SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange act of 1934
For the month of March 2004
Commission File No. 333-09410
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 by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(1):
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(7):
Indicate by check mark whether by furnishing the information contained
in this Form, the registrant 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
------------- ------------
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-__________
Documents Included as Part of this Report
No. Document
1. Press Release dated February 5, 2004 concerning Marsulex Power Generation
Contact Win
2. Press Release dated March 8, 2004 concerning Fourth Quarter and Year End
2003 Results
Document No. 1
[GRAPHIC LOGO OMITTED] MARSULEX
NEWS RELEASE
MARSULEX POWER GENERATION GROUP WINS CONTRACT TO SUPPLY
FLUE GAS DESULFURIZATION SYSTEM TO CHINESE POWER UTILITY
TORONTO, February 5, 2004 -Marsulex (TSX:MLX) announced today that its Power
Generation Group has been awarded a contract to supply technology, engineering
and selected equipment for Beijing Datang Electric Power Company at the Gaojing
Power Plant in the People's Republic of China. The Company's limestone-gypsum
flue gas desulfurization (FGD) system will be installed to reduce sulfur dioxide
(SO2) emissions by 95% from Gaojing Units 5-8, a total of 300 MWe. The contract,
which represents the fourth successful project in China for Marsulex, has been
awarded through Ever Cleaning Environmental, Inc., a US firm specializing in
commercializing technologies in China.
The project, which was won against international competition and is due for
completion in early 2005, will generate revenue for Marsulex of approximately
Can$3.5 million.
Marsulex President and Chief Executive Officer, David Gee, said the project is
an important win for the Company. "The construction of new power plants in China
and the retro-fitting of existing coal-fired plants with FGD technology to
improve air quality in advance of the 2008 Olympics, has made China the world's
leading growth market for FGD systems. We have recognized this for some time now
and last year appointed three new licensees in China to further develop our
business there. With the world's largest installed base of FGD systems, and a
track record of success in China, Marsulex is well positioned to win additional
business from this market."
Mr. Gee noted that Marsulex recently completed supplying similar technology and
services to the Shajiao Power Plant in Guangdong Province.
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.
# # #
For further information: David M. Gee
President & CEO
(416) 496-4178
Laurie Tugman
Executive Vice President and CFO
Tel: (416) 496-4157
Document No. 2
[GRAPHIC LOGO OMITTED] MARSULEX
NEWS RELEASE
MARSULEX REPORTS RESULTS FOR
FOURTH QUARTER AND YEAR-END 2003
TORONTO, Canada, March 8, 2004 -- Marsulex Inc. (TSX: MLX) today announced
earnings before interest, tax, depreciation and amortization (EBITDA1) of $30.8
million for the year ended December 31, 2003, compared with $28.1 million for
the previous year, an increase of 10%. Revenue for the year was $135.0 million
compared with $138.3 million in 2002, and net earnings were $6.9 million ($0.22
per share) compared with a loss of $7.8 million ($0.25 per share) in 2002.
For the three months ended December 31, 2003, EBITDA from continuing operations
was $6.8 million (2002: $7.0 million) and revenue was $31.9 million (2002: $33.1
million). Net loss for the period, after unusual items of $1.4 million, was $0.6
million ($0.02 per share) compared with a net loss for the same period in 2002
of $9.4 million ($0.30 per share) after unusual items of $9.8 million.
Marsulex President and Chief Executive Officer, David Gee, said, "It was an
excellent year for Marsulex. All of our businesses performed at or above
expectations, and the financial results were stronger than we anticipated at the
beginning of 2003. Refinery Services Group had a particularly strong year,
posting EBITDA that was 13% ahead of 2002 despite the dampening effects of the
stronger Canadian dollar on the Group's US earnings." Mr. Gee said the results
also reflect the ongoing positive effects of strategic changes the Company has
made over the past few years, notably an increased focus on fee-based
outsourcing solutions for customers and lower costs achieved through an improved
capital structure and reduced overheads.
