Marsulex reports fifth consecutive year of EBITDA and earnings growth
TORONTO, March 3 /CNW/ - Marsulex Inc. (TSX: MLX) today announced results for the three months and year ended December 31, 2009. Solid results from MET and the impact of foreign exchange contributed to the Company's strong full year performance.
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Three months ending Year ending
December 31 December 31
(In millions of dollars,
except per share 2009 2008 % chg 2009 2008 % chg
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Revenue $ 62.7 $ 75.1 -16.5% $300.5 $322.6 -6.9%
Gross profit(1) 23.4 26.5 -11.7% 116.0 103.2 12.4%
Selling, general,
administrative, and
other costs(1) 9.7 11.6 -16.4% 33.7 34.2 -1.5%
EBITDA(2) 13.7 14.9 -8.1% 82.3 69.0 19.3%
Depreciation,
amortization, asset
impairment, and other
charges 9.0 10.7 -15.9% 33.9 34.9 -2.9%
Net interest expense 1.0 1.7 -41.2% 4.2 7.5 -44.0%
Earnings before
income taxes 3.7 2.5 48.0% 44.2 26.6 66.2%
Income taxes/(recovery) (2.3) (0.7) 228.6% 10.8 5.9 83.1%
Net earnings 6.0 3.2 87.5% 33.4 20.7 61.4%
Earnings per share
- basic 0.18 0.10 80.0% 1.02 0.62 64.5%
Cash dividend per share 0.18 0.16 12.5% 0.69 0.64 7.8%
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1. During the year the Company reclassified certain costs previously
recorded in SG&A to costs of goods sold and reclassified the
comparative periods
2. EBITDA is defined as earnings before interest, taxes, depreciation
and amortization and described in more detail at the end of this
release.
HIGHLIGHTS
Fourth Quarter Summary
- EBITDA of $13.7 million was consistent with a year earlier after
giving effect to $0.8 million in severance and other costs relating
to the cost improvement initiatives.
- Pre-tax earnings increased $1.2 million or 48% as a result of lower
SG&A due to foreign exchange gains and lower interest costs.
- In the quarter, the Company recognized $2.0 million in tax recoveries
related to utilization of previously unrecognized U.S. tax loss
carryforwards and also benefitted from favourable adjustments for
income taxed at lower rates throughout the year.
- Subsequent to year end, MET was awarded two new contracts, worth a
total of U.S.$150 million, to provide systems for reducing industrial
sulphur emissions. The first contract involves upgrades of the flue
gas desulphurization systems at several coal-fired plants for a North
American power producer. The other contract is for the retrofit of an
FGD system for a chemical producer in Poland.
Strong 2009 Financial Performance
- Gross profit was 12.4% higher at $116.0 million largely due to the
recognition of the incremental revenue in MET, increased gross profit
in Western Markets and the positive foreign exchange impact offset by
lower volumes and increased costs in Industrial Services. Revenue
decreased by 6.9% to $300.5 million on lower volumes and decreases in
sulphur prices.
- EBITDA increased 19.3% to $82.3 million due to the results of MET and
Western Markets.
- Interest savings were realized on decreases in debt levels and lower
rates.
- Net earnings increased to $33.4 million, 61.4% higher than in 2008.
Commenting on the results, Marsulex President and Chief Executive Officer, Mr. Laurie Tugman, said, "We were pleased with the overall performance for 2009, despite the economic challenges. We have now realized five consecutive years of growth in EBITDA and net earnings, demonstrating the underlying strength and sustainability of our business through the economic cycle."
Mr. Tugman also noted that "We are also working diligently to cultivate new business development opportunities. The strengthening of our senior management team in 2009, including the appointment of Randy Hull as Senior VP, Development, Sales and Marketing, was done with this in mind and we are ramping up our marketing efforts."
Financial Performance for Fourth Quarter
Revenue and gross profit decreased by 16.5% and 11.7%, respectively, as a result of lower revenues in Industrial Services and Western Markets, decreases in sulphur prices, the timing of project activity in MET and the negative impact of foreign exchange. The impact of foreign exchange decreased quarterly revenues and gross profit by $4.1 million and $0.7 million respectively. Gross profit as a percent of revenue was up 2 percentage points as a result of lower input costs in the West.
