Shawcor Ltd. Announces Third Quarter 2009 Results
(TSX: SCL.A, SCL.B)
TORONTO, Nov. 3 /PRNewswire-FirstCall/ -
Financial Summary
(in thousands of Canadian Three Months Ended Nine Months Ended
dollars except per September 30, September 30,
share amounts) 2009 2008 2009 2008
Restated Restated
(note 1) (note 1)
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Operating Results
Revenue $ 302,812 $ 357,249 $ 923,067 $ 945,724
EBITDA (note 2) 64,472 68,611 200,069 163,567
Operating income from
continuing operations 49,972 52,315 153,584 120,423
Income from continuing
operations 33,690 33,962 99,553 78,708
Income (loss) from
discontinued operations 57 (82) 371 10,402
Net income 33,747 33,880 99,924 89,110
Net income (loss) per share
(Class A and B) - Basic
Continuing operations 0.48 0.48 1.41 1.11
Discontinued operations 0.00 0.00 0.01 0.15
Total 0.48 0.48 1.42 1.26
Net income (loss) per share
(Class A and B) - Diluted
Continuing operations 0.48 0.47 1.41 1.10
Discontinued operations 0.00 0.00 0.01 0.14
Total 0.48 0.47 1.42 1.24
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Cash Flow
Cash provided by continuing
operating activities 59,575 23,967 156,395 78,437
Additions to property,
plant and equipment 5,751 23,085 25,926 61,999
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Financial Position
Working capital 274,196 168,891
Total assets 1,136,627 1,131,541
Shareholders' equity per
share (Class A and B)
(note 3) $ 10.90 $ 9.18
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Note 1: Restated for change in accounting policy. Refer to note 1 to the
interim consolidated financial statements for the three and nine months
ended September 30, 2009.
Note 2: EBITDA is a non-GAAP measure calculated by adding back to income
from continuing operations, the sum of interest (income)/expense, taxes
and depreciation/amortization of property, plant and equipment and
intangible assets. EBITDA does not have a standardized meaning prescribed
by GAAP and is not necessarily comparable to similar measures prescribed
by other companies. EBITDA is used by many analysts in the oil and gas
industry as one of several important analytical tools. The following is
the calculation of EBITDA for the periods presented above:
Income from continuing
operations $ 33,690 $ 33,962 $ 99,553 $ 78,708
Add (deduct):
Income taxes 15,607 15,741 50,121 38,394
Interest expense - net 675 2,523 3,910 3,505
Amortization of property,
plant and equipment 13,405 15,400 43,200 41,907
Amortization of
intangible assets 1,095 985 3,285 1,053
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EBITDA $ 64,472 $ 68,611 $ 200,069 $ 163,567
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Note 3: Shareholders' equity per share is a non-GAAP measure calculated
by dividing shareholders' equity by the number of Class A and Class B
shares outstanding at the date of the balance sheet.
ShawCor Ltd. ("ShawCor" or the "Company") is a growth-oriented, global energy
services company specializing in technology-based products and services for
the Pipeline and Pipe Services and the Petrochemical and Industrial markets.
The Company operates seven divisions with over seventy manufacturing, sales
and service facilities located around the world.
Third Quarter 2009 Highlights
Consolidated revenue from continuing operations for the third quarter of 2009
totaled $302.8 million, a decrease of $54.4 million or 15.2%, compared to the
third quarter of 2008, with the decrease related to reduced market activity in
both of the Company's industry segments. The decrease in the Pipeline and Pipe
Services segment was mainly as a result of lower small diameter pipe coating
volumes stemming from a decline in drilling activity in North America as well
as reduced pipe coating project volumes in Europe and the Middle East. Revenue
in the Petrochemical and Industrial segment decreased primarily as a result of
reduced business activity levels due to the soft economic conditions in
industrial and automotive markets in North America and Western Europe. The
decrease was partially offset by the impact on the translation of the
Company's U.S. dollar denominated revenue from the year over year weakening of
the Canadian dollar.
During the third quarter of 2009, the effect of foreign exchange fluctuations
on the translation of foreign currency operations had a favourable impact on
revenue, operating income from continuing operations and net income of
approximately $8.5 million, $4.5 million and $2.6 million, respectively,
compared to the third quarter of 2008.
Operating income from continuing operations totaled $50.0 million in the third
quarter, a 4.5% decrease compared to the $52.3 million reported in the third
quarter of 2008 with the 15.2% year over year revenue reduction partially
offset by improved operating margins in the Pipeline and Pipe Services segment
resulting from improved manufacturing efficiencies and lower manufacturing
input costs. Net income in the third quarter of 2009 totaled $33.7 million
($0.48 per share, diluted) and remained relatively flat compared to the net
income in the third quarter of 2008 of $33.9 million ($0.47 per share,
diluted).
First Nine Months of 2009 Highlights
Consolidated revenue from continuing operations in the first nine months of
2009 was $923.1 million, compared to $945.7 million in the first nine months
of 2008, a decrease of $22.6 million or 2.4%. The decrease was primarily due
to lower revenues in both of the Company's industry segments as a result of
reduced market activity, partially offset by the favourable effect of foreign
exchange fluctuations.
During the first nine months of 2009, the effect of foreign exchange
fluctuations on the translation of foreign currency operations had a
favourable impact on revenue, operating income from continuing operations and
net income of approximately $69.5 million, $25.9 million and $16.7 million,
respectively, compared to the first nine months of 2008.
Net income in the first nine months of 2009 totaled $99.9 million ($1.42 per
share, diluted) compared to $89.1 million ($1.24 per share, diluted) in the
first nine months of 2008, an increase of $10.8 million ($0.18 per share,
diluted) or 12.1%. The increase was primarily due to higher operating income,
partially offset by a $10.4 million ($0.14 per share, diluted) reduction in
income from discontinued operations as the Company had recorded a settlement
of a lawsuit related to the Company's closed pipe coating operation in Mobile,
Alabama in the first nine months of 2008.
The Company's backlog at September 30, 2009 of $239.9 million declined 20.4%
from the level at the beginning of the quarter as strong revenue exceeded new
order bookings. However, subsequent to the quarter ended September 30, 2009,
the Company has secured letters of intent for several large pipe coating
projects with customers in Canada (approximately $54.0 million in revenue
value) that are not included in the backlog. In South East Asia, ShawCor's
pipe coating division has secured a letter of intent relating to the PNG LNG
project in Papua New Guinea (approximately $180.0 million in revenue value)
which, if the project is sanctioned for construction, will have a significant
positive impact on the Company's backlog.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following Management Discussion and Analysis ("MD&A") is intended to help
the reader understand the results of operations and financial condition of the
Company. The MD&A should be read in combination with the Consolidated
Financial Statements and accompanying notes, and the MD&A included in the
Company's 2008 Annual Report. All dollar amounts in the MD&A are in thousands
of Canadian dollars, except per share amounts, or unless otherwise stated.
Revenue, Income from Operations and Net Income
ShawCor classifies its revenue and income from operations into two industry
segments: Pipeline and Pipe Services, and Petrochemical and Industrial.
Discussion of the consolidated operating results and operating results for
each of these segments follows:
Consolidated Results
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Three months ended
(in thousands of September 30, June 30, September 30,
Canadian dollars) 2009 2009 2008
Restated(a)
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Revenue from continuing operations $302,812 $312,791 $357,249
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Operating income from
continuing operations $49,972 $53,178 $52,315
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Operating margin 16.5% 17.0% 14.6%
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(a) Restated for a change in accounting policy - refer to note 1 to the
interim consolidated financial statements for the period ended
September 30, 2009.
Third Quarter 2009 versus Third Quarter 2008
Consolidated revenue from continuing operations for the third quarter of 2009
totaled $302.8 million, a decrease of $54.4 million or 15.2%, compared to the
third quarter of 2008, which was related to decreases across both industry
segments. The decrease in the Pipeline and Pipe Services was mainly as a
result of lower small diameter pipe coating volumes resulting from lower
levels of drilling activity in North America. Revenue related to the
Petrochemical and Industrial segment decreased primarily as a result of
reduced business activity levels due to the soft economic conditions in
industrial and automotive markets in North America and Western Europe.
During the third quarter of 2009, the effect of foreign exchange fluctuations
on the translation of foreign currency operations had a favourable impact on
revenue, operating income from continuing operations and net income of
approximately $8.5 million, $4.5 million and $2.6 million, respectively
compared to the third quarter of 2008.
Operating income from continuing operations totaled $50.0 million (16.5% of
revenue from continuing operations) in the third quarter, representing a 4.5%
decrease compared to the $52.3 million (14.6% of revenue from continuing
operations) achieved in the third quarter of 2008. The decrease was primarily
due to the year over year revenue reduction partially offset by the improved
operating margins in the Pipeline and Pipe Services segment resulting from
improved manufacturing efficiencies and lower manufacturing input costs.
Net income in the third quarter of 2009 totaled $33.7 million ($0.48 per
share, diluted) and remained relatively flat compared to the net income in the
third quarter of 2008 of $33.9 million (0.47 per share, diluted).
Third Quarter 2009 versus Second Quarter 2009
Consolidated revenue from continuing operations in the third quarter of 2009
decreased by $10.0 million or 3.2% compared to the second quarter of 2009. The
decrease was primarily due to the unfavourable impact of foreign exchange rate
fluctuations.
During the third quarter of 2009, the effect of foreign exchange fluctuations
on the translation of foreign currency operations had an unfavourable impact
on revenue, operating income from continuing operations and net income of
approximately $17.4 million, $5.9 million and $3.9 million, respectively,
compared to the second quarter of 2009.
Operating income from continuing operations and net income in the third
quarter of 2009 decreased $3.2 million or 6.0% and $889 thousand or 2.6%,
respectively, compared to the second quarter of 2009, primarily due to the
decrease in consolidated revenue.