Marsulex has three industry focused operating groups: Refinery Services, Western
Markets and Power Generation. Refinery Services Group produced EBITDA of $24.4
million in 2003 compared with $21.6 million in 2002. This reflected higher
volumes of spent acid regeneration and a strong performance by the group's
sulphur prilling operation in the western US. The Western Markets Group reported
EBITDA of $16.9 million for 2003 compared with $18.3 million in 2002. The latest
results represented a return to more normal levels of operations following an
unusually strong year in 2002. In October 2003, Marsulex purchased the sulphur
products assets of Duke Energy Transmission in Prince George, British Columbia.
The operation has been integrated into the Western Markets Group and contributed
to fourth quarter earnings.
EBITDA for the Power Generation Group for 2003 was a loss of $2.1 million
compared with a loss of $2.0 million in 2002. This reflects the Company's
continuing investment in air quality compliance solutions for power generators,
offset by revenue from the Shajiao project in China. The Group continued
marketing its CleanStack(TM) sulphur trioxide emissions control technology in
North America, and increased its focus on international markets, especially
south-east Asia and eastern Europe, where there is a growing demand for
traditional flue gas desulphurization systems. In February 2004, the Group
announced it had won a further contract in China to supply technology,
engineering, and selected equipment for the Gaojing Power Plant.
-more-
-2-
Mr. Gee noted that one of the major accomplishments for the year was the on time
and on budget completion of the Company's portion of construction of the
compliance facilities at the Syncrude Upgrader Expansion project in Mildred
Lake, Alberta. "Under the Company's agreement with Syncrude, Marsulex will begin
receiving fees in January 2005 even though it is now expected that the overall
UE-1 project will not be completed at that time," Mr. Gee said.
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 Fourth Quarter and Year-End 2003
results will be webcast live on www.newswire.ca/webcast Monday, March 8, 2004 at
10:00 a.m. Eastern Time.
(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, and
minority interest adjusted to exclude the impact of interest expense,
amortization of deferred charges, amortization of intangible assets,
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
MARSULEX INC.
Consolidated Balance Sheets
(in thousands of dollars)
===============================================================================================================================
December 31, December 31,
2003 2002
(restated note 2(b))
- ----------------------------------------------------------------------------------- -------------------- ---------------------
Assets
Current assets:
Cash and cash equivalents $ 16,375 $ 7,940
Cash held in trust (note 4(a)) 10,071 --
Accounts receivable 19,621 25,332
Due from Chemtrade Logistics 900 900
Inventories 2,760 1,888
Future tax asset 605 267
Prepaid expenses and other assets 1,597 1,102
- ----------------------------------------------------------------------------------- -------------------- ---------------------
51,929 37,429
Long-term portion of cash held in trust (note 4(a)) 7,500 --
Property, plant and equipment 156,679 134,648
Deferred charges and other assets, net of accumulated amortization 2,378 5,337
Goodwill and intangible assets, net of accumulated amortization 52,003 61,831
- ----------------------------------------------------------------------------------- -------------------- ---------------------
$ 270,489 $ 239,245
======================================================================================================== =====================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 9,765 $ 9,207
Accrued liabilities 14,978 11,348
Income taxes payable 1,385 838
Interest payable 122 --
- ----------------------------------------------------------------------------------- -------------------- ---------------------
26,250 21,393
Long-term debt (note 4) 119,196 95,943
Deferred revenues 796 1,818
Other liabilities 9,025 10,573
Future tax liability 18,395 17,816
Shareholders' equity:
Capital stock (note 6) 57,973 57,625
Retained earnings 38,290 31,432
Foreign currency translation adjustment 564 2,645
- ----------------------------------------------------------------------------------- -------------------- ---------------------
96,827 91,702
- ----------------------------------------------------------------------------------- -------------------- ---------------------
$ 270,489 $ 239,245
======================================================================================================== =====================
MARSULEX INC.