Total SG&A reflects the gain from foreign exchange on monetary items, the favourable impact of translating U.S. dollar denominated costs ($0.3 million), lower legal costs ($0.2 million), and a decrease in short-term incentive plan costs ($0.4 million). In the fourth quarter of 2008, the Company also recognized an increase of $0.7 million in allowance for doubtful accounts. These amounts were partially offset by higher long-term incentive and director DSU plan costs resulting from "mark-to-market" adjustments for changes in the underlying share price ($4.4 million), severance costs, namely, in Corporate ($0.5 million), and costs associated with the cost improvement initiatives ($0.3 million).
Earnings before income taxes were $3.7 million compared to $2.5 million for the same period in 2008. Lower interest costs and a 2008 impairment charge more than offset the decrease in gross profit.
The Company recorded net earnings of $6.0 million for the three months ended December 31, 2009 compared to $3.2 million for the same period in 2008. The 2009 balance reflects a $2.3 million income tax recovery ($0.7 million recovery in 2008).
Cash generated by operations for the three months ended December 31, 2009 was $13.9 million compared to $17.8 million for the same period in 2008. The change in non-cash operating working capital from 2008 is largely related to the timing of the settlement of working capital items.
Total maintenance capital expenditures were $18.8 million, compared to $15.5 million for 2008. The increased spending was related primarily to projects at the Company's Toledo, Montreal and Blainville sites.
Operating Group Results
The Industrial Services Group had decreases in revenue and gross profit for both the quarter and the year. The decrease in revenue reflected lower prilled sulphur revenue (on lower sulphur prices) and refinery customer volumes partially offset by higher hazardous waste processed from remediation projects. The gross profit decrease was a result of the lower volumes, higher maintenance costs, and severance costs partially offset by lower input costs. Foreign exchange had a positive impact for the year and a negative impact for the quarter on revenues and gross profit. For the year, gross profit as a percent of revenue increased reflecting lower input costs and cost pass-through's offset by higher maintenance costs.
The Western Markets Group had a decrease in revenue for the quarter and year reflecting decreased sales and volumes, primarily of sulphur-based products. Gross profit and gross profit as a percent of revenue increased for the year, reflecting lower input costs, primarily sulphur and fuel.
The decrease in fourth quarter results for MET reflects the timing of project activity and the negative impact of foreign exchange (decreases in revenue and gross profit by $1.9 million and $0.8 million, respectively). The Group's revenue and gross profit for 2009 reflect the recognition of incremental revenue and earnings relating to project closeouts and the termination of a previously announced project, as revenue and earnings that would have been recognized over the course of the project have all been accounted for in 2009. Revenue and gross profit also reflect the positive impact of foreign exchange, $5.6 million and $2.0 million respectively, and the timing of project activity. The gross profit as a percent of revenue for the year reflects the mix of project revenues and licensing and royalty activity.
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Three months ending Year Ended
December 31 December 31
(In thousands of dollars) 2009 2008 2009 2008
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Corporate costs $ 3,806 $ 3,371 $ 14,719 $ 13,183
Long-term incentive plans and
Directors DSU's (recovery)
expense 2,272 (2,137) 6,208 (2,402)
Foreign exchange losses (gains) (552) 4,988 (5,035) 6,509
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Corporate Support costs $ 5,526 $ 6,222 $ 15,892 $ 17,290
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The decrease in Corporate Support costs for the quarter and year primarily reflects the higher costs of the long-term incentive and Director DSU plan and the costs associated with severance and improvement initiatives offset by the impact of foreign exchange fluctuations on U.S. dollar denominated monetary items. The increased costs relating to the long-term incentive plans reflect the increase in the year-end closing price for the Company's Common Stock: an approximate 46% increase for the year and an approximate 17% increase for the fourth quarter. The increase in the value of the Canadian dollar, an approximate 17% increase for the year and an approximate 2% fourth quarter increase in 2009, resulted in the foreign exchange gains on monetary items for the quarter and year ended December 31, 2009.