First nine months of 2009 versus First nine months of 2008
Consolidated revenue from continuing operations in the first nine months of
2009 was $923.1 million, compared to $945.7 million in the first nine months
of 2008, a decrease of $22.6 million or 2.4%. The decrease was primarily due
to lower revenue in both of the Company's industry segments as a result of
reduced market activity, partially offset by the favourable effect of foreign
exchange fluctuations.
During the first nine months of 2009, the effect of foreign exchange
fluctuations on the translation of foreign currency operating results had a
favourable impact on revenue, operating income from continuing operations and
net income of approximately $69.5 million, $25.9 million and $16.7 million,
respectively compared to the first nine months of 2008.
Operating income from continuing operations in the first nine months of 2009
increased $33.2 million or 27.5%, compared to the first nine months of 2008.
The increase was primarily due to the improved operating margins as a result
of greater manufacturing efficiencies and reduced manufacturing input costs,
partially offset by the impact of lower revenue on facility utilization and
overhead absorption in the period.
Net income for the first nine months of 2009 increased $10.8 million ($0.18
per share, diluted) or 12.1%, compared to the first nine months of 2008,
primarily due to higher operating income, partially offset by a $10.4 million
($0.14 per share, diluted) reduction in income from discontinued operations as
the Company had recorded a settlement of a lawsuit related to the Company's
closed pipe coating operation in Mobile, Alabama in the first nine months of
2008.
Pipeline and Pipe Services
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Three months ended
(in thousands of September 30, June 30, September 30,
Canadian dollars) 2009 2009 2008
Restated(a)
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Revenue from continuing operations $273,262 $283,888 $323,347
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Operating income from
continuing operations $53,433 $58,853 $52,971
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Operating margin 19.6% 20.7% 16.4%
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(a) Restated for a change in accounting policy - refer to note 1 to the
interim consolidated financial statements for the period ended
September 30, 2009.
Third Quarter 2009 vs. Third Quarter 2008
In the Pipeline and Pipe Services segment, revenue in the third quarter of
2009 totaled $273.3 million and was $50.1 million or 15.5% lower than in the
third quarter of 2008, primarily due to a decrease in revenue at Bredero Shaw
and Flexpipe Systems.
Revenue for Bredero Shaw in the third quarter of 2009 decreased 15.3% compared
to the third quarter of 2008 mainly as a result of a decline in drilling
activity in North America as well as reduced pipe coating project volumes in
Europe and the Middle East, partially offset by the favourable impact of the
weaker Canadian dollar on the translation of the division's mainly U.S.
dollar-based revenue. In the Europe, Africa and Russia region, revenue
decreased by 89.4% as low utilization at the Leith, Scotland and Orkanger,
Norway facilities contrasted with the third quarter of 2008 when the
Badarastskaya Bay and Pluto projects had contributed strong volumes. Revenue
in the Middle East region decreased by 61.1% in the third quarter of 2009
compared to the third quarter of 2008, primarily due to lower pipe coating
project activity in Saudi Arabia and Ras Al Khaimah. In the Asia Pacific
region, revenue increased 9.6% due mainly to higher levels of pipe coating
activity at the region's plant in Kabil, Indonesia. In the America's region,
revenue in the third quarter of 2009 increased by 23.1% from the third quarter
of 2008, mainly due to strong growth in Mexico and $50.5 million in revenue
contributed by the North East Offshore and Tobago pipeline projects in
Trinidad, partially offset by a decrease in small diameter pipe coating
activity in Western Canada and the U.S., which declined by 46.1% and 19.4%,
respectively.
Revenue for Flexpipe Systems in the third quarter of 2009 decreased 55.4%
compared to the third quarter of 2008 as a result of the continuing low levels
of drilling and well completion activity in Western Canada.
Operating income from continuing operations in the quarter for the segment
totaled $53.4 million (19.6% of revenue from continuing operations) and
increased marginally from $53.0 million (16.4% of revenue from continuing
operations) in the third quarter of 2008. The improvement in operating margins
of 3.2 percentage points was the result of improved manufacturing
efficiencies, reduced manufacturing input costs and a reduction in fixed costs
stemming from the reorganization of Bredero Shaw's Europe, Africa and Russia
region.
Third Quarter 2009 versus Second Quarter 2009
In the Pipeline and Pipe Services segment, revenue in the third quarter of
2009 was 3.7% lower than in the second quarter of 2009 primarily due to a
decrease at Bredero Shaw, partially offset by an increase at Shaw Pipeline
Services.
Revenue in the quarter at Bredero Shaw decreased mainly due to the unfavorable
effect of foreign exchange fluctuations, lower large diameter pipe coating
project volumes in North America and the impact of the winding down of several
large diameter pipe coating projects in the Middle East and Europe, Africa and
Russia regions, partially offset by an increase in revenue relating to the
Trinidad project and stronger volumes at the Kabil Indonesia facility. Revenue
in the quarter at Shaw Pipeline Services increased primarily due to increased
higher levels of U.S. land-based pipeline girth well inspection activity.
Operating income from continuing operations in the third quarter of 2009 was
9.2% lower than the level achieved in the second quarter of 2009, primarily as
a result of the decrease in revenue in the third quarter of 2009. Operating
margin in the third quarter of 2009 decreased by 1.1 percentage points when
compared to the second quarter of 2009, primarily due to the unfavorable
effect of foreign exchange fluctuations.
First nine months of 2009 versus First nine months of 2008
Revenue in the first nine months of 2009 in the Pipeline and Pipe Services
segment was $837.1 million compared to $838.1 million in the first nine months
of 2008. The marginal decrease was primarily due to a decrease at Bredero Shaw
as a result of lower small diameter pipe coating volumes in North America,
almost entirely offset by the inclusion of revenue from Flexpipe Systems,
which was acquired on June 27, 2008 and the favourable impact of the weaker
Canadian dollar on the translation of foreign currency operating results.
Operating income from continuing operations in the first nine months of 2009
was $168.9 million compared to $119.3 million for the first nine months of
2008, an increase of $49.6 million or 41.6%. The increase was primarily due to
a 5.9 percentage point increase in operating margins, the result of improved
manufacturing efficiencies and a decrease in manufacturing input costs.
Petrochemical and Industrial
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Three months ended
(in thousands of September 30, June 30, September 30,
Canadian dollars) 2009 2009 2008
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Revenue from continuing operations $29,916 $30,100 $34,246
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Operating income from
continuing operations $2,092 $2,208 $5,170
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Operating margin 7.0% 7.3% 15.1%
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Third Quarter 2009 versus Third Quarter 2008
In the Petrochemical and Industrial segment, revenue in the third quarter of
2009 totaled $29.9 million compared to $34.2 million in the third quarter of
2008, a decrease of $4.3 million or 12.6%. The decrease was primarily due to
reduced business activity levels at DSG-Canusa as a result of the
significantly weaker demand in industrial and automotive markets in North
America and Western Europe.
Operating income from continuing operations in the quarter for the segment
totaled $2.1 million (7.0% of revenue from continuing operations) compared to
$5.2 million (15.1% of revenue from continuing operations) in the third
quarter of 2008 and reflected the impact of the lower revenue in the period.
Third Quarter 2009 versus Second Quarter 2009
Revenue and operating income for the segment in the third quarter of 2009
decreased marginally over levels in the second quarter of 2009 and resulted
from the unfavorable effect of foreign exchange fluctuations.
First nine months of 2009 versus First nine months of 2008
Revenue for the Petrochemical and Industrial segment in the first nine months
of 2009 was $89.3 million compared to $109.0 million for the first nine months
of 2008, a decrease of $19.6 million or 18.0%. The decrease was mainly due to
a decline at DSG-Canusa as a result of the current global economic downturn,
especially in the automotive industry. ShawFlex revenue was also negatively
impacted during the first nine months of 2009 by lower industry wire and cable
prices as a result of reductions in the price of copper compared to the first
nine months of 2008.
Operating income in the first nine months of 2009 was $4.6 million and in the
first nine months of 2008 was $16.6 million, a decrease of $11.9 million or
72.1%. Operating margins declined by 10.0 percentage points, a result of the
decrease in revenue during the period, the impact of lower business activity
on factory utilization, and a one-time increase in fixed costs related to
restructuring at DSG-Canusa's European operations.
Financial and Corporate
Financial and corporate costs consist of corporate office costs not charged to
the operating divisions and other non-operating items including foreign
exchange gains and losses on cash balances.
Third Quarter 2009 versus Third Quarter 2008
Financial and corporate costs for the third quarter of 2009, before net
foreign exchange losses of $2.3 million, totaled $3.2 million a decrease of
$2.8 million from the $6.0 million in the third quarter of 2008, before net
foreign exchange gains of $247 thousand. The decrease compared to the second
quarter of 2008 was primarily due to the reversal of a provision related to
resolved workers compensation claims, lower professional fees and a higher
allocation of corporate costs to R&D expense reported in the Pipeline and Pipe
Services segment due to increased R&D activity.
Third Quarter 2009 versus Second Quarter 2009
Financial and corporate costs decreased by $3.1 million in the third quarter
of 2009 compared to the second quarter of 2009, primarily as a result of a
decrease in professional fees and general liability insurance costs.
First nine months of 2009 versus First nine months of 2008
Financial and corporate costs for the first nine months of 2009 totaled $17.5
million, before net foreign exchange losses of $2.5 million, a marginal
decrease compared to $17.6 million, before net foreign exchange gains of $2.3
million in the first nine months of 2008.
Net Interest Expense
Third Quarter 2009 versus Third Quarter 2008
Net interest expense totaled $675 thousand in the third quarter of 2009,
compared to $2.5 million in the third quarter of 2008, a decrease of $1.8
million primarily due to a repayment of Senior Notes of $28.7 million made in
the second quarter of 2009. Refer to note 8 to the interim consolidated
financial statements for the quarter ended September 30, 2009, for further
information.
Third Quarter 2009 versus Second Quarter 2009
Net interest expense decreased by $897 thousand in the third quarter of 2009
compared to the second quarter of 2009, primarily due to the repayment of
Senior Notes of $28.7 million, discussed above.