Consolidated Statements of Operations
(in thousands of dollars, except per share amounts)
===============================================================================================================================
Three months ended Year ended
December 31 December 31
(unaudited)
- -------------------------------------------------------------------- ---------------------------- -----------------------------
2003 2002 2003 2002
(restated (restated
note 2(b)) note 2(b))
- -------------------------------------------------------------------- ------------- -------------- -------------- --------------
Revenue $ 31,973 $ 33,043 $ 134,982 $ 138,291
Cost of sales and services 20,253 20,768 86,546 90,028
- -------------------------------------------------------------------- ------------- -------------- -------------- --------------
Gross profit 11,720 12,275 48,436 48,263
Selling, general, administrative and other costs 5,046 4,985 19,663 20,747
Foreign exchange losses (gains) on monetary items (note 8) (140) 271 (2,057) (569)
Loss on disposal of property, plant and equipment -- -- -- 20
Depreciation 4,243 4,655 15,727 15,660
Unusual items (note 5) 1,422 9,848 1,422 7,487
Amortization of deferred charges and intangible assets 178 (4) 726 387
Interest expense 2,634 2,391 9,755 13,684
Interest capitalized (1,215) (621) (3,738) (2,572)
Interest income (248) (228) (730) (1,942)
- -------------------------------------------------------------------- ------------- -------------- -------------- --------------
Earnings (loss) before income taxes and minority interest (200) (9,022) 7,668 (4,639)
Income taxes (recovery):
Current (396) 1,002 559 2,706
Future 828 (1,005) 251 (1,162)
- -------------------------------------------------------------------- ------------- -------------- -------------- --------------
432 (3) 810 1,544
- -------------------------------------------------------------------- ------------- -------------- -------------- --------------
Earnings (loss) before minority interest (632) (9,019) 6,858 (6,183)
Minority interest -- 414 -- 1,595
- -------------------------------------------------------------------- ------------- -------------- -------------- --------------
Net earnings (loss) $ (632) $ (9,433) $ 6,858 $ (7,778)
==================================================================== ============= ============== ============== ==============
Earnings (loss) per share:
Basic $ (0.02) $ (0.30) $ 0.22 $ (0.25)
Diluted $ (0.02) $ (0.29) $ 0.21 $ (0.25)
Consolidated Statement of Retained Earnings
For the years ended December 31, 2003 and 2002
(in thousands of dollars)
==============================================================================================================================
2003 2002
(restated
note 2(b))
- -------------------------------------------------------------------- --------------- ------------ -------------- --------------
Retained earnings, beginning of year: $ 31,432 $ 39,552
Change in accounting policy (note 2(b)) -- (329)
Premium on common stock purchased for cancellation -- (13)
Net earnings (loss) 6,858 (7,778)
- ------------------------------------------------------------------------------------------------- -------------- -------------
Retained earnings, end of period $ 38,290 $ 31,432
================================================================================================= ============== =============
MARSULEX INC.
Consolidated Statements of Cash Flow
(in thousands of dollars)
================================================================================================================================
Three months ended Year ended
December 31 December 31
(unaudited)
- ----------------------------------------------------------------------- --------------------------- ----------------------------
2003 2002 2003 2002
(restated (restated
note 2(b)) note 2(b))
- ----------------------------------------------------------------------- ------------- ------------- ------------- --------------
Cash provided by (used in):
Operating activities:
Net earnings (loss) $ (632) $ (9,433) $ 6,858 $ (7,778)
Items not affecting cash:
Depreciation 4,243 4,655 15,727 15,660
Loss on disposal of property, plant and equipment -- -- -- 20
Amortization of deferred charges 68 (4) 288 387
Amortization of intangible assets 110 -- 438 --
Non-cash unusual items (note 5) 685 9,106 685 6,679
Future income taxes 828 (1,005) 251 (1,162)
Exchange loss on cash 163 749 214 235
Minority interest -- 414 -- 1,595
- ----------------------------------------------------------------------- ------------- ------------- ------------- --------------
5,465 4,482 24,461 15,636
Decrease (increase) in non-cash operating working capital (1,033) 3,731 4,979 (5,541)
- ----------------------------------------------------------------------- ------------- ------------- ------------- --------------
Cash provided by operating activities 4,432 8,213 29,440 10,095
Financing activities:
Increase in capital stock (note 6(b)) 235 -- 348 133
Repurchase of common stock -- -- -- (27)
Repayment of long-term debt -- -- -- (69,492)
