
From continuing operations $(0.30) $(0.02) $(0.24) $1.48
Net earnings (loss) $(0.30) $(0.02) $(0.24) $2.00
Consolidated Statement of Retained Earnings (Deficit)
For the year ended December 31, 2002 with comparative figures
for 2001 (in thousands of dollars)
==================================================================================================================================
2002 2001
- ----------------------------------------------------------------------------------------------------------------------------------
Retained earnings (deficit), beginning of year:
As previously reported $39,552 $(22,412)
Adjustment on adoption of new foreign currency translation standard (note 3c) -- (1,522)
- ----------------------------------------------------------------------------------------------------------------------------------
As restated 39,552 (23,934)
Premium on common stock purchased for cancellation (note 8a) (13) --
Net earnings (loss) (7,674) 63,486
- ----------------------------------------------------------------------------------------------------------------------------------
Retained earnings, end of year $31,865 $39,552
==================================================================================================================================
MARSULEX INC.
Consolidated Statements of Cash Flow
(in thousands of dollars)
- ---------------------------------------------------------------------------------------------------------------------------------
Three months ended Year ended
December 31 December 31
(unaudited)
- ---------------------------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
(restated (restated
note 3c) note 3c)
- ---------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in):
Operating activities:
Net earnings (loss) $ (9,407) $(566) $(7,674) $63,486
Items not affecting cash:
Earnings from discontinued operations -- -- -- (16,644)
Depreciation 4,642 3,192 15,607 15,117
Loss on disposal of property, plant and equipment -- 59 20 59
Gain on disposal of sulphur removal assets -- -- -- (64,768)
Expenses incurred on early retirement of debt -- (1,445) 1,185 2,899
Write-off of deferred charges -- -- -- 3,619
Gain on disposal of parts and services business and other assets (402) -- (4,014) --
Write-off of capitalized project costs 9,508 -- 9,508 --
Amortization of deferred charges and foreign exchange loss (gain) (4) 69 387 2,042
Amortization of goodwill -- 1,187 -- 4,802
Future income taxes (1,003) (98) (1,155) 6,171
Minority interest 414 365 1,595 1,403
Other non cash items 749 (90) 235 1,158
- ---------------------------------------------------------------------------------------------------------------------------------
4,497 2,673 15,694 19,344
Increase (decrease) in non-cash operating working capital 3,731 10,519 (5,541) (4,612)
- ---------------------------------------------------------------------------------------------------------------------------------
Cash provided by continuing operations 8,228 13,192 10,153 14,732
Cash used in discontinued operations (note 5b) -- -- -- (3,723)
Financing activities:
Issuance of common stock (note 8b) -- -- 133 --
Repurchase of common stock (note 8a) -- -- (27) --
Repayment of long-term debt (note 5d and note 10) -- -- (69,492) (37,723)
Cash used in discontinued operations (note 5b) -- -- -- (380)
- ---------------------------------------------------------------------------------------------------------------------------------
-- -- (69,386) (38,103)
Investing activities:
Proceeds on disposals of property, plant and equipment (notes 5 & 6) -- -- 3,358 128,991
Additions to property, plant and equipment (15,467) (15,712) (40,977) (29,775)
Increase in deferred charges -- (2,945) -- (5,851)
Acquisitions (note 7) (16,590) -- (16,590) (2,979)
Decrease (increase) in other assets 789 -- (241) --
Note from Chemtrade Logistics (note 5c) -- -- 4,305 (4,305)
Cash provided by discontinued operations (note 5b) -- -- -- 28,269
- ---------------------------------------------------------------------------------------------------------------------------------
(31,268) (18,657) (50,145) 114,350
Foreign exchange gain (loss) on cash held in foreign currency -- 69 (830) (1,107)
- ---------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (23,040) (5,396) (110,208) 86,149
Cash and cash equivalents - beginning of period 30,980 123,544 118,148 31,999
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents - end of period $ 7,940 $118,148 $ 7,940 $118,148
=================================================================================================================================
<page>
MARSULEX INC.