First nine months of 2009 versus First nine months of 2008
Net interest expense for the first nine months of 2009 totaled $3.9 million
compared to $3.5 million, in the first nine months of 2008, an increase of
$405 thousand. The increase was primarily due to lower cash balances as a
result of the Flexpipe Systems acquisition on June 27, 2008 and cash employed
to repurchase shares under the Normal Course Issuer Bid, partially offset by a
decrease in interest expense as a result of the repayment of Senior Notes of
$28.7 million, discussed above.
Income Taxes
Income tax expense related to continuing operations in the third quarter of
2009 was $15.6 million, an effective rate of 31.7%, compared to $15.7 million
or an effective rate of 31.6% in the third quarter of 2008 and $17.3 million,
an effective rate of 33.5%, in the second quarter of 2009. The effective tax
rate in the third quarter of 2009 was marginally higher than the Company's
expected tax rate of 31.0%, primarily as a result of foreign withholding taxes
on inter-corporate dividends and the impact of certain costs which are not
deductible for income tax purposes.
Cash Flow
Cash provided by continuing operating activities
Cash provided by continuing operating activities in the third quarter of 2009
totaled $59.6 million, compared to $24.0 million in the third quarter of 2008
and $58.1 million in the second quarter of 2009 with the changes reflecting
the changes in income from continuing operations as well as the movement in
net working capital. During the quarter, the change in non-cash working
capital and foreign exchange was a decrease of $11.0 million, with reduced
accounts receivable, inventory and higher taxes payable, partially offset by
lower accounts payable and deferred revenue.
Cash provided by continuing operating activities in the first nine months of
2009 totaled $156.4 million, compared to $78.4 million in the first nine
months of 2008, an increase of $78.0 million as a result of an increase in
income from continuing operations and the movement in net working capital.
During the first nine months of 2009, the change in non-cash working capital
and foreign exchange was a decrease of $4.6 million, with reduced accounts
receivable, inventory and higher taxes payable, partially offset by lower
accounts payable and deferred revenue. This reduction in working capital
compares with an increase in the first nine months of 2008 of $50.8 million.
Cash used in continuing investing activities
Cash used in continuing investing activities in the third quarter of 2009
totaled $5.6 million, compared to $10.3 million in the second quarter of 2009
and $23.1 million in the third quarter of 2008, and was comprised of capital
expenditures on property, plant and equipment of $5.8 million partially offset
by foreign exchange adjustments.
Cash used in continuing investing activities in the first nine months of 2009
totaled $30.0 million, compared to $180.7 million in the first nine months of
2008 and was comprised of capital expenditures on property, plant and
equipment of $25.9 million and a long-term notes receivable investment of $4.1
million.
Cash provided by (used in) continuing financing activities
Cash used in continuing financing activities in the third quarter of 2009
totaled $4.7 million, compared to $51.6 million last quarter and $24.4 million
in the third quarter of 2008, and mainly consisted of dividends paid to
shareholders of $4.9 million.
Cash used in continuing financing activities in the first nine months of 2009
totaled $75.0 million, compared to cash provided by continuing financing
activities in the first nine months of 2008 of $18.8 million, and consisted of
dividends paid to shareholders of $32.2 million and the repayment of Senior
Notes and bank indebtedness of $28.7 million and $15.4 million, respectively.
Other Comprehensive Loss
Other comprehensive loss in the quarter totaled $13.0 million and was
comprised of an unrealized foreign currency loss on translation of self-
sustaining foreign operations as a result of the strengthening of the Canadian
dollar during the period, net of hedging activities.
Liquidity and Capitalization
At September 30, 2009, the Company recorded a working capital ratio (the ratio
of current assets to current liabilities) of 2.1 to 1 compared to 1.65 to 1 at
December 31, 2008. Operating working capital, excluding cash and cash
equivalents, bank indebtedness, the current portion of long-term debt, current
future taxes and working capital of discontinued operations, decreased $12.6
million during the quarter to $163.8 million, reflecting lower accounts
receivables and inventory levels.
Change in Accounting Policies
The following are changes in the Company's accounting policies which came into
effect in the first quarter of 2009:
a) Goodwill and Intangible Assets
On January 1, 2009, the Company adopted CICA Handbook section 3064, Goodwill
and Intangible Assets. Also as of this date, as is required on adoption of
this section, the Company no longer applies Emerging Issues Committee Abstract
EIC-27, Revenues and Expenditures During the Pre-operating Period. As
required, this accounting standard has been adopted retrospectively with
restatement of prior year figures. The following adjustments were made to the
Company's consolidated financial statements as a result of adopting this
accounting standard:
Change in Consolidated Balance Sheets:
As at As at
Dec. 31, Dec. 31,
(in thousands of Canadian dollars) 2008 2007
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Increase in inventories $ 1,678 $ 2,501
Decrease in other assets (3,285) (5,067)
Increase in future taxes 484 770
---------------------------
Decrease in total assets $ (1,123) $ (1,796)
---------------------------
---------------------------
Future income taxes $ - $ -
Decrease in retained earnings (1,123) (1,796)
---------------------------
Decrease in total liabilities
and shareholders' equity $ (1,123) $ (1,796)
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---------------------------
Change in Consolidated Statement of Income:
Three Months Nine Months
Ended Ended
September 30, September 30,
2008 2008
------------- -------------
Increase (decrease) in cost of goods sold $ (1,829) $ 4,731
Increase (decrease) in income taxes 549 (1,419)
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Increase (decrease) in income from
continuing operations $ 1,280 $ (3,312)
------------- -------------
------------- -------------
Increase (decrease) in net income $ 1,280 $ (3,312)
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Earnings per share
Basic
Continuing operations $ 0.02 $ (0.04)
Total $ 0.02 $ (0.04)
Diluted
Continuing operations $ 0.01 $ (0.04)
Total $ 0.01 $ (0.04)
The following is a description of the revised accounting policy adopted by the
Company as a result of implementing this accounting change:
Costs incurred in the mobilization of project-specific plants for fixed term
projects are included in work-in-process inventories and are charged to costs
of goods sold on a percentage-of-completion basis. Such costs are to be
included in inventories only if incurred after the Company is awarded the
project and if directly related to the performance of the contract.
b) Credit Risk and the Fair Value of Financial Assets and Financial
Liabilities
On January 1, 2009, the Company adopted EIC-173, Credit Risk and the Fair
Value of Financial Assets and Financial Liabilities. The adoption of this
accounting standard had no effect on the Company's consolidated financial
statements.
International Financial Reporting Standards
During 2008, the AcSB confirmed that publicly accountable enterprises,
including the Company, will be required to adopt International Financial
Reporting Standards ("IFRS") in place of Canadian Generally Accepted
Accounting Principles ("GAAP") for interim and annual reporting purposes. The
required changeover date is for fiscal years beginning on or after January 1,
2011.
The Company has commenced the process to transition to IFRS and has developed
a project plan, which was described in the Company's 2008 Annual Report to
Shareholders.
The Company is currently engaged in the solution development phase of the
project, which involves the training of project team members and the
development of new IFRS accounting policies and implementation guidance. This
phase of the project is expected to be completed by the end of the fourth
quarter of 2009.
During the implementation phase, the Company will execute the changes to
business processes, financial systems, accounting policies, disclosure
controls and internal controls over financial reporting that will be required
to implement IFRS. This phase of the project is expected to be completed by
the end of the second quarter of 2010.
At this time, the impact on the Company's consolidated financial statements is
not reasonably determinable.
Financial Instruments
The following table sets out the notional amounts outstanding under foreign
exchange contracts, the average contractual exchange rates and the settlement
of these contracts as at September 30, 2009:
September 30,
2009
-------------
U.S. dollars sold for Canadian dollars
Less than one year US$ 12,000
Weighted-average rate 1.1748
U.S. dollars sold for Euros
Less than one year US$ 1,465
Weighted-average rate 1.3442
U.S. dollars sold for British Pounds
Less than one year US$ 5,000
Weighted-average rate 1.5509
Euros sold for U.S. dollars
Less than one year Euro 2,150
Weighted-average rate 1.4490
One year to two years Euro 2,200
Weighted-average rate 1.4465
Euros sold for British Pounds
Less than one year Euro 508
Weighted-average rate 1.1760
Euros sold for Norwegian Kroners
Less than one year Euro 1,681
Weighted-average rate 8.7647
As of September 30, 2009, the Company had notional amounts of $30.3 million of
forward contracts outstanding ($25.5 million as of December 31, 2008) with the
fair value of the Company's net benefit from all foreign exchange forward
contracts totaling $1.5 million ($1.5 million, net obligation, as of December
31, 2008).
Critical Accounting Estimates
The preparation of the consolidated financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the period. These estimates and assumptions are
made with management's best judgment given the information available at the
time; however, actual results could differ from the estimates. Critical
estimates used in preparing the consolidated financial statements were
materially unchanged during the quarter, as compared to those disclosed in the
Company's last annual MD&A contained in the Company's 2008 Annual Report.
Risks and Uncertainties
Operating in an international environment, servicing predominantly the oil and
gas industry, ShawCor faces a number of business risks and uncertainties that
could materially adversely affect its projections, businesses, results of
operations and financial condition. There were no material changes in the
nature or magnitude of such business risks during the quarter. A more complete
outline of the risks and uncertainties facing the Company are included in the
annual MD&A contained in the Company's 2008 Annual Report.
Contractual Obligations
There were no material changes to the Company's contractual obligations during
the quarter, other than those that would be expected in the ordinary course of
business.