Increase in long-term debt (note 4(a)) -- -- 40,000 --
- ----------------------------------------------------------------------- ------------- ------------- ------------- --------------
235 -- 40,348 (69,386)
Investing activities:
Proceeds on disposals of property, plant and equipment (note 5) -- -- -- 3,358
Additions to property, plant and equipment (4,685) (15,467) (32,583) (40,977)
Decrease (increase) in other assets (89) 804 1,482 (183)
Note from Chemtrade Logistics -- -- -- 4,305
Acquisitions (note 3) (11,604) (16,590) (11,604) (16,590)
Decrease (increase) in cash held in trust (note 4(a)) 1,325 -- (17,571) --
- ----------------------------------------------------------------------- ------------- ------------- ------------- --------------
(15,053) (31,253) (60,276) (50,087)
Foreign exchange loss on cash held in foreign currency (335) -- (1,077) (830)
- ----------------------------------------------------------------------- ------------- ------------- ------------- --------------
Increase (decrease) in cash and cash equivalents (10,721) (23,040) 8,435 (110,208)
Cash and cash equivalents - beginning of period 27,096 30,980 7,940 118,148
- ----------------------------------------------------------------------- ------------- ------------- ------------- --------------
Cash and cash equivalents - end of period $ 16,375 $ 7,940 $ 16,375 $ 7,940
======================================================================= ============= ============= ============= ==============
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 2 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
statements and the accompanying notes included in the Company's 2002
Annual Report.
2. Changes in accounting policies:
(a) Hedging Relationships:
The Company adopted the new CICA Accounting Guideline ("AcG 13")
Hedging Relationships on January 1, 2003. This guideline requires the
identification, designation, documentation and assessment of the
effectiveness of hedging relationships, for the purpose of applying
hedge accounting and discontinues hedge accounting of existing
hedges. The adoption of this standard did not have an impact on its
financial position since the Company's only material hedging
relationship relates to its US dollar denominated debt used to
acquire its US operations. This has been accounted for as a hedging
relationship as disclosed in note 1(h) to the consolidated financial
statements included in the Company's 2002 Annual Report.
(b) Asset retirement obligations:
On January 1, 2003, the Company early-adopted the new CICA accounting
standard for asset retirement obligations. Previously when the cost
of the site restoration exceeded the salvage value of the asset, the
expected settlement amount of the asset retirement costs were
systematically accrued to the expected settlement amount in the year
the obligation was anticipated to settle. Under the new policy, asset
retirement obligations which relate to its legal obligations arising
from construction or use of a long-lived asset are recognized in the
period in which they are incurred if a reasonable estimate of the
fair value can be determined. The liability is measured at fair value
and is adjusted to its present value in subsequent periods as
accretion expense is recorded. The associated asset retirement costs
are capitalized as part of the carrying amount of the long-lived
assets and the asset is depreciated over the asset's estimated useful
life.
This standard is consistent with FAS No. 143 which the Company
adopted for US GAAP purposes effective January 1, 2003.
========================================================================================= ============= ==============
Effect on opening retained earnings in the consolidated balance sheets 2003 2002
----------------------------------------------------------------------------------------- ------------- --------------
Asset retirement cost, included in property, plant and equipment $ 466 $ 466
Accumulated depreciation on property, plant and equipment (242) (189)
Asset retirement obligation, included in other liabilities (685) (627)
Future tax liability 28 21
----------------------------------------------------------------------------------------- ------------- --------------
Opening retained earnings $ (433) $ (329)
========================================================================================= ============= ==============
========================================================================================= ============= ==============
Effect on the consolidated statement of operations 2003 2002
----------------------------------------------------------------------------------------- ------------- --------------
Accretion expense $ 61 $ 58
Depreciation expense 54 53
Future tax recovery (8) (7)
----------------------------------------------------------------------------------------- ------------- --------------
Total impact to net earnings $ 107 $ 104
========================================================================================= ============= ==============
MARSULEX INC.