The net impact of the foreign exchange on the business is as follows:
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Three months ending Year Ended
December 31 December 31
(Gains/(losses) in thousands
of dollars) 2009 2008 2009 2008
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Impact on gross margin and SG&A $ (400) $ 1,700 $ 4,600 $ (700)
Impact on U.S. denominated net
monetary items (552) (4,988) 5,035 (6,509)
Impact on Comprehensive Income (866) 1,156 (3,796) 3,904
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U.S dollar denominated net
monetary liabilities (24,287) (41,003)
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Average foreign exchange 0.9491 0.8161 0.8746 0.9506
Closing foreign exchange 0.9555 0.8166
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The impact of a one-cent increase in the value of the Canadian dollar on the Company's U.S. denominated operating results for the year ended December 31, 2009, including translation differences, is an approximate $0.3 million decrease in EBITDA.
Interest expense for the quarter and year ended December 31, 2009 reflects a decrease in the average debt and reduced interest rates. As at December 31, 2009, approximately 77.4% of the Company's total debt was variable interest debt and subject to near term interest rate fluctuations. The interest rate on the long-term loan is fixed under contractual agreements and bears interest of 7.3% per annum, while the combined rate on the variable rate debt was 1.3% at December 31, 2009. Based on the outstanding balances of the variable interest debt at December 31, 2009, a change in interest rate of 1% would result in an approximate $1.1 million change in annual interest expense.
The increase in pre-tax earnings and net earnings reflects MET revenues, the positive foreign exchange impact and a lower interest expense partially offset by lower volumes in Industrial Services and Western Markets, decreases in sulphur prices and an increase in the LTIP and DSU expense. The effective tax rate for the year ended December 31, 2009 was 24.3%. The 2009 tax rate, when compared to the statutory rate of 33%, reflects the recognition of previously unrecognized U.S. future tax assets and the non-taxable portion of capital gains on the Senior Secured Term Loan. The effective tax rate for the year ended December 31, 2008 reflected the utilization of previously unrecognized U.S. tax loss carry forwards, and the effect of foreign exchange gains on the reduction of self-sustaining operations which are not taxable.
Cash tax is dependent on the Company's earnings by legal entity, the availability of tax losses and accelerated tax depreciation on property, plant and equipment and other deductions to reduce taxable income. In 2009 the Company paid $8.5 million in cash taxes compared to $3.0 million in 2008, resulting from the incremental revenues recognized in MET and additional instalments.
Outlook
Improved economic conditions have created a more confident outlook for 2010 than a year ago. The Company's businesses and customer relationships remain strong, and while acknowledging there remains some uncertainty as to the strength and timing of a full economic recovery, Marsulex is well positioned to take advantage of improvements in economic activity.
Management is implementing changes to take advantage of several cost savings opportunities. It is anticipated that these initiatives will have a measurable impact on operational costs beyond 2010.
The strengthening of the leadership team is expected to foster improved performance in several key areas including revenue growth and talent management.
Excluding incremental expenditures the Company will incur on upgrades to the two Ohio facilities per the terms of the U.S. EPA settlement agreement, the Company expects to invest a similar amount of maintenance capital expenditures in 2010 as it did in 2009.
The Company's strategy of providing essential services to customers in critical industries combined with a solid capital base, its strong cash flow, healthy balance sheet, and strengthening operations it is well positioned to take advantage of improvements in the economy. The Company remains optimistic for 2010.
Marsulex, which is based in Toronto, Ontario, is a leading provider of industrial services, including environmental compliance solutions for air quality control, processing or handling of industrial by-products or waste streams, and is a producer and marketer of sulphur-based industrial chemicals. The Company's services and products are provided to a broad base of industrial customers in a wide range of industries. Website: www.marsulex.com
A conference call with analysts and portfolio managers to review the fourth quarter 2009 results will be webcast live on www.marsulex.com and www.newswire.ca on Thursday, March 4, 2010 at 10:00 a.m. Eastern Time.