Notes to Consolidated Financial Statements
1. Basis of presentation
The unaudited interim period consolidated financial statements have been
prepared by the Company in accordance with Canadian generally accepted
accounting principles. The preparation of the financial data is based on
accounting policies and practices consistent with those used in the
preparation of the audited annual consolidated statements except for the
change in accounting policies described in note 3 below. These unaudited
interim period financial statements do not include all the disclosures
required by generally accepted accounting principles and accordingly
should be read together with the audited annual consolidated financial
statement and the accompanying notes included in the Company's 2001
Annual Report.
2. Certain 2001 balances have been reclassified to conform to presentation
adopted in 2002.
3. Changes in accounting policies:
Effective January 1, 2002, the Company adopted the new recommendations of
the CICA. The adoption of Handbook Section 3870, "Stock-based
compensation and other stock-based payments", had no impact on the
Company's previously stated policy of accounting for stock options
granted to employees as capital transactions. The adoption of certain
provisions of Section 1581, "Business Combinations" relating to goodwill
and intangible assets, and Section 3062, "Goodwill and other intangible
assets", did not have an impact on the financial statements. The
revisions to Section 1650, "Foreign Currency Translation" resulted in a
decrease to the January 1, 2001 opening retained earnings of $1.5 million
relating to the treatment of foreign currency translation for long-term
debt. The details of the accounting policy changes are noted below:
a. Stock Compensation
As permitted by the new standards, the Company continues to follow
the settlement method to account for stock options granted to
employees. Using this method, no expense is recognized for stock
options as the strike price is set at the market price on the day the
awards are issued. When the stock options are exercised, the proceeds
received by the Company are credited to common stock. The new
recommendations are applied prospectively to all stock-based payments
to non-employees, and to employee awards that are direct awards of
stock, call for settlement in cash or other assets, or are stock
appreciation rights that call for settlement by the issuance of
equity instruments, granted on or after January 1, 2002, except
grants outstanding at January 1, 2002 that call for settlement in
cash or other assets or stock appreciation rights that call for
settlement in equity instruments which are accounted for using the
fair value method. Had the Company elected to recognize the cost of
its stock-based compensation based on the estimated fair value of
stock options granted subsequent to January 1, 2002, the Company's
results would have been as follows:
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Three months ended Twelve months ended
(in thousand of dollars, except per share amounts) December 31, 2002 December 31, 2002
-----------------------------------------------------------------------------------------------------------------
Loss as reported $(9,407) $(7,674)
Adjustment for stock options (91) (232)
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Pro forma net earnings $(9,498) $(7,906)
-----------------------------------------------------------------------------------------------------------------
Pro forma basic earnings per share $(0.30) $(0.25)
Pro forma diluted earnings per share $(0.30) $(0.25)
-----------------------------------------------------------------------------------------------------------------
The fair value of each stock option granted in 2002 is estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
-----------------------------------------------------------------------------------------------------------------
Twelve months ended
December 31, 2002
-----------------------------------------------------------------------------------------------------------------
Weighted-average exercise price $3.95
Weighted-average fair value of options granted during the year $2.13
Expected life of options (years) 10
Expected stock price volatility 30%
Expected dividend yield 0%
Risk-free interest rate 5.6%
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<page>
MARSULEX INC.
Notes to Consolidated Financial Statements
Page 2
b. Business combinations and goodwill and other intangible assets:
Effective July 2001, generally accepted accounting standards require
that the purchase method of accounting be used for all business
combinations and specifies criteria that intangible assets acquired
in a business combination must meet to be recognized and reported
separately from goodwill. The Company did not have any intangible
assets which would be classified separately from goodwill. Further,
effective January 1, 2002 generally accepted accounting standards
require that goodwill no longer be amortized, but instead tested for
impairment at least annually by comparing carrying value of the
reporting unit to the respective fair value in accordance with the
provisions of Section 3062. The standard was implemented
prospectively and as a result, the amortization of goodwill ceased.