Notes to Consolidated Financial Statements
Page 2
(b) Asset retirement obligations (continued):
Under this change in accounting standard, the Company is recognizing
its future asset retirement costs where the Company has determined
legal obligations exist, including Company properties that are on
leased land, which revert back to the lessor and the Company has a
legal obligation under the landlease agreement to remove improvements
and structures from the property. The estimated amount of undiscounted
retirement costs relating to these properties is $2,550,000. These
costs are expected to be settled between 6 and 30 years and using a 1%
inflation rate, the present value of the future asset retirement costs
was determined with a credit-adjusted risk-free discount rate of 8.5%.
3. Acquisitions:
(a) On October 7, 2003 the Company acquired the sulphur products assets in
Prince George, British Columbia from Duke Energy Gas Transmission. The
purchase price, including estimated acquisition costs, was
approximately $13,382,000 financed by the Company through existing
cash. The acquisition has been accounted for using the purchase method
of accounting and has been consolidated from the date of acquisition.
========================================================================================== ====================
Property, plant and equipment $ 13,382
Current assets 769
Current liabilities (1,760)
Post retirement benefits (670)
Other liabilities (117)
------------------------------------------------------------------------------------------ --------------------
Cash purchase price $ 11,604
========================================================================================= ====================
As part of the Duke Energy Gas Transmission acquisition, the Company
recognized the fully funded pension benefits obligations of $1,390,000
and post retirement benefits of $670,000 relating to the employees of
this plant.
(b) 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 $16,590,000.
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:
========================================================================================= ====================
Property, plant and equipment $ 7,313
Intangibles assets, contractual customer relationships 3,501
Future tax liability (2,047)
Minority interest 7,823
---------------------------------------------------------------------------------------- ---------------------
$ 16,590
========================================================================================= ====================
4. Long-term Debt
===================================================================================== ================== =================
December 31, December 31,
(in thousands of dollars) 2003 2002
------------------------------------------------------------------------------------- ------------------ -----------------
Long-term Loan
7.3%, maturing 2019 (note 4(a)) $ 40,000 $ --
Senior Subordinated Notes:
9 5/8% US $60,766,000 ( 2002 - US $60,766,000), maturing 2008 79,196 95,943
------------------------------------------------------------------------------------- ------------------ -----------------
Total debt 119,196 95,943
===================================================================================== ================== =================
MARSULEX INC.
Notes to Consolidated Financial Statements
Page 3
4. Long-term Debt (continued)
(a) On June 5, 2003 a wholly owned subsidariary of the Company entered into
a long-term loan agreement to finance its portion of the construction
of the environmental compliance facilities at Syncrude's Mildred Lake
oil sands facility in Alberta. The loan is secured by the subsidiary's
assets. A general guarantee is provided by the Company until the
successful startup of the facility as defined in the loan agreement at
which time the general guarantee is released and the loan will be
secured by the subsidiary's assets. If, after the successful startup of
the facility, the subsidiary fails to perform its operating
obligations, the Company will become responsible for the operation of
the facility and as a result the servicing of the debt.
The loan bears interest at a fixed rate of 7.3% per annum with a
monthly interest-only payment required until the startup of the
facility at which time the repayment of principal will be made over the
next 15 years. The repayment of principal is expected to commence
January 2005 with principal repayments due as follows:
======================================================================================================================
(in thousands of dollars)
----------------------------------------------------------------------------------- ----------------- ----------------
2004 $ --
2005 1,370
2006 1,473
2007 1,585
2008 1,704
Thereafter 33,868
======================================================================================================================
Under the terms of the agreement $40,000,000 was advanced to a loan
account which is held in trust. As construction of the facility
progresses, cash draws are made on the loan with the remaining amount
held in trust and recorded separately in current and long-term assets
as cash held in trust. As defined in the agreement, $7,500,000 of the
funds are required to remain in trust until the successful comissioning
and startup of the facility and have been recorded as long-term portion
of cash held in trust.