Summary of Quarterly Results
The following is a summary of selected financial information for the ten most
recently completed quarters:
(in thousands of
Canadian dollars
except per share
amounts) First Second Third Fourth Full Year
-------------------------------------------------------------------------
Revenue (Restated -
see note below)
2009 $307,464 $312,791 $302,812 $ - $ -
2008 293,357 295,118 357,249 433,853 1,379,577
2007 221,329 276,440 264,892 285,438 1,048,099
Operating income from
continuing operations
(Restated - see
note below)
2009 50,434 53,178 49,972 - -
2008 40,919 27,189 52,315 75,588 196,011
2007 27,074 39,764 52,149 43,081 162,068
Income from continuing
operations (Restated -
see note below)
2009 31,520 34,343 33,690 - -
2008 26,952 17,825 33,962 56,013 134,752
2007 22,679 25,177 34,845 36,565 119,266
Income (loss) from
discontinued operations
(Restated - see
note below)
2009 21 293 57 - -
2008 (69) 10,553 (82) 609 11,011
2007 (55) (48) (59) (30,300) (30,462)
Net income (Restated -
see note below)
2009 31,541 34,636 33,747 - -
2008 26,852 28,378 33,880 56,623 145,733
2007 22,624 25,129 34,786 6,265 88,804
Operating income from
continuing operations
per share (Classes A
and B) (Restated -
see note below)
Basic
2009 0.72 0.76 0.71 - -
2008 0.57 0.38 0.74 1.07 2.76
2007 0.37 0.55 0.73 0.60 2.23
Diluted
2009 0.72 0.76 0.70 - -
2008 0.57 0.38 0.73 1.07 2.74
2007 0.36 0.54 0.72 0.59 2.21
Income from continuing
operations per share
(Classes A and B)
(Restated - see
note below)
Basic
2009 0.45 0.49 0.48 - -
2008 0.38 0.25 0.48 0.79 1.90
2007 0.31 0.35 0.49 0.51 1.64
Diluted
2009 0.45 0.49 0.48 - -
2008 0.37 0.25 0.47 0.78 1.88
2007 0.30 0.34 0.48 0.51 1.62
Income (loss) from
discontinued operations
per share (Classes A
and B) (Restated -
see note below)
Basic
2009 0.00 0.00 0.00 - -
2008 0.00 0.15 0.00 0.01 0.16
2007 0.00 0.00 0.00 (0.42) (0.42)
Diluted
2009 0.00 0.00 0.00 - -
2008 0.00 0.15 0.00 0.01 0.15
2007 0.00 0.00 0.00 (0.42) (0.41)
Net income per share
(Classes A and B)
(Restated - see
note below)
Basic
2009 0.45 0.49 0.48 - -
2008 0.38 0.40 0.48 0.80 2.06
2007 0.31 0.35 0.49 0.09 1.22
Diluted
2009 0.45 0.49 0.48 - -
2008 0.37 0.40 0.47 0.79 2.03
2007 0.30 0.34 0.48 0.09 1.21
Note: Quarterly revenue and operating income from continuing operations
figures have been restated to reflect the change in accounting policy for
deferred project costs adopted in the first quarter of 2009. Refer to
note 1 to the interim consolidated financial statements for the quarter
ended September 30, 2009.
The following are key factors affecting the comparability of quarterly
financial results.
The Company's operations in the Pipeline and Pipe Services segment,
representing more than 90% of the Company's consolidated revenue, are largely
project-based. The nature and timing of projects can result in variability in
the Company's quarterly revenue and profitability. In addition, certain of the
Company's operations are subject to a degree of seasonality, particularly in
the Pipeline and Pipe Services market segment. The comparability of the
quarterly information disclosed above is also impacted by movements in
exchange rates as the majority of the Company's revenue is transacted in
currencies other than Canadian dollars, primarily U.S. dollars. Changes in the
rates of exchange between the Canadian dollar and other currencies could have
a significant effect on the amount of this revenue when it is translated into
Canadian dollars.
Outstanding Share Capital
As at October 21, 2009, the Company had 57,438,253 Class A Subordinate Voting
Shares outstanding and 13,060,209 Class B Multiple Voting Shares outstanding.
Each Class B share is convertible into a Class A share at the option of the
holder. In addition, as at October 21, 2009, the Company had stock options
outstanding to purchase up to 2,849,146 Class A shares.
Management's Health, Safety and Environmental Commitment
The Company is committed to providing a safe and healthy workplace and
ensuring that all business activities are conducted in a manner that protects
the environment. This commitment includes designing and operating its plants
and individual processes in compliance with applicable government requirements
regulating the discharge of substances into the environment or otherwise
relating to the protection of the environment. The Company's program for
health, safety and environmental management is further described in the
Company's Annual Information Form under Health, Safety, and Environmental
Policy.
Outlook
The Company's geographic diversification has been a critical factor in the
strong financial performance reported in the first nine months of 2009.
Continued strength in international business activity with such projects as
the Kumang Cluster and Gumusut projects in the Asia Pacific region and the NEO
project in Trinidad, have offset the revenue weakness associated with the
dramatic decline in drilling activity in North America.
The Company's consolidated order backlog at September 30, 2009, representing
the value of firm customer purchase orders expected to be completed within one
year, totaled $239.9 million, 20.4% lower than at the beginning of the
quarter. However, subsequent to the quarter ended September 30, 2009, the
Company has secured letters of intent for several large pipe coating projects
with customers in Canada (approximately $54.0 million in revenue value) that
are not included in the backlog. In South East Asia, ShawCor's pipe coating
division has secured s letter of intent relating to the PNG LNG project in
Papua New Guinea (approximately $180.0 million in revenue value) which, if the
project is sanctioned for construction, will have a significant positive
impact on the Company's backlog.
Forward Looking Information
This document includes certain statements that reflect management's
expectations and objectives for ShawCor's future performance, opportunities
and growth which constitute forward-looking information under applicable
securities laws. Such statements, except to the extent that they contain
historical facts, are forward-looking and accordingly involve estimates,
assumptions, judgments and uncertainties. These statements may be identified
by the use of forward-looking terminology such as "may," "will," "should",
"anticipate," "expect", "believe", "predict", "estimate," "continue,"
"intend," "plan," and variations of these words or other similar expressions.
These statements are based on assumptions, estimates and analysis made by
ShawCor in light of its experience and perception of trends, current
conditions and expected developments as well as other factors believed to be
reasonable and relevant in the circumstances. Although ShawCor believes that
the expectations reflected in these forward-looking statements are based on
reasonable assumptions in light of currently available information, ShawCor
can give no assurance that such expectations will be achieved.
Forward-looking statements involve known and unknown risks and uncertainties
that could cause actual results to differ materially from those predicted,
expressed or implied by the forward-looking statements. Significant risks
facing ShawCor include, but are not limited to: changes in global economic
activity and changes in energy supply and demand which impact on the level of
drilling activity and pipeline construction; political, economic and other
risks arising from ShawCor's international operations; compliance with
environmental, trade and other laws; liability claims; fluctuations in foreign
exchange rates; fluctuations in prices of raw materials, as well as other
risks and uncertainties.
Other information relating to the Company, including its Annual Information
Form, is available on SEDAR at www.sedar.com.
ShawCor will be hosting a Shareholder and Analyst conference call and webcast
on November 4, 2009 at 10:00 am ET to discuss the Company's third quarter 2009
financial results. Please visit our website at www.shawcor.com for future
details.
SHAWCOR LTD.
INTERIM FINANCIAL INFORMATION (Unaudited)
(in thousands of Canadian dollars except per share data)
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2009 2008 2009 2008
Restated- Restated-
note 1 note 1
---------- ---------- ---------- ----------
Revenue $302,812 $357,249 $923,067 $945,724
Cost of goods sold 173,350 234,463 541,338 623,701
---------- ---------- ---------- ----------
Gross profit 129,462 122,786 381,729 322,023
Selling, general and
administrative expenses
(notes 2 and 3) 59,521 52,403 171,290 155,595
Amortization of property,
plant and equipment 13,405 15,400 43,200 41,907
Amortization of
intangible assets 1,095 985 3,285 1,053
Foreign exchange
losses (gains) 2,321 (247) 2,506 (2,286)
Research and development
expenses 3,148 1,930 7,864 5,331
---------- ---------- ---------- ----------
Operating income from
continuing operations 49,972 52,315 153,584 120,423
Interest income on short-
term deposits 191 224 507 2,286
Interest expense on
bank indebtedness (368) (1,494) (1,343) (2,165)
Interest expense on
long-term debt (498) (1,253) (3,074) (3,626)
---------- ---------- ---------- ----------
Income before income taxes
and non-controlling interest 49,297 49,792 149,674 116,918
Income taxes 15,607 15,741 50,121 38,394
---------- ---------- ---------- ----------
Income before non-controlling
interest 33,690 34,051 99,553 78,524
Non-controlling interest - (89) - 184
---------- ---------- ---------- ----------
Income from continuing
operations 33,690 33,962 99,553 78,708
Income (loss) from discontinued
operations (note 4) 57 (82) 371 10,402
---------- ---------- ---------- ----------
Net income $ 33,747 $ 33,880 $ 99,924 $ 89,110
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings per shares (note 19)
Basic
Continuing operations $ 0.48 $ 0.48 $ 1.41 $ 1.11
Discontinued operations - - 0.01 0.15
---------- ---------- ---------- ----------
Total $ 0.48 $ 0.48 $ 1.42 $ 1.26
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted
Continuing operations $ 0.48 $ 0.47 $ 1.41 $ 1.10
Discontinued operations - - 0.01 0.14
---------- ---------- ---------- ----------
Total $ 0.48 $ 0.47 $ 1.42 $ 1.24
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
-------------------------------------------------------------------------
SEGMENTED INFORMATION
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2009 2008 2009 2008
Restated- Restated-
note 1 note 1
---------- ---------- ---------- ----------
Revenue
Pipeline and Pipe Services $273,262 $323,347 $837,101 $838,125
Petrochemical and Industrial 29,916 34,246 89,334 108,968
Intersegment Eliminations (366) (344) (3,368) (1,369)
---------- ---------- ---------- ----------
$302,812 $357,249 $923,067 $945,724
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Income (loss) from operations
Pipeline and Pipe Services $ 53,433 $ 52,971 $168,932 $119,339
Petrochemical and Industrial 2,092 5,170 4,625 16,561
Financial and Corporate (5,553) (5,826) (19,973) (15,477)
---------- ---------- ---------- ----------
$ 49,972 $ 52,315 $153,584 $120,423
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
SHAWCOR LTD.