A review of business combinations prior to July 1, 2001 was performed
by the Company with no changes required to the book values of
goodwill and no previously unrecognized intangible assets were
recorded. The Company has also performed the initial and annual
impairment test for goodwill and has determined that there is no
impairment of the book value of goodwill. Had this new standard been
applied in the three months and the twelve months ended December 31,
2001 net earnings would have increased by $0.4 million (1.3 cents
basic and diluted earnings per share) and $3.6 million (11.3 cents
basic and 11.2 cents diluted earnings per share), respectively.
c. Foreign currency translation:
Effective January 1, 2002, generally accepted accounting standards
were amended to eliminate the deferral and amortization of foreign
currency translation differences resulting from the translation of
long-term monetary assets and liabilities denominated in foreign
currencies. All such translation differences that the Company
previously deferred and amortized are now charged directly to
earnings. Prior year financial statements have been restated
retroactively to adopt this new Section resulting in net earnings
increasing $1.5 million for the three months ended December 31, 2001
(4.8 cents basic and diluted earnings per share for the three months
ended December 31, 2001). The balance of retained earnings at January
1, 2001 has been decreased by $1.5 million to reflect the cumulative
effect of the change on periods prior to that date.
4. Unusual items:
a. Summary of unusual items:
=================================================================================================================
(in thousand of dollars) Three months ended Twelve months ended
December 31 December 31
-----------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
-----------------------------------------------------------------------------------------------------------------
Gain on disposal of sulphur removal assets (note 5a) -- -- -- $ (64,768)
Gain of disposal of parts and service business and other assets
(note 6) (401) -- (4,014) --
Expenses incurred on early retirement of debt (notes 5d and 10) -- (1,445) 1,252 5,593
Write-off of deferred charges -- -- -- 3,619
Write-off of capitalized project costs (note 4b) 9,508 -- 9,508 --
Other 741 -- 741 --
-----------------------------------------------------------------------------------------------------------------
Total unusual items $9,848 $(1,445) $ 7,487 $ (55,556)
-----------------------------------------------------------------------------------------------------------------
b. Write-off of capitalized project costs:
Due to significant changes in the financial markets, the Company and
Santee Cooper, South Carolina's state owned electric and water
utility, mutually agreed not to proceed at this time with the
previously announced project for Marsulex to build and own a flue gas
desulphurization system utilizing Marsulex's patented ammonium
sulphate scrubber technology at Santee Cooper's Winyah Power
Generating Station. This resulted in a write-off of capitalized
project costs of $9.5 million.
<page>
MARSULEX INC.
Notes to Consolidated Financial Statements
Page 3
5. Sale of sulphur removal assets and BCT Chemtrade Corporation
On July 18, 2001, the Company completed the sale of its sulphur removal
services assets in eastern North America and of BCT Chemtrade Corporation
(BCT), a subsidiary of Marsulex, to Chemtrade Logistics Income Fund for
gross cash proceeds before costs of disposition of $167.2 million (the
Chemtrade Transaction) or $156.6 million net of costs of disposition,
comprised of $128.1 million for the sale of the sulphur removal assets
and $28.5 million for the sale of BCT.