(b) Standard & Poors revised its credit rating of the Company on June 2,
2003 to BB- from the BB rating received in June 1998 and consequently,
the rating on the Senior Subordinated Notes was revised to B from the
1998 rating of B+.
5. Unusual items:
Consolidated Statements of Operations
==========================================================================================================================
Three months ended Year ended
(in thousands of dollars) December 31 December 31
---------------------------------------------------------------------- ------------------------- -------------------------
2003 2002 2003 2002
---------------------------------------------------------------------- ------------ ------------ ------------ ------------
Expenses incurred on cancellation of stock options held by former
employees (note 6(a)) $ 737 $ -- $ 737 $ --
Expenses incurred on the early retirement of debt (note 5(a)) -- -- -- 1,252
Loss (gain) on disposal of parts and service business and other
assets (note 5(b)) 685 (401) 685 (4,014)
Write-off of capitalized projects (note 5(c)) -- 9,508 -- 9,508
Other unusual items -- 741 -- 741
---------------------------------------------------------------------- ------------ ------------ ------------ ------------
Total unusual items $ 1,422 $ 9,848 $ 1,422 $ 7,487
==========================================================================================================================
MARSULEX INC.
Notes to Consolidated Financial Statements
Page 4
Consolidated Statements of Cash Flows
===========================================================================================================================
Three months ended Year ended
(in thousands of dollars) December 31 December 31
------------------------------------------------------------------------ ------------------------ -------------------------
2003 2002 2003 2002
------------------------------------------------------------------------ ------------ ----------- ------------ ------------
Expenses incurred on the early retirement of debt (note 5(a)) $ -- $ -- $ -- $ 1,185
Loss (gain) on disposal of parts and services business and other
assets (note 5(b)) 685 (402) 685 (4,014)
Write-off of capitalized projects (note 5(c)) -- 9,508 -- 9,508
Other unusual items -- -- -- --
------------------------------------------------------------------------ ------------ ----------- ------------ ------------
Total non-cash unusual items $ 685 $ 9,106 $ 685 $ 6,679
===========================================================================================================================
(a) Offer to purchase bonds:
On August 20, 2002 the Company completed the July 15, 2002 offer to
purchase its 9 5/8% Senior Subordinated Notes by purchasing the
obligated amount of $69,492,000 (US $44,234,000) principal at par plus
accrued interest of $929,000 (US $591,000). Although US $47,230,000
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 $1,252,000
comprised of writing off of deferred debt issuance costs of $1,185,000
and expenses incurred on the transaction of $67,000.
(b) 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 $6,545,000, of
which $3,358,000 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
=======================================================================================================================
(c) Write-off of capitalized costs:
Due to significant changes in the financial markets, the Company and
Santee Cooper, South Carolina's state owned electric and water utility,
have mutually agreed not to proceed 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 $9,508,000 in
2002.
6. Capital stock
(a) On December 17, 2003, the Company purchased 433,434 stock options
held by former employees of the Company for total consideration of
$737,000. The options were cancelled and fully expensed during the
quarter.
(b) During the fourth quarter of 2003, the Company issued 102,666 common
shares for cash proceeds of $235,000 upon the exercise of stock
options for a total of 142,666 common shares and cash proceeds of
$348,000 in 2003.
(c) On June 17, 2003 the Company announced its intention to make a Normal
Course Issuer Bid (NCIB), pursuant to which the Company is entitled
to purchase 1,341,677 of its common shares issued and outstanding.
The NCIB commenced on June 19, 2003 and will terminate on June 18,
2004. The purchases will be made for cancellation at the market price
of such shares at the time of acquisition. No shares were acquired by
the Company for cancellation during the period June 19, 2003 to
December 31, 2003.
MARSULEX INC.