INTERIM FINANCIAL INFORMATION (Unaudited)
(in thousands of Canadian dollars)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2009 2008 2009 2008
Restated- Restated-
note 1 note 1
---------- ---------- ---------- ----------
Operating activities:
Income from continuing
operations $ 33,690 $ 33,962 $ 99,553 $ 78,708
Items not requiring
an outlay of cash:
Amortization of property,
plant and equipment 13,405 15,400 43,200 41,907
Amortization of
intangible assets 1,095 985 3,285 1,053
Amortization of
transaction costs 111 110 333 330
Asset retirement obligation
expense (note 10) (427) 170 2,033 1,902
Stock-based compensation
(note 2) 772 836 2,394 2,529
Future income taxes (1,977) 674 (327) 409
Loss on disposal of
property, plant and
equipment 1,028 255 1,361 358
Gain on short-term
investments (73) - (1,202) -
Impairment of available-
for-sale financial assets - - 336 1,498
Non-controlling interest in
earnings of subsidiaries - 89 - (184)
Gain on disposal of
subsidiary - - - (1,063)
Settlement of asset retirement
obligations (note 10) (280) 716 (2,244) (658)
Change in employee
future benefits 1,272 857 3,087 2,489
Change in non-cash working
capital and foreign exchange 10,958 (30,087) 4,585 (50,841)
---------- ---------- ---------- ----------
Cash provided by continuing
operating activities 59,575 23,967 156,395 78,437
---------- ---------- ---------- ----------
Investing activities:
Purchases of property,
plant and equipment (5,751) (23,085) (25,926) (61,999)
Proceeds on disposal of
property, plant and equipment (61) - 44 33
Acquisition of subsidiaries - - - (124,376)
Increase in long-term
notes receivable 180 - (4,068) -
Proceeds on disposal
of subsidiaries - - - 5,635
Investment in shares - - -
---------- ---------- ---------- ----------
Cash used in continuing
investing activities (5,632) (23,085) (29,950) (180,707)
---------- ---------- ---------- ----------
Financing activities:
Increase (decrease) in
bank indebtedness (689) (10,005) (15,418) 52,965
Repayment of long-term debt - - (28,705) -
Issue of shares (note 11) 816 304 1,301 1,739
Purchase of shares for
cancellation - (10,154) - (22,796)
Dividends paid to
shareholders (4,850) (4,537) (32,205) (13,085)
---------- ---------- ---------- ----------
Cash provided by (used
in) continuing financing
activities (4,723) (24,392) (75,027) 18,823
---------- ---------- ---------- ----------
Foreign exchange on foreign
cash and cash equivalents (4,479) 1,531 (8,395) 6,024
---------- ---------- ---------- ----------
Net cash provided by (used in)
continuing operations 44,740 (21,979) 43,023 (77,423)
Net cash provided by (used in)
discontinued operations
(note 4) 739 (37,638) 1,416 (33,702)
Cash and cash equivalents
at beginning of period 77,892 123,509 78,932 175,017
---------- ---------- ---------- ----------
Cash and cash equivalents
at end of period $123,371 $ 63,892 $123,371 $ 63,892
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
SHAWCOR LTD.
INTERIM FINANCIAL INFORMATION (Unaudited)
(in thousands of Canadian dollars)
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2009 2008
Restated-
Note 1
------------- -------------
Assets
Current assets
Cash and cash equivalents (note 5) $ 123,371 $ 78,932
Short-term investments 1,202 -
Accounts receivable 235,140 307,933
Taxes receivable 13,542 9,261
Inventories 124,035 152,284
Prepaid expenses 18,340 14,635
Derivative financial instruments 1,674 523
Current future income taxes 3,318 3,532
Current assets of discontinued operation
(note 4) 10,815 12,256
------------- -------------
531,437 579,356
Property, plant and equipment, net 279,440 307,735
Goodwill 218,312 229,549
Intangible assets (note 6) 63,879 66,452
Future income taxes 29,868 31,173
Other assets (note 7) 13,691 13,024
------------- -------------
$ 1,136,627 $ 1,227,289
------------- -------------
------------- -------------
Liabilities
Current liabilities
Bank indebtedness (note 8) $ - $ 15,418
Accounts payable and accrued liabilities 151,303 193,675
Taxes payable 65,827 53,405
Derivative financial instruments 139 2,049
Deferred revenues 12,898 54,692
Current portion of long-term debt 27,015 30,672
Current liabilities of discontinued
operation (note 4) 59 455
------------- -------------
257,241 350,366
Long-term debt 26,666 60,554
Future income taxes 72,303 73,939
Derivative financial instruments 39 -
Other non-current liabilities (note 9) 11,448 9,978
------------- -------------
367,697 494,837
------------- -------------
Shareholders' Equity
Capital stock (note 11) 203,671 202,073
Contributed surplus (note 12) 16,610 14,512
Retained earnings 669,126 601,407
Accumulated other comprehensive loss (note 13) (120,477) (85,540)
------------- -------------
768,930 732,452
------------- -------------
$ 1,136,627 $ 1,227,289
------------- -------------
------------- -------------
SHAWCOR LTD.
INTERIM FINANCIAL INFORMATION (Unaudited)
(in thousands of Canadian dollars)
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2009 2008 2009 2008
Restated- Restated-
note 1 note 1
---------- ---------- ---------- ----------
Balance at beginning of period $640,229 $523,487 $601,407 $489,836
Transitional adjustment
(note 1) - - - (1,796)
---------- ---------- ---------- ----------
Adjusted balance at
beginning of period 640,229 523,487 601,407 488,040
Net income 33,747 33,880 99,924 89,110
---------- ---------- ---------- ----------
673,976 557,367 701,331 577,150
Excess of purchase price paid
over stated value of shares
(note 11) - (8,752) - (19,987)
Dividends declared (4,850) (4,537) (32,205) (13,085)
---------- ---------- ---------- ----------
Balance at end of period $669,126 $544,078 $669,126 $544,078
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2009 2008 2009 2008
Restated- Restated-
note 1 note 1
---------- ---------- ---------- ----------
Net income $ 33,747 $ 33,880 $ 99,924 $ 89,110
Other comprehensive income
(loss), net of income taxes:
Unrealized gain (loss) on
translating financial
statements of self-
sustaining foreign
operations (15,822) (5,868) (41,374) 17,432
Loss on translating
financial statements of
self-sustaining foreign
operations transferred
to net income in the
current period - - 678 -
Gain (loss) on hedges of
unrealized foreign
currency translation 3,460 (1,757) 6,948 (3,975)
Income tax benefit
(expense) (592) 300 (1,189) 678
---------- ---------- ---------- ----------
Unrealized foreign currency
translation gain, net of
hedging activites (12,954) (7,325) (34,937) 14,135
---------- ---------- ---------- ----------
Unrealized loss on
available-for-sale
financial assets arising
during the period - (959) (336) (1,870)
Unrealized loss on
available-for-sale
financial assets
transferred to net income
in the current period - - 336 1,498
Income tax expense
transferred to net
income in the period - - - 253
---------- ---------- ---------- ----------
Change in unrealized loss
on available-for-sale
financial assets - (959) - (119)
---------- ---------- ---------- ----------
Gain on derivatives
designated as cash
flow hedges - - - -
Income tax expense - - - -
Gain on derivatives
designated as cash flow
hedges in prior periods
transferred to net income
in the current period - - - (1,508)
Income tax expenses
transferred to net income
in the current period - - - 512
---------- ---------- ---------- ----------
Change in loss on derivatives
designated as cash flow hedges - - - (996)
---------- ---------- ---------- ----------
(12,954) (8,284) (34,937) 13,020
---------- ---------- ---------- ----------
Comprehensive income $ 20,793 $ 25,596 $ 64,987 $102,130
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
ShawCor Ltd.
Notes to the Consolidated Financial Statements (Unaudited)
(in thousands of Canadian Dollars, except per share amounts, unless otherwise
stated)
1. Accounting policies
The accompanying unaudited interim consolidated financial statements of
ShawCor Ltd. (the "Company") have been prepared in accordance with Canadian
generally accepted accounting principles ("GAAP") for the preparation of
interim financial statements. They do not include all of the information and
disclosures required by GAAP for annual consolidated financial statements.
Except as noted below, these unaudited interim consolidated financial
statements have been prepared in accordance with accounting policies outlined
in the Company's audited consolidated financial statements for the year ended
December 31, 2008. Accordingly, the unaudited interim consolidated financial
statements should be read in conjunction with the Company's annual
consolidated financial statements.
a) Goodwill and Intangible Assets
On January 1, 2009, the Company adopted CICA Handbook section 3064, Goodwill
and Intangible Assets. Also as of this date, as is required on adoption of
this section, the Company no longer applies Emerging Issues Committee Abstract
EIC-27, Revenues and Expenditures During the Pre-operating Period. As
required, this accounting standard has been adopted retrospectively with
restatement of prior year figures. The following adjustments were made to the
Company's consolidated financial statements as a result of adopting this
accounting standard:
Change in Consolidated Balance Sheets:
As at As at
December 31, December 31,
2008 2007
-------------------------------------------------------------------------
Increase in inventories $ 1,678 $ 2,501
Decrease in other assets (3,285) (5,067)
Increase in future taxes 484 770
---------------------------
Decrease in total assets $ (1,123) $ (1,796)
---------------------------
---------------------------
Future income taxes $ - $ -
Decrease in retained earnings (1,123) (1,796)
---------------------------
Decrease in total liabilities
and shareholders' equity $ (1,123) $ (1,796)
---------------------------
---------------------------
Change in Consolidated Statement of Income:
Three Months Nine Months
Ended Ended
September 30, September 30,
2008 2008
------------- -------------
Increase (decrease) in cost of goods sold $ (1,829) $ 4,731
Increase (decrease) in income taxes 549 (1,419)
------------- -------------
Increase (decrease) in income from
continuing operations $ 1,280 $ (3,312)
------------- -------------
------------- -------------
Increase (decrease) in net income $ 1,280 $ (3,312)
------------- -------------
------------- -------------
Earnings per share
Basic
Continuing operations $ 0.02 $ (0.04)
Total $ 0.02 $ (0.04)
Diluted
Continuing operations $ 0.01 $ (0.04)
Total $ 0.01 $ (0.04)
The following is a description of the revised accounting policy adopted by the
Company as a result of implementing this accounting change:
Costs incurred in the mobilization of project-specific plants for fixed term
projects are included in work-in-process inventories and are charged to costs
of goods sold on a percentage-of-completion basis. Such costs are to be
included in inventories only if incurred after the Company is awarded the
project and if directly related to the performance of the contract.
b) Credit Risk and the Fair Value of Financial Assets and Financial
Liabilities
On January 1, 2009, the Company adopted EIC-173, Credit Risk and the Fair
Value of Financial Assets and Financial Liabilities. The adoption of this
accounting standard had no effect on the Company's consolidated financial
statements.