Information in this news release that is not current or historical factual information may constitute forward-looking information, including future-oriented financial information and financial outlooks, within the meaning of securities laws. This information is based on certain assumptions regarding expected growth, results of operations, performance, and business prospects and opportunities (collectively, the "Assumptions"). While the Company considers these Assumptions to be reasonable, based on information currently available, they may prove to be incorrect. Forward-looking information is subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from what the Company currently expects. These risks, uncertainties and other factors include, but are not limited to: the Company's ability to renegotiate contracts; the impact of acquisitions and growth opportunities; the timing and market acceptance of future products; competition in the Company's markets; the Company's reliance on customers; fluctuations in currency and exchange rates; commodity prices or interest rates; the Company's ability to maintain good relations with its employees; changes in the law or regulations regarding the environment or other environmental liabilities; the Company's ability to integrate acquisitions; and the Company's ability to protect its intellectual property (collectively, the "Risks"). For more exhaustive information on these Risks you should refer to our Company's filings with the securities regulatory authorities, including the Company's most recently filed annual information form, which is available on SEDAR at www.sedar.com. To the extent any forward-looking information in this news release constitutes future-oriented financial information or financial outlooks, within the meaning of securities laws, such information is being provided to demonstrate the potential of the Company and readers are cautioned that this information may not be appropriate for any other purpose. Future-oriented financial information and financial outlooks, as with forward-looking information generally, are based on the Assumptions and subject to the Risks.
Actual results may differ materially from what the Company currently expects. Other than as required under securities laws, we do not undertake to update any forward-looking information at any particular time. The reader should not place undue importance on forward-looking information and should not rely upon this information as of any other date. All forward-looking information contained in this news release is expressly qualified in its entirety by this cautionary statement.
Summarized financial information (unaudited)
(In thousands of dollars, except per share information)
Summarized Balance Sheet
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December December
31, 2009 31, 2008
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Assets:
Cash and cash equivalents $ 41,678 $ 35,986
Cash held in trust 1,010 837
Other current assets 40,685 45,390
Long term investments 900 900
Property, plant and equipment,
intangible and other assets,
and goodwill 285,362 311,820
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$369,635 $394,933
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Liabilities and Shareholders' Equity
Current liabilities $ 91,806 $ 83,016
Long-term debt 118,696 150,451
Other liabilities 11,732 21,941
Future income tax liability 31,311 25,646
Shareholders' equity 116,090 113,879
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$369,635 $394,933
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Summarized Income Statement
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Three months ending Year ending
December 31, December 31,
2009 2008 2009 2008
-------------------------------------------------------------------------
Revenue $ 62,763 $ 75,123 $300,488 $322,567
Gross profit 23,467 26,494 116,031 103,212
Gross profit as a percent
of revenue 37.4% 35.3% 38.6% 32.0%
Selling, general, administrative
and other 9,720 11,553 33,751 34,173
Depreciation and amortization 8,992 8,951 33,870 33,121
Charges for asset impairment - 1,799 - 1,799
Net interest expense 962 1,688 4,187 7,539
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Earnings before income taxes 3,793 2,503 44,223 26,580
Income taxes/(recovery) (2,166) (738) 10,748 5,927
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Net earnings $ 5,959 $ 3,241 $ 33,475 $ 20,653
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Total Comprehensive Income $ 5,092 $ 4,397 $ 29,679 $ 24,557
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Earnings per share - Basic $ 0.18 $ 0.10 $ 1.02 $ 0.62
Earnings per share - Diluted $ 0.18 $ 0.09 $ 1.01 $ 0.61
Summarized Cash Flow Statement
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Three months ending Year ending
December 31, December 31,
2009 2008 2009 2008
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Cash provided by operations before
changes in working capital $ 12,676 $ 14,340 $ 60,957 $ 60,876
Changes in non-cash working