Notes to Consolidated Financial Statements
Page 5
7. Stock compensation
The Company's results would have been as follows had it 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:
===========================================================================================================================
(in thousand of dollars, except per share amounts) Three months ended Year ended
December 31 December 31
------------------------------------------------------------------ --------------------------- ----------------------------
2003 2002 2003 2002
------------------------------------------------------------------ ------------- ------------- ------------- --------------
Net earnings (loss) as reported $ (632) $ (9,433) $ 6,858 $ (7,778)
Adjustment for cost of stock options 34 92 170 232
------------------------------------------------------------------ ------------- ------------- ------------- --------------
Pro forma net earnings (loss) $ (666) $ (9,925) $ 6,688 $ (8,010)
------------------------------------------------------------------ ------------- ------------- ------------- --------------
Pro forma basic earnings (loss) per share $ (0.02) $ (0.31) $ 0.21 $ (0.25)
Pro forma diluted earnings (loss) per share $ (0.02) $ (0.31) $ 0.21 $ (0.25)
===========================================================================================================================
During the period no new options were granted. The fair value of the stock
options was estimated in 2003 and there are no changes to assumptions used
in the Black-Scholes option-pricing model.
8. Foreign exchange gains and losses on monetary items:
The gains or losses arising from the translation of monetary assets and
liabilities denominated in US dollars have been translated into Canadian
dollars at the rate of exchange in effect at the balance sheet date and the
resulting holding gains or losses are recorded in the statement of
operations. In addition, all of the Company's US denominated revenues and
expenses of its US operations have been translated into its Canadian dollar
reporting currency at the average rate in effect during the year.
The Company has self-sustaining operations holding US dollar assets and
liabilities and the US dollar-denominated Senior Subordinated Notes used in
the acquisition of the self-sustaining operations are considered to be a
hedge of this net investment. Gains or losses arising from the translation
of the financial statements of the self-sustaining operations including the
Senior Subordinated Notes are deferred in the foreign currency translation
adjustment account that is part of the shareholders' equity on the balance
sheet.
9. Comparative figures:
Certain 2002 balances have been reclassified to conform to presentation
adopted in 2003.
10. 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 centralized services, such as project execution support, finance,
information systems, human resources and risk management to the preceding
operating segments.
Refinery Services provide outsourced compliance solutions to major oil
refinery customers in the United States and Canada, primarily regeneration
of spent sulphuric acid produced during octane enhancement of gasoline,
extraction and recovery of sulphur from hydrogen sulphide gas created
during the refining process, and S02 recovery to ensure air quality
compliance.
Western Markets upgrades sulphur-based by-products produced as a result of
oil and gas air quality compliance activities. It provides sulphur-based
chemicals to the pulp and paper industry in western Canada and is one of
the leading suppliers of alum, a water treatment chemical used extensively
by municipalities for water and sewage treatment. These and other chemicals
are marketed to customers in North America.
Power Generation provides outsourced environmental services, primarily air
quality compliance, to customers in the power generation industry.
MARSULEX INC.