2. Stock-based compensation
The Board of Directors approved the granting of 520,200 stock options during
the nine months ended September 30, 2009 under the 2001 Employee Plan (the
"Plan"). The total fair value of the stock options granted during the nine
months ended September 30, 2009 was $2.6 million (2008 - $4.1 million) and the
weighted average fair value of the options was $5.63 (2008 - $10.54),
calculated using the Black-Scholes pricing model with the following
assumptions:
2009 2008
------------- -------------
Expected life of options 6.25 years 6.25 years
Expected stock price volatility 34.79% 29.30%
Expected dividend yield 1.41% 0.75%
Risk-free interest rate 2.60% 3.68%
The fair value of options granted under the Plan will be amortized to
compensation expense over the 5 year vesting period of options. The
compensation cost from the continuing amortization of granted stock options
for the three and nine months ended September 30, 2009, included in selling,
general and administrative ("SG&A") expenses, was $772 thousand and $2.4
million, respectively ($836 thousand and $2.5 million, for the three and nine
months ended September 30, 2008, respectively).
3. Employee future benefits
The Company's cost under both defined benefit and defined contribution
arrangements included in selling, general and administrative expenses for the
three and nine months ended September 30, 2009 was $2.1 million and $7.0
million, respectively ($2.5 million and $7.3 million, for the three and nine
months ended September 30, 2008, respectively).
4. Discontinued operations
On November 2, 2004, the Company announced its decision to close the Mobile,
Alabama pipe coating facility (the "Mobile Facility") and by December 31,
2005, operations at the Mobile Facility had ceased. The Company adopted
discontinued operation accounting treatment for the Mobile Facility in 2005.
The Mobile Facility was part of the Pipeline and Pipe Services market segment.
The following table summarizes the financial results and cash flows from
discontinued operations for the three and nine months ended September 30, 2009
and 2008 and the assets and liabilities as of those dates:
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2009 2008 2009 2008
---------- ---------- ---------- ----------
Revenue $ - $ - $ - $ -
---------- ---------- ---------- ----------
Income (loss) from operations 57 (35) 371 17,052
Interest expense - - -
---------- ---------- ---------- ----------
Income (loss) from
discontinued operations
before income taxes 57 (35) 371 17,052
Income tax recovery (expense) - (47) - (6,650)
---------- ---------- ---------- ----------
Income (loss) from
discontinued operations $ 57 $ (82) $ 371 $ 10,402
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Cash flow used in operating
activities $ 739 $(37,638) $ 1,416 $(33,702)
Cash flow from (used in)
investing activities - - - -
---------- ---------- ---------- ----------
Cash flow from (used in)
operating activities $ 739 $(37,638) $ 1,416 $(33,702)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Current assets $ 10,815 $ 10,374
Property, plant and
equipment, net $ - $ -
Current liabilities $ 59 $ 1,231
5. Cash and cash equivalents
September 30, December 31,
2009 2008
------------- -------------
Cash $ 88,216 $ 78,932
Cash equivalents 35,155 -
------------- -------------
$ 123,371 $ 78,932
------------- -------------
------------- -------------
6. Intangible assets
September 30, December 31,
2009 2008
Restated-
Note 1
------------- -------------
Cost
Intellectual property with limited life $ 57,576 $ 57,576
Intangible assets with limited life 9,547 8,847
Intangible assets with indefinite life 1,931 1,931
------------- -------------
$ 69,054 $ 68,354
------------- -------------
Accumulated amortization 5,175 1,902
------------- -------------
$ 63,879 $ 66,452
------------- -------------
------------- -------------
Intellectual property represents the costs of certain technology and know-how
and patents obtained in acquisitions. Intangible assets include trademarks,
brand names and customer relationships obtained in acquisitions.
7. Other assets
September 30, December 31,
2009 2008
Restated-
Note 1
------------- -------------
Long-term investment $ 24 $ 360
Long-term prepaid expenses 4,424 5,931
Long-term notes receivable 4,068 -
Accrued employee future benefit asset 5,175 6,733
------------- -------------
$ 13,691 $ 13,024
------------- -------------
------------- -------------
Long-term investment as of September 30, 2009 represents an investment in
Garneau Inc., a Canadian-based, publicly traded pipe coating company. The
Company has reviewed the 2008 financial performance of Garneau, as outlined in
its public filings, and the protracted decline in its share price and has
concluded that the decrease in fair value, based on quoted market prices, of
the investment from original cost is other than temporary. The Company has
recorded a charge to SG&A expense, in the financial and corporate segment,
during the three and nine months ended September 30, 2009 of $nil and $336
thousand, respectively ($nil and $1.5 million for the three and nine months
ended September 30, 2008, respectively).
Long-term notes receivable as of September 30, 2009 relates to amount advanced
by the Company to an external party to support the construction of port
facilities at a Bredero Shaw plant location in Kabil, Indonesia.
8. Bank indebtedness and Long-term debt
As of September 30, 2009, the Company had total operating credit lines of
$259.0 million ($293.5 million as of December 31, 2008), of which $73.0
million has been drawn for various standby letters of credit for performance,
bid and surety bonds ($81.5 million as of December 31, 2008), to yield
unutilized credit facilities of $186.0 million ($198.0 million as of December
31, 2008), excluding the Company's proportionate share of the bank
indebtedness of its joint venture, Arabian Pipecoating Company Limited of $nil
($15.4 million as of December 31, 2008).
Under the terms of the Company's 5.11% Senior Notes ("Senior Notes"), the
Company is required to repay the Senior Notes in three equal annual
installments of USD$25 million. On June 30, 2009, the Company made the first
repayment of $28.7 million ("Repayment") using the current exchange rate. The
Repayment was funded by USD$25.0 million that was permanently repatriated from
the Company's U.S. dollar based operations ("Repatriation"). The Repatriation
gave rise to a net foreign exchange loss of $678 thousand and was transferred
from accumulated other comprehensive income to the consolidated statement of
income during the second quarter of 2009. As at September 30, 2009, $53.6
million was outstanding under the Senior Notes, of which $27.0 million has
been classified as current portion of long-term debt.
9. Other non-current liabilities
September 30, December 31,
2009 2008
------------- -------------
Non-current asset retirement obligations
(note 10) $ 6,024 $ 6,680
Accrued employee future benefit obligations 4,827 3,298
Long-term capital leases 597 0
------------- -------------
$ 11,448 $ 9,978
------------- -------------
------------- -------------
10. Assets retirement obligations
September 30, December 31,
2009 2008
------------- -------------
Balance, at beginning of year $ 22,606 $ 14,082
Liabilities settled in year (2,243) (891)
Liabilities incurred in year - 8,675
Revisions to cash flow estimates 1,190 -
Accretion expense 845 703
Translation of self-sustaining
foreign operations 83 37
------------- -------------
$ 22,481 $ 22,606
------------- -------------
------------- -------------
Asset retirement obligations are included in the consolidated balance sheets
as follows:
September 30, December 31,
2009 2008
------------- -------------
Accounts payable and accrued liabilities $ 16,457 $ 15,926
Other non-current liabilities 6,024 6,680
------------- -------------
$ 22,481 $ 22,606
------------- -------------
------------- -------------
The total undiscounted cash flows which are estimated to be required to settle
all asset retirement obligations is $25.4 million ($24.0 million as of
December 31, 2008) and the credit-adjusted risk-free rates at which the
estimated cash flows have been discounted range between 5.11% and 7.0%.
11. Capital stock
The following shares were outstanding as of September 30, 2009 and December
31, 2008:
(in thousands of Canadian dollars September 30, December 31,
except number of shares information) 2009 2008
------------- -------------
Number of shares: Class A
Balance, begining of the period 57,358,537 58,234,570
Issued - stock options 76,880 113,234
Conversions Class B to Class A - 17,933
Purchase - normal course issuer bid - (1,007,200)
------------- -------------
Balance, end of the period 57,435,417 57,358,537
------------- -------------
Number of shares: Class B 13,060,209 13,060,209
------------- -------------
Total number of shares 70,495,626 70,418,746
------------- -------------
------------- -------------
Stated value:
Balance, begining of the period $ 201,070 $ 202,248
Issued - stock options 1,301 1,763
Conversions Class B to Class A - 1
Purchase - normal course issuer bid - (3,518)
Compensation cost on exercised options 297 576
------------- -------------
Balance, end of the period 202,668 201,070
------------- -------------
Stated value: Class B 1,003 1,003
------------- -------------
Total stated value $ 203,671 $ 202,073
------------- -------------
------------- -------------
During the nine months ended September 30, 2009, the Company repurchased and
cancelled nil Class A Subordinated Voting Shares (2,574,600 during the nine
months ended September 30, 2008) under the terms of a Normal Course Issuer
Bid. The excess of cost over stated capital of the acquired shares, which for
the nine months ended September 30, 2009 totaled $nil ($20.0 million for the
nine months ended September 30, 2008), was charged to retained earnings.