capital 1,267 3,456 (2,633) 19,670
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Cash from operating activities $ 13,943 $ 17,796 $ 58,324 $ 80,546
Financing activities (6,584) (5,772) (28,761) (41,800)
Investing activities
Additions to property, plant
and equipment
- Maintenance capital
expenditures(1) (8,273) (4,066) (18,827) (15,531)
Additions to intangible assets (209) - (758) -
Increase in cash held in trust (43) (47) (173) (150)
Net (increase) decrease in
other assets (11) 14,872 (1,425) 3,471
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Total investing activities (8,536) 10,759 (21,183) (12,210)
Foreign exchange gain (loss) on
cash held in foreign currency (182) 57 (2,688) 428
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Increase (decrease) in cash and
cash equivalents (1,359) 22,840 5,692 26,964
Cash and cash equivalents -
beginning of period 43,037 13,146 35,986 9,022
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Cash and cash equivalents -
end of period $ 41,678 $ 35,986 $ 41,678 $ 35,986
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Income taxes paid, net of refunds $ 1,759 $ 2,243 $ 8,479 $ 3,032
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1. including expenditures for placement cells recorded as other costs
Supplement Business Segment Information (unaudited)
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For the three
months ended Industrial
December 31 Services Western Markets MET
(in thousands
of dollars) 2009 2008 2009 2008 2009 2008
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Revenue $ 39,277 $ 46,268 $ 16,548 $ 19,988 $ 6,938 $ 8,867
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Gross profit $ 15,209 $ 18,802 $ 6,664 $ 5,813 $ 1,594 $ 1,879
SGA(1) 1,971 2,978 657 684 1,567 1,669
Foreign
exchange
(gains)
losses - - - - - -
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Earnings
(loss) before
the under
noted $ 13,238 $ 15,824 $ 6,007 $ 5,129 $ 27 $ 210
Depreciation 6,236 6,065 784 870 18 27
Amortization
of deferred
charges and
intangible
assets 1,733 1,918 - - 26 -
Charges for
asset
impairment - 1,799 - - - -
Net Interest
expense - - - - - -
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Earnings
(loss)
before
income taxes $ 5,269 $ 6,042 $ 5,223 $ 4,259 $ (17) $ 183
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Capital
expenditures $ 6,290 $ 3,118 $ 1,670 $ 529 $ - $ -
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For the three Inter-segment
months ended Revenue
December 31 Corporate Support Total
(in thousands
of dollars) 2009 2008 2009 2008
-----------------------------------------------------
Revenue $ - $ - $ 62,763 $ 75,123
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Gross profit $ - $ - $ 23,467 $ 26,494
SGA(1) 6,078 1,234 10,273 6,565
Foreign
exchange
(gains)
losses (552) 4,988 (552) 4,988
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Earnings
(loss) before
the under
noted $ (5,526) $ (6,222) $ 13,746 $ 14,941
Depreciation 196 71 7,234 7,033
Amortization
of deferred
charges and
intangible
assets - - 1,759 1,918
Charges for
asset
impairment - - - 1,799
Net Interest
expense 961 1,688 961 1,688
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Earnings
(loss)
before
income taxes $ (6,683) $ (7,981) $ 3,792 $ 2,503
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Capital
expenditures $ 255 $ 307 $ 8,215 $ 3,954
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For the year
ended Industrial
December 31 Services Western Markets MET
(in thousands
of dollars) 2009 2008 2009 2008 2009 2008
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Revenue from
external
customers $160,961 $194,509 $ 68,800 $ 81,341 $ 70,727 $ 46,717
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Gross profit $ 60,552 $ 68,334 $ 26,846 $ 24,718 $ 28,633 $ 10,160
SGA(1) 9,138 9,603 2,484 2,384 6,237 4,896
Foreign
exchange
(gains)
losses - - - - - -
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Earnings
(loss) before
the under
noted $ 51,414 $ 58,731 $ 24,362 $ 22,334 $ 22,396 $ 5,264
Depreciation 23,699 22,746 2,974 2,994 84 108
Amortization
of deferred
charges and
intangible
assets 6,681 6,955 - - 26 -
Charges for
asset
impairment - 1,799 - - - -
Net interest
expense - - - - - -
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Earnings
(loss)
before
income taxes $ 21,034 $ 27,231 $ 21,388 $ 19,340 $ 22,286 $ 5,156
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Capital
expenditures $ 11,819 $ 7,684 $ 5,034 $ 6,022 $ - $ -
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Total assets
before
goodwill and
intangible
assets $193,055 $210,568 $ 36,199 $ 35,733 $ 1,238 $ 2,862
Goodwill and
intangible
assets, net
of accumulated
amortization 82,721 95,389 4,468 4,468 5,949 6,144
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Total assets $275,776 $305,957 $ 40,667 $ 40,201 $ 7,187 $ 9,006
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For the year Inter-segment
ended Revenue
December 31 Corporate Support Total
(in thousands
of dollars) 2009 2008 2009 2008