a. The sale of the sulphur removal services asset in eastern North America
resulted in the following gain:
=====================================================================
(in thousands of dollars)
---------------------------------------------------------------------
Proceeds of disposition $128,142
Net book value and costs of sale 63,374
---------------------------------------------------------------------
Gain on sale, before income taxes 64,768
Income taxes (9,921)
---------------------------------------------------------------------
Gain on sale, net of tax $54,847
=====================================================================
b. The operations of BCT comprised one operating segment. Accordingly,
for reporting purposes, the gain on the sale, the results of
operations and cash flows of this business, to the date of sale, are
presented and disclosed as discontinued operations. Additional
information related to the discontinued operations is as follows:
======================================================================
(in thousands of dollars) Twelve months ended
December 31, 2001
----------------------------------------------------------------------
Revenue $48,221
Earnings before income taxes 2,379
Provision for income taxes (476)
Minority interest (387)
----------------------------------------------------------------------
Earnings from discontinued operations $1,516
Gain on sale 15,863
Provision for income taxes (735)
----------------------------------------------------------------------
Net gain on disposal 15,128
----------------------------------------------------------------------
Earnings from discontinued operations $16,644
======================================================================
Cash provided by (used in):
Operating activities $(3,723)
Financing activities (380)
Investment activities 28,269
----------------------------------------------------------------------
Increase in cash and cash equivalents from discontinued
operations
$24,166
======================================================================
c. As part of the Chemtrade Transaction, Chemtrade Logistics Inc. owed
the Company $4.0 million at December 31, 2001 relating to the
finalization of working capital, of which $1.3 million was collected
during second quarter 2002 and the remainder will be collected over
the next three years and is recorded in current and other assets. The
note in the amount of $4.3 million pursuant to an escrow agreement
was received in January 2002.
d. On July 18, 2001 the Company fully retired its outstanding 10.21%
Senior Notes and cancelled its US $50.0 million operating credit
facility at an expense of $5.6 million. These expenses included the
write-off of deferred debt issuance costs of $2.9 million and a
make-whole payment of $2.7 million.
<page>
MARSULEX INC.
Notes to Consolidated Financial Statements
Page 4
6. Disposal of parts and service business and other assets:
On January 31, 2002, the Company completed the sale of its parts and
service business and other assets for gross proceeds of $6.5 million, of
which $3.4 million was received in cash.
==========================================================================
(in thousands of dollars)
--------------------------------------------------------------------------
Proceeds of disposition $6,545
Net book value and costs of sale 2,531
--------------------------------------------------------------------------
Gain on sale, before income taxes 4,014
Income taxes 402
--------------------------------------------------------------------------
Gain on sale, net of tax $3,612
==========================================================================
7. Acquisitions:
a. On December 30, 2002, the Company acquired the remaining 35% of the
outstanding common shares of Sulconam Inc. for an aggregate cash
purchase price of $16.6 million.
The acquisition was accounted for using the purchase method of
accounting and the final purchase price allocation, including the
acquisition costs, is summarized as follows:
======================================================================
(in thousands of dollars)
----------------------------------------------------------------------
Property, plant and equipment $7,313
Intangible assets, contractual customer relationship 3,501
Future tax liability (2,047)
Minority interest 7,823
----------------------------------------------------------------------
$16,590
======================================================================
b. On July 17, 2001, the Company purchased the shares of Harrowston
Investments Limited from its major shareholder, Harrowston Inc. for
$3.0 million; principal assets of Harrowston Investments Limited
comprised of future income tax assets. Harrowston Investment Limited
was merged with the Company.
8. Capital stock
a. On January 29, 2002, the Company announced its intention to make a
Normal Course Issuer Bid (NCIB), pursuant to which the Company was
entitled to purchase 1,339,053 of its common shares issued and
outstanding. The NCIB commenced on February 1, 2002 and terminated on
January 31, 2003. The purchases were made for cancellation at the
market price of such shares at the time of acquisition. During the
year ended December 31, 2002, the Company acquired 7,500 shares for
cancellation for total cash proceeds of $27,000.
b. On April 11, 2002, the Company issued 60,000 common shares for cash
proceeds of $133,800 upon the exercise of stock options.
9. Income taxes
Total income tax expense for 2002 was $1.6 million on a loss from
continuing operations before income taxes, minority interest and
amortization of goodwill of $4.5 million. Excluding the impact of the
write-off of the Santee Cooper capitalized costs of $9.5 million, the
Company's overall effective income tax rate in 2002 was 31.1% compared to
a statutory rate of 38.6% and to the prior year effective rate of 15.8%.