12. Contributed surplus
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2009 2008 2009 2008
---------- ---------- ---------- ----------
Balance, beginning of period $ 15,958 $ 12,924 $ 14,512 $ 11,729
Stock compensation expense
(note 2) 772 836 2,394 2,529
Fair value of stock options
exercised (120) (74) (296) (572)
---------- ---------- ---------- ----------
Balance, end of period $ 16,610 $ 13,686 $ 16,610 $ 13,686
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
13. Accumulated other comprehensive loss
September 30, December 31,
2009 2008
------------- -------------
Unrealized foreign currency translation
lossses, net of hedging activities $ (120,477) $ (85,540)
Unrealized loss on available-for-sale
financial asset - -
------------- -------------
Gain on derivatives designated as
cash flow hedges $ (120,477) $ (85,540)
------------- -------------
------------- -------------
14. Stock option plans
A summary of the status of the Company's stock option plans and changes during
the period are presented below:
September 30, 2009 December 31, 2008
--------------------------- ---------------------------
Weighted Weighted
Average Average
Exercise Exercise
Total Shares Price Total Shares Price
------------- ------------- ------------- -------------
Balance outstanding,
beginning of
period 2,470,466 $ 19.14 2,173,980 $ 17.24
Granted 520,200 15.70 428,600 30.03
Exercised (76,880) 16.93 (113,234) 15.56
Forfeited (64,640) 22.00 (16,880) 19.24
Expired - - (2,000) 15.94
------------- ------------- ------------- -------------
Balance outstanding,
end of period 2,849,146 $ 18.84 2,470,466 $ 19.14
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Options Outstanding Options Exercisable
------------------------------------------------- -----------------------
Weighted
average
Outstanding remaining Weighted Exercisable Weighted
Range of as at contractual average at average
exercise September life exercise September exercise
prices 30, 2009 in years price 30, 2009 price
------------ ----------- ----------- ----------- ----------- -----------
$10.00 to
$15.00 469,326 3.66 $12.64 469,326 $12.64
$15.01 to
$20.00 1,593,100 6.11 $16.45 911,988 $16.78
$20.01 to
$25.00 50,000 6.46 $21.11 25,600 $20.96
$25.01 to
$30.00 706,720 7.79 $27.66 206,360 $26.83
$30.01 to
$35.00 30,000 8.26 $31.77 6,000 $31.77
----------- -----------
2,849,146 1,619,274
----------- -----------
----------- -----------
Options Outstanding Options Exercisable
------------------------------------------------- -----------------------
Weighted
average
Outstanding remaining Weighted Exercisable Weighted
Range of as at contractual average at average
exercise December life exercise December exercise
prices 31, 2009 in years price 31, 2009 price
------------ ----------- ----------- ----------- ----------- -----------
$10.00 to
$15.00 474,966 4.41 $12.63 444,486 $12.73
$15.01 to
$20.00 1,181,100 5.41 $16.84 791,304 $16.77
$20.01 to
$25.00 40,000 6.50 $20.90 18,400 $21.03
$25.01 to
$30.00 744,400 8.54 $27.62 69,560 $25.02
$30.01 to
$35.00 30,000 9.01 $31.77 - $0.00
----------- -----------
2,470,466 1,323,750
----------- -----------
----------- -----------
15. Financial instruments and financial risk management
a) Categories of Financial Assets and Financial Liabilities
Under GAAP, financial instruments are classified into one of the following
categories: held-for-trading, held-to-maturity investments, loans and
receivables, available-for-sale financial assets, derivatives and other
financial liabilities. The Company has classified its financial instruments as
follows:
September 30, December 31,
2009 2008
------------- -------------
Financial assets:
Held for trading, measured at fair value
Cash $ 88,216 $ 78,932
Short-term investments $ 1,202 $ -
Held to maturity, recorded at amortized cost
Cash equivalents $ 35,155 $ -
Loans and receivables, recorded
at amortized cost
Accounts receivable $ 235,140 $ 307,933
Taxes receivable $ 13,542 $ 9,261
Long-term notes receivable $ 4,068 $ -
Available for sale, measured at fair value
Long-term investments $ 24 $ 360
Derivatives, measured at fair value
Derivative financial instruments $ 1,674 $ 523
Financial liabilites:
Other liabilities, recorded at amortized cost
Bank indebtedness $ - $ 15,418
Accounts payable and accrued liabilities $ 151,303 $ 193,675
Taxes payable $ 65,827 $ 53,405
Current portion of long-term debt $ 27,015 $ 30,672
Long-term debt $ 26,666 $ 60,554
Derivatives, measured at fair value
Derivative financial instruments $ 178 $ 2,049
Short-term investments have been classified as held for trading and carried at
fair value, based on quoted market prices with changes in those fair values
recognized in net income.
The Company has determined the estimated fair values of its financial
instruments based on appropriate valuation methodologies; however,
considerable judgment is required to develop these estimates. The fair values
of the Company's financial instruments are not materially different from their
carrying values.
b) Foreign Exchange Forward Contracts and Other Hedging Arrangements
The Company utilizes financial instruments to manage the risk associated with
foreign exchange rates. The Company formally documents all relationships
between hedging instruments and the hedge items, as well as its risk
management objective and strategy for undertaking various hedge transactions.
The following table sets out the notional amounts outstanding under foreign
exchange contracts, the average contractual exchange rates and the settlement
of these contracts as of September 30, 2009:
September 30,
2009
-------------
U.S. dollars sold for Canadian dollars
Less than one year US$ 12,000
Weighted-average rate 1.1748
U.S. dollars sold for Euros
Less than one year US$ 1,465
Weighted-average rate 1.3442
U.S. dollars sold for British Pounds
Less than one year US$ 5,000
Weighted-average rate 1.5509
Euros sold for U.S. dollars
Less than one year Euro 2,150
Weighted-average rate 1.4490
One year to two years Euro 2,200
Weighted-average rate 1.4465
Euros sold for British Pounds
Less than one year Euro 508
Weighted-average rate 1.1760
Euros sold for Norwegian Kroners
Less than one year Euro 1,681
Weighted-average rate 8.7647
As of September 30, 2009, the Company had notional amounts of $30.3 million of
forward contracts outstanding ($25.5 million as of December 31, 2008) with the
fair value of the Company's net benefit from all foreign exchange forward
contracts totaling $1.5 million ($1.5 million, net obligation, as of December
31, 2008).
c) Financial Risk Management
The Company's operations expose it to a variety of financial risks including:
market risk (including foreign exchange and interest rate risk), credit risk
and liquidity risk. The Company's overall risk management program focuses on
the unpredictability of financial markets and seeks to minimize potential
adverse effects on the Company's financial position and financial performance.
Risk management is the responsibility of Company management. Material risks
are monitored and are regularly reported to the Board of Directors.
Foreign exchange risk
The majority of the Company's business is transacted outside of Canada through
subsidiaries operating in several countries. The net investments in these
subsidiaries as well as their revenue, operating expenses and non-operating
expenses are based in foreign currencies. As a result, the Company's
consolidated revenue, expenses and financial position, may be impacted by
fluctuations in foreign exchange rates as these foreign currency items are
translated into Canadian dollars. As of September 30, 2009, fluctuations of
+/- 5% in the Canadian dollar, relative to those foreign currencies, would
impact the Company's consolidated revenue, operating income from continuing
operations and income from continuing operations for the three months then
ended by approximately $13.1 million, $3.9 million and $2.7 million,
respectively, prior to hedging activities. In addition, such fluctuations
would impact the Company's consolidated total assets, consolidated total
liabilities and consolidated total shareholders' equity by $52.9 million,
$19.9 million and $33.0 million, respectively. The Company utilizes foreign
exchange forward contracts to manage foreign exchange risk from its underlying
customer contracts. The Company does not enter into foreign exchange contracts
for speculative purposes.
The Company's Senior Notes and associated interest expense are denominated in
U.S. dollars. Fluctuations in the exchange rate between the Canadian and U.S.
dollar would impact the carrying value of the Senior Notes in terms of
Canadian dollars as well as the amount of interest expense when translated
into Canadian dollars. Effective July 3, 2003, the Company designated the
Senior Notes as a hedge of a portion of its net investment in the Company's
U.S. dollar based operations ("Net Investment"). On April 1, 2009, The Company
de-designated USD$25.0 million of the hedge against the Net Investment. As a
result, on April 1, 2009 the remaining balance of the Senior Notes of USD$50.0
million was hedged against the Net Investment. The de-designation gave rise to
a $2.1 million foreign exchange gain during the second quarter of 2009, which
was recognized in the consolidated statement of income. Foreign exchange gains
and losses from the hedged portion of the Senior Notes are not included in the
consolidated statement of income, but are shown in accumulated other
comprehensive income. As of September 30, 2009, fluctuations of +/- 5% in the
Canadian dollar, relative to the U.S. dollar, would impact the Company's
accumulated other comprehensive income by $2.5 million for the three months
then ended.
The objective of the Company's foreign exchange risk management activities is
to minimize transaction exposures associated with the Company's foreign
currency-denominated cash streams and the resulting variability of the
Company's earnings. The Company utilizes foreign exchange forward contracts to
manage this foreign exchange risk. The Company does not enter into foreign
exchange contracts for speculative purposes. With the exception of the
Company's U.S. dollar based operations, the Company does not hedge translation
exposures.
Interest rate risk
The following table summarizes the Company's exposure to interest rate risk at
September 30, 2009:
Fixed interest rate
---------------------
Maturing Maturing
Floating in one year after
rate or less one year Total
---------- ---------- ---------- ----------
Financial assets
Cash and cash equivalents $123,371 $ - $ - $123,371
Long-term notes receivable 4,068 - 4,068
---------- ---------- ---------- ----------
Total $127,439 $ - $ - $127,439
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Financial liabilities
Bank indebtedness $ - $ - $ - $ -
Current portion of
long-term debt 27,015 27,015
Long-term debt - - 26,666 26,666
---------- ---------- ---------- ----------
Total $ - $ 27,015 $ 26,666 $ 53,681
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
---------- ---------- ----------
Weighted-average fixed
rate of debt - 5.11% 5.11%
---------- ---------- ----------
The Company's interest rate risk arises primarily from its floating rate bank
indebtedness and long-term notes receivable and is not currently considered to
be material.