-----------------------------------------------------
Revenue from
external
customers $ - $ - $300,488 $322,567
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Gross profit $ - $ - $116,031 $103,212
SGA(1) 20,927 10,781 38,786 27,664
Foreign
exchange
(gains)
losses (5,035) 6,509 (5,035) 6,509
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Earnings
(loss) before
the under
noted $(15,892) $(17,290) $ 82,280 $ 69,039
Depreciation 406 318 27,163 26,166
Amortization
of deferred
charges and
intangible
assets - - 6,707 6,955
Charges for
asset
impairment - - - 1,799
Net interest
expense 4,187 7,539 4,187 7,539
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Earnings
(loss)
before
income taxes $(20,485) $(25,147) $ 44,223 $ 26,580
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Capital
expenditures $ 318 $ 514 $ 17,171 $ 14,220
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Total assets
before
goodwill and
intangible
assets $ 46,005 $ 39,769 $276,497 $288,932
Goodwill and
intangible
assets, net
of accumulated
amortization - - 93,138 106,001
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Total assets $ 46,005 $ 39,769 $369,635 $394,933
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1. Selling, general, and administrative costs.
EBITDA
EBITDA is a supplemental, non-generally accepted accounting principle financial measure. EBITDA is defined as earnings before interest, taxes, depreciation, and amortization or "EBITDA". It is used by management internally to measure the performance of the business as a whole as well as to measure the performance of the individual segments and also forms the primary basis upon which employees of the Company receive incentive compensation. EBITDA is also used by the Company as a basis to measure compliance with certain debt covenants. EBITDA is presented as supplemental information because management, through its discussions with key stakeholders of the Company including shareholders, analysts and other financial institutions, believes it is a widely used financial indicator of the Company's operating profitability and performance before the effects of capital investment and financing decisions. Since EBITDA is not a recognized measure under Canadian generally accepted accounting principles ("GAAP"), it should not be considered in isolation of, or as a substitute for net earnings, consolidated cash flow from operations or any other measure of performance required by GAAP or as an indicator of the Company's operating performance. The Company's method of calculating EBITDA may differ from other companies and accordingly, the Company's EBITDA may not be comparable to measures used by other companies. In addition, this measure does not necessarily represent funds available for discretionary use, and is not necessarily a measure of the Company's ability to fund its cash requirements. The Company's non-GAAP performance measure, EBITDA, has certain material limitations as follows:
- It does not include interest expense. Because the Company has
borrowed money to finance some of its operations, interest is a
necessary part of the Company's costs and ability to generate
revenue. Therefore, any measure that excludes interest has material
limitations;
- It does not include depreciation and amortization expense. Because
the Company must utilize capital assets in order to generate
revenues, depreciation and amortization expense is a necessary and
ongoing part of the Company's costs. Therefore, any measure that
excludes depreciation and amortization expense has material
limitations; and,
- It does not include taxes. Because the payment of taxes is a
necessary and ongoing part of the Company's operations, any measure
that excludes taxes has material limitations.
Management compensates for these limitations by considering the economic effect of the excluded expense items independently as well as in connection with its analysis of net earnings. Because we use EBITDA to evaluate our financial performance, we reconcile it to net earnings which is the most comparable financial measure calculated and presented in accordance to GAAP. The following is a reconciliation of EBITDA to net earnings:
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Three months ending Year ending
December 31 December 31
(in millions of dollars) 2009 2008 2009 2008
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Earnings before the undernoted
(EBITDA) $13.7 $14.9 $82.3 $69.0
Depreciation, amortization, asset
impairment, and other charges 9.0 10.7 33.9 34.9
Net interest expense 1.0 1.7 4.2 7.5
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Earnings before income taxes 3.7 2.5 44.2 26.6
Income taxes/(recovery) (2.3) (0.7) 10.8 5.9
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Net earnings $ 6.0 $ 3.2 $33.4 $20.7
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For further information: Laurie Tugman, President and CEO, Tel: (416) 496-4157; or William Martin, Chief Financial Officer, Tel: (416) 496-4164
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