Notes to Consolidated Financial Statements
Page 6
10. Business segments (continued):
Schedule of business segments (unaudited)
=================================================================================================================================
For the three months ended December 31 Refinery Services Western Markets Power Generation
(in thousands of dollars)
2003 2002 2003 2002 2003 2002
- ---------------------------------------------------------- ----------- ---------- ----------- ----------- ----------- -----------
Revenue from external customers 16,978 17,377 13,385 13,034 1,610 2,632
========================================================== =========== ========== =========== =========== =========== ===========
Earnings (loss) before the undernoted 5,395 6,321 4,787 3,629 (769) (843)
Depreciation, including loss on disposal 3,394 3,984 561 324 246 282
Unusual items -- -- -- -- -- --
Amortization of deferred charges and intangible assets -- -- -- -- -- --
Interest expense -- -- -- -- -- --
Interest capitalized -- -- -- -- -- --
Interest income -- -- -- -- -- --
- ---------------------------------------------------------- ----------- ---------- ----------- ----------- ----------- -----------
Earnings (loss) before income taxes, and minority
interest 2,001 2,337 4,226 3,305 (1,015) (1,125)
=================================================================================================================================
Capital expenditures 4,318 13,928 220 71 -- 1,430
=================================================================================================================================
Schedule of business segments
=================================================================================================================================
For the year ended December 31 Refinery Services Western Markets Power Generation
(in thousands of dollars)
2003 2002 2003 2002 2003 2002
- ---------------------------------------------------------- ----------- ---------- ----------- ----------- ----------- ----------
Revenue from external customers 71,504 69,363 54,295 53,953 9,183 14,975
========================================================== =========== ========== =========== =========== =========== ===========
Earnings (loss) before the undernoted 24,392 21,569 16,936 18,263 (2,097) (2,000)
Depreciation, including loss on disposal 12,976 13,004 1,558 1,300 1,001 1,149
Unusual items -- -- -- -- -- --
Amortization of deferred charges and intangible assets
-- -- -- -- -- --
Interest expense -- -- -- -- -- --
Interest capitalized -- -- -- -- -- --
Interest income -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes, and minority
interest 11,416 8,565 15,378 16,963 (3,098) (3,149)
========================================================== =========== ========== =========== =========== =========== ==========
Total assets before goodwill and intangible assets 141,268 131,819 32,812 22,378 5,410 9,609
Goodwill and intangible assets, net of accumulated
amortization 40,996 49,441 4,468 4,468 6,539 7,922
- ---------------------------------------------------------- ----------- ---------- ----------- ----------- ----------- ----------
Total assets 182,264 181,260 37,280 26,846 11,949 17,531
================================================================================================================================
Capital expenditures 31,641 35,924 573 448 84 4,408
================================================================================================================================
(TABLE CONTINUED)
Schedule of business segments (unaudited)
===========================================================================================================
For the three months ended December 31 Corporate Support Total
(in thousands of dollars)
2003 2002 2003 2002
- -----------------------------------------------------------------------------------------------------------
Revenue from external customers -- -- 31,973 33,043
===========================================================================================================
Earnings (loss) before the undernoted (2,599) (2,088) 6,814 7,019
Depreciation, including loss on disposal 42 65 4,243 4,655
Unusual items 1,422 9,848 1,422 9,848
Amortization of deferred charges and intangible assets 178 (4) 178 (4)
Interest expense 2,634 2,391 2,634 2,391
Interest capitalized (1,215) (621) (1,215) (621)
Interest income (248) (228) (248) (228)
- -----------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes, and minority
interest (5,412) (13,539) (200) (9,022)
===========================================================================================================
Capital expenditures 147 38 4,685 15,467
===========================================================================================================
Schedule of business segments
===========================================================================================================
For the year ended December 31 Corporate Support Total
(in thousands of dollars)
2003 2002 2003 2002
- -----------------------------------------------------------------------------------------------------------
Revenue from external customers -- -- 134,982 138,291
===========================================================================================================
Earnings (loss) before the undernoted (8,401) (9,747) 30,830 28,085
Depreciation, including loss on disposal 192 227 15,727 15,660
Unusual items 1,422 7,487 1,422 7,487
Amortization of deferred charges and intangible assets 726 387 726 387
Interest expense 9,755 13,684 9,755 13,684
Interest capitalized (3,738) (2,572) (3,738) (2,572)
Interest income (730) (1,942) (730) (1,942)
- -----------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes, and minority
interest (16,028) (27,018) 7,668 (4,639)
===========================================================================================================
Total assets before goodwill and intangible assets 38,996 13,608 218,486 177,414
Goodwill and intangible assets, net of accumulated
amortization -- -- 52,003 61,831
- -----------------------------------------------------------------------------------------------------------
Total assets 38,996 13,608 270,489 239,245
===========================================================================================================
Capital expenditures 285 197 32,583 40,977
===========================================================================================================
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.
March 5, 2004 By: /s/ Lucio Milanovich
---------------------
Lucio Milanovich
Director, Finance