Credit risk
Credit risk arises from cash and cash equivalents held with banks, forward
foreign exchange contracts, as well as credit exposure of customers, including
outstanding accounts receivable. The maximum credit risk is equal to the
carrying value of the financial instruments.
The objective of managing counter party credit risk is to prevent losses in
financial assets. The Company is subject to considerable concentration of
credit risk since the majority of its customers operate within the global
energy industry and are therefore affected to a large extent by the same
macroeconomic conditions and risks. The Company manages this credit risk by
assessing the credit quality of all counter parties, taking into account their
financial position, past experience and other factors. Management also
establishes and regularly reviews credit limits of counter parties and
monitors utilization of those credit limits on an ongoing basis.
The carrying value of accounts receivable are reduced through the use of an
allowance for doubtful accounts and the amount of the loss is recognized in
the income statement with a charge to selling, general and administrative
expenses. When a receivable balance is considered to be uncollectible, it is
written off against the allowance for doubtful accounts. Subsequent recoveries
of amounts previously written off are credited against selling, general and
administrative expenses. As at September 30, 2009, $11.6 million, or 5.1% of
trade accounts receivable, were more than 90 days overdue, which is consistent
with prior period aging analysis.
The following is an analysis of the change in the allowance for doubtful
accounts for the nine months ended September 30, 2009 and 2008:
Nine Months Ended
September 30,
---------------------------
2009 2008
------------- -------------
Balance, beginning of period $ 6,237 $ 4,165
Bad debt expense 2,599 (1,015)
Write-offs of bad debts (1,203) (3)
Recovery of previously written-off amounts (413) -
Impact of change in foreign exchange rates (131) 345
------------- -------------
Balance, end of period $ 7,089 $ 3,492
------------- -------------
------------- -------------
Liquidity Risk
The Company's objective in managing liquidity risk is to maintain sufficient,
readily available cash reserves in order to meet its liquidity requirements at
any point in time. The Company achieves this by maintaining sufficient cash
and cash equivalents and through the availability of funding from committed
credit facilities. As of September 30, 2009, the Company has cash and cash
equivalents totaling $123.4 million ($78.9 million as of December 31, 2008)
and has unutilized lines of credit available to use of $186.0 million ($198.0
million as of December 31, 2008). The following are the contractual maturities
of the Company's financial liabilities as of September 30, 2009:
Less than 1 - 2 3 - 4
1 Year Years Years Thereafter Total
------------------------------------------------------
Accounts payable
and accrued
liabilities $127,790 $ 5,149 $ 377 297 $133,613
Asset retirement
obligations 16,457 944 1,263 6,701 25,365
Bank indebtedness - - - - -
Long-term debt 27,015 26,666 - - 53,681
Obligations under
capital leases 111 580 226 18 935
Interest on
obligations under
capital leases 13 66 37 7 123
Interest on financial
instruments 2,408 1,032 - - 3,440
Derivative financial
instruments 139 39 - - 178
------------------------------------------------------
Total $173,933 $ 34,476 $ 1,903 $ 7,023 $217,335
------------------------------------------------------
------------------------------------------------------
16. Capital management
The Company defines capital that it manages as the aggregate of its
shareholders' equity and interest bearing debt. The Company's objectives when
managing capital are to ensure that the Company will continue to operate as a
going concern and continue to provide products and services to its customers,
preserve its ability to finance expansion opportunities as they arise, and
provide returns to its shareholders.
As of September 30, 2009, total managed capital was $822.6 million ($839.2
million as of December 31, 2008), comprised of shareholders equity of $768.9
million ($732.5 million as of December 31, 2008), long-term debt of $26.7
million ($60.6 million as of December 31, 2008), current portion of long- term
debt of $27.0 million ($30.7 million as of December 31, 2008) and bank
indebtedness of $nil ($15.4 million as of December 31, 2008).
The Company manages its capital structure and makes adjustments to it in light
of changes in economic conditions, the risk characteristics of the underlying
assets and business investment opportunities. To maintain or adjust the
capital structure, the Company may attempt to issue or re-acquire shares,
acquire or dispose of assets, or adjust the amount of cash, cash equivalents,
bank indebtedness or long-term debt balances. The Company's capital is not
subject to any capital requirements imposed by any regulators; however, it is
limited by the terms of its credit facility and long-term debt agreements.
Specifically, the Company is required to maintain a Fixed Charge Coverage
Ratio (Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA") divided by interest expense) of more than 2.5 to 1 and a debt to
total capitalization ratio of less than 0.45 to 1. The Company's capital
structure at September 30, 2009 was within the parameters established by these
agreements.
17. Segmented information
The Company classifies its operations into two general segments of the global
energy industry: Pipeline and Pipe Services and Petrochemical and Industrial.
Revenue and income (loss) from operations for the three and nine months ended
September 30, 2009 and 2008, and goodwill and total assets as of those dates
by segment are as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2009 2008 2009 2008
Restated - Restated -
note 1 note 1
------------- ------------- ------------- -------------
Revenue
Pipeline and
Pipe Services $ 273,262 $ 323,347 $ 837,101 $ 838,125
Petrochemical
and Industrial 29,916 34,246 89,334 108,968
Intersegment
Eliminations (366) (344) (3,368) (1,369)
------------- ------------- ------------- -------------
$ 302,812 $ 357,249 $ 923,067 $ 945,724
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Income (loss) from
operations
Pipeline and
Pipe Services $ 53,433 $ 52,971 $ 168,932 $ 119,339
Petrochemical
and Industrial 2,092 5,170 4,625 16,561
Financial and
Corporate (5,553) (5,826) (19,973) (15,477)
------------- ------------- ------------- -------------
$ 49,972 $ 52,315 $ 153,584 $ 120,423
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Goodwill
Pipeline and
Pipe Services $ 199,553 $ 194,039
Petrochemical
and Industrial 18,759 18,032
------------- -------------
$ 218,312 $ 212,071
------------- -------------
------------- -------------
Total assets
Pipeline and
Pipe Services $ 1,335,312 $ 1,237,465
Petrochemical
and Industrial 75,848 81,907
Financial and
Corporate 858,835 881,982
Elimination (1,133,368) (1,069,813)
------------- -------------
$ 1,136,627 $ 1,131,541
------------- -------------
------------- -------------
18. Joint venture operations
The Company's joint venture operations have been accounted for through
proportionate consolidation with the Company's share of each joint venture's
assets, liabilities, revenue, expenses, net income and cash flows consolidated
based on the Company's ownership position. The figures related to these joint
ventures included in the Company's consolidated financial statements are
summarized as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2009 2008 2009 2008
Restated - Restated -
note 1 note 1
------------- ------------- ------------- -------------
Revenue $ 13,160 $ 44,728 $ 47,737 $ 82,693
Operating and
other expenses 12,403 30,738 38,522 62,077
Net income before
income taxes 757 13,990 9,215 20,616
Provision for taxes 390 4,172 2,161 5,393
------------- ------------- ------------- -------------
Net income $ 367 $ 9,818 $ 7,054 $ 15,223
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Cash provided by
(used in):
Operating
activities $ (1,821) $ 6,297 $ 12,676 $ 11,701
Investing
activities $ (528) $ (486) $ (2,360) $ (4,285)
Financing
activities $ 701 $ (4,448) $ (7,778) $ (7,320)
Current assets $ 30,056 $ 40,310
Property, plant and equipment, net $ 13,131 $ 14,133
Goodwill $ 4,900 $ 4,681
Current liabilities $ 15,479 $ 25,327
Long-term Liabilities $ 1,290 $ 571
19. Earnings per share
The weighted average number of common shares for the purpose of the earnings
per share calculations was as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2009 2008 2009 2008
Restated - Restated -
note 1 note 1
------------- ------------- ------------- -------------
Basic
Class A 57,403,761 57,834,682 57,379,823 57,943,554
Class B 13,060,209 13,077,909 13,060,209 13,077,909
------------- ------------- ------------- -------------
Total 70,463,970 70,912,591 70,440,032 71,021,463
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Dilutive effect of
stock options
Class A 593,600 701,861 343,848 728,059
Class B - - - -
------------- ------------- ------------- -------------
Total 593,600 701,861 343,848 728,059
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Diluted
Class A 57,997,361 58,536,543 57,723,671 58,671,613
Class B 13,060,209 13,077,909 13,060,209 13,077,909
------------- ------------- ------------- -------------
Total 71,057,570 71,614,452 70,783,880 71,749,522
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
20. Recent accounting pronouncements
On February 13, 2008, The Accounting Standards Board ("AcSB") confirmed that
the use of International Financial Reporting Standards ("IFRS") will be
required in Canada for publicly accountable profit-oriented enterprises for
fiscal years beginning on or after January 1, 2011 and the Company will be
required to report using IFRS beginning on this date. The Company has begun
the process of evaluating the effect of and the planning for the transition to
IFRS. The impact of the ultimate adoption of IFRS on the Company has not yet
been finalized.
In January 2009, the AcSB issued the following new Handbook sections: 1582 -
Business Combinations, 1601 - Consolidations, and 1602 - Non- Controlling
Interests. These standards are effective January 1, 2011. The Company has not
yet determined the impact of the adoption of these standards on its
consolidated financial statements.
21. Comparative figures
Comparative figures have been reclassified from statements previously stated
to conform to the presentation of the current year consolidated financial
statements, and to show the effects of retrospective application of a new
accounting policy (see note 1).
SOURCE ShawCor Ltd.
Gary Love, Vice President, Finance and CFO, Telephone: (416) 744-5818, e-mail:
glove@shawcor.com, website: www.shawcor.com
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