In addition to the decrease of 2.7 percentage points to the statutory
rate, the Company benefited from lower tax rates for its US operations
and from losses not previously recognized. The prior year's rate was
impacted by the Company's ability to utilize tax losses, the benefit of
which had not been previously recorded, and by the non-taxed portion of
capital gains and goodwill proceeds.
<page>
MARSULEX INC.
Notes to Consolidated Financial Statements
Page 5
10. Offer to purchase bonds
On August 20, 2002 the Company completed the July 15, 2002 offer to
purchase a portion of its 9 5/8% Senior Subordinated Notes by purchasing
the obligated amount of $69.5 million (US$44.2 million) principal at par
plus accrued interest of $0.9 million (US$0.6 million). Although $74.2
million (US$47.2 million) was tendered, under both the terms of the offer
and the indenture, the Company was only obligated to purchase up to the
amount of unutilized cash proceeds resulting from the Chemtrade
Transaction.
As part of the purchase, the Company incurred expenses of $1.3 million
comprised of writing off of deferred debt issuance costs of $1.2 million
and expenses incurred on the transaction of $0.1 million.
11. Business segments
The Company's activities are divided into four reportable segments. The
three operating segments are Refinery Services, Western Markets and Power
Generation. The fourth non-operating segment is Corporate Support, which
provides project execution support, finance, information systems, human
resources and risk management to the preceding operating segments.
Refinery Services provides outsourced compliance solutions to major oil
refinery customers in the United States and Canada, primarily extraction
and recovery of sulphur from hydrogen sulphide gas created during the
refining process, S02 recovery to ensure air quality compliance and
regeneration of spent sulphuric acid produced during octane enhancement
of gasoline.
Western Markets upgrades sulphur-based by-products produced as part of
air quality compliance activities.
Power Generation provides outsourced environmental services, primarily
air quality compliance, to customers in the power generation industry.
The segment also provides services to the cement industry through
patented CP-Gyp process.
Schedule of business segments (unaudited)
For the three months ended December 31
(in thousands of dollars)
=========================================================================================================================
Refinery Services Western Markets(1) Power Generation
2002 2001 2002 2001 2002 2001
- ---------------------------------------------------- ---------- ----------- ---------- ---------- ----------- ----------
Revenue from external customers 17,377 17,068 13,034 13,113 2,632 12,857
- ---------------------------------------------------- ---------- ----------- ---------- ---------- ----------- ----------
Earnings (loss) from continuing operations before
the undernoted 6,336 5,017 3,629 3,689 (843) (328)
Depreciation, including loss on disposal 3,971 2,253 324 407 282 544
Unusual items -- -- -- -- -- --
Foreign exchange loss -- -- -- -- -- --
Amortization of deferred charges -- -- -- -- -- --
Interest income -- -- -- -- -- --
Interest expense -- -- -- -- -- --
- ---------------------------------------------------- ---------- ----------- ---------- ---------- ----------- ----------
Earnings (loss) from continuing operations before
income taxes, minority interest, and amortization 2,365 2,764 3,305 3,282 (1,125) (872)
of goodwill
=========================================================================================================================
Capital expenditures from continuing operations 13,928 14,732 71 206 1,430 662
=========================================================================================================================
Continued -- Schedule of business segments (unaudited)
==================================================== ============================================
Corporate Support Total
2002 2001 2002 2001
- ---------------------------------------------------- ---------- ----------- ---------- ----------
Revenue from external customers -- -- 33,043 43,038
- ---------------------------------------------------- ---------- ----------- ---------- ----------
Earnings (loss) from continuing operations before
the undernoted (2,088) (1,438) 7,034 6,940
Depreciation, including loss on disposal 65 47 4,642 3,251
Unusual items 9,848 (1,445) 9,848 (1,445)
Foreign exchange loss -- (77) -- (77)
Amortization of deferred charges (4) 146 (4) 146
Interest income (228) (1,010) (228) (1,010)
Interest expense 1,770 4,006 1,770 4,006
- ---------------------------------------------------- ---------- ----------- ---------- ----------
Earnings (loss) from continuing operations before
income taxes, minority interest, and amortization (13,539) (3,105) (8,994) 2,069
of goodwill
==================================================== ========== =========== ========== ==========
Capital expenditures from continuing operations 38 112 15,467 15,712
==================================================== ========== =========== ========== ==========
Schedule of business segments
For the twelve months ended December 31
(in thousands of dollars)
========================================================================================================================
Refinery Services Western Markets(1) Power Generation
2002 2001 2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------------
Revenue from external customers 69,363 69,486 53,953 116,005 14,975 51,223
========================================================================================================================
Earnings (loss) from continuing operations before
the undernoted 21,627 22,560 18,263 29,320 (2,000) (1,394)
Depreciation, including loss on disposal 12,951 9,962 1,300 4,110 1,149 691
Unusual items -- -- -- -- -- --
Foreign exchange loss -- -- -- -- -- --
Amortization of deferred charges -- -- -- -- -- --
Interest income -- -- -- -- -- --
Interest expense -- -- -- -- -- --
- ---------------------------------------------------- ---------- ----------- ---------- ---------- ----------- ----------
Earnings (loss) from continuing operations before
income taxes, minority interest, and amortization 8,676 12,598 16,963 25,210 (3,149) (2,085)
of goodwill
- ---------------------------------------------------- ---------- ----------- ---------- ---------- ----------- ----------
Total assets before goodwill and intangible assets 131,595 104,995 22,378 24,215 9,609 19,006
Goodwill and intangible assets 49,441 46,425 4,468 4, 468 7,922 8,006
- ---------------------------------------------------- ---------- ----------- ---------- ---------- ----------- ----------
Total assets of continuing operations 181,036 151,420 26,846 28,683 17,531 27,012
========================================================================================================================
Capital expenditures from continuing operations 35,924 23,390 448 757 4,408 5,435
========================================================================================================================
Continued - Schedule of business segments
===================================================================================================
Corporate Support Total
2002 2001 2002 2001
- ---------------------------------------------------- ---------- ----------- ---------- ----------
Revenue from external customers -- -- 138,291 236,714
==================================================================================================
Earnings (loss) from continuing operations before
the undernoted (9,747) (10,870) 28,143 39,616
Depreciation, including loss on disposal 227 413 15,627 15,176
Unusual items 7,487 (55,556) 7,487 (55,556)
Foreign exchange loss -- 968 -- 968
Amortization of deferred charges 387 1,074 387 1,074
Interest income (1,942) (3,141) (1,942) (3,141)
Interest expense 11,112 17,020 11,112 17,020
- ---------------------------------------------------- ---------- ----------- ---------- ----------
Earnings (loss) from continuing operations before
income taxes, minority interest, and amortization (27,018) 28,352 (4,528) 64,075
of goodwill
- ---------------------------------------------------- ---------- ----------- ---------- ----------
Total assets before goodwill and intangible assets 13,608 136,177 177,190 284,393
Goodwill and intangible assets -- -- 61,831 58,899
- ---------------------------------------------------- ---------- ----------- ---------- ----------
Total assets of continuing operations 13,608 136,177 239,021 343,292
==================================================== ========== =========== ========== ==========
Capital expenditures from continuing operations 197 193 40,977 29,775
==================================================== ========== =========== ========== ==========
(1) Includes the sulphur removal services in eastern North America until July 18, 2001.
<page>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MARSULEX INC.
-------------
February 28, 2003 By: /s/ Lucio Milanovich
- ----------------- ----------------------
Lucio Milanovich
Director, Finance