ShawCor Ltd. Announces Fourth Quarter And Full Year 2009 Results
(TSX: SCL.A, SCL.B)
TORONTO, March 3 /PRNewswire-FirstCall/ -
Financial Summary
(in thousands of Canadian
dollars except per Fourth Quarter Full Year
share amounts) 2009 2008 2009 2008
Restated Restated
(note 1) (note 1)
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Operating Results
Revenue $ 260,911 $ 433,853 $1,183,978 $1,379,577
EBITDA (note 2) 53,730 98,591 253,799 262,158
Operating income from
continuing operations 38,591 75,588 192,175 196,011
Income from continuing
operations 31,553 56,014 131,106 134,722
Income (loss) from
discontinued operations (27) 609 344 11,011
Net income 31,526 56,623 131,450 145,733
Net income per share
(Class A and B) - Basic
Continuing operations 0.44 0.79 1.86 1.90
Discontinued operations - 0.01 - 0.16
Total 0.44 0.80 1.86 2.06
Net income per share
(Class A and B) - Diluted
Continuing operations 0.43 0.78 1.85 1.88
Discontinued operations - 0.01 - 0.15
Total 0.43 0.79 1.85 2.03
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Cash Flow
Cash provided by
continuing operating
activities $ 130,737 $ 75,924 $ 287,132 $ 154,361
Additions to property,
plant and equipment 8,432 27,800 34,358 89,799
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Financial Position
Working capital $ 307,567 $ 229,169
Total assets 1,185,977 1,227,289
Shareholders' equity per
share (Class A and B)
(note 3) $ 11.21 $ 10.40
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Note 1: Prior year figures have been restated as a result of the adoption
of recent accounting policy changes and reclassified to conform to
current year presentation.
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 $ 31,553 $ 56,014 $ 131,106 $ 134,722
Add (deduct):
Income taxes 6,276 17,484 56,397 55,878
Interest expense - net 762 2,154 4,672 5,659
Amortization of property,
plant and equipment 14,044 22,090 57,244 63,997
Amortization of
intangible assets 1,095 849 4,380 1,902
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EBITDA $ 53,730 $ 98,591 $ 253,799 $ 262,158
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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.
FOURTH QUARTER AND FULL YEAR 2009 RESULTS
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 December 31, September 30, December 31,
Canadian dollars) 2009 2009 2008
Restated (a)
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Revenue from continuing
operations $260,911 $302,812 $433,853
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Operating income from continuing
operations $38,591 $49,972 $75,588
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Operating margin 14.8% 16.5% 17.4%
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(a) Restated as a result of the adoption of recent accounting policy
changes
Foreign Exchange Impact
The following table sets forth the impact on revenues, operating income from continuing operations and net income compared with the comparable prior year period as a result of foreign exchange fluctuations on the translation of foreign currency operations for the following periods:
Three Months
Year Ended Ended
------------ ------------
December 31, December 31,
2009 2009
------------ ------------
Revenue $ 34,568 $ (27,167)
Operating income from continuing
operations $ 14,173 $ (6,703)
Net income $ 10,213 $ (5,940)
The following table sets forth the significant currencies in which the Company operates and the foreign year-to-date average exchange rates for these currencies versus Canadian dollars, for the following periods:
Three Months
Year Ended Ended
December 31, December 31,
------------------ ------------------
2009 2008 2009 2008
-------- -------- -------- --------
U.S. Dollar 1.1450 1.0686 1.0544 1.2483
Euro 1.5958 1.5639 1.5569 1.6370
British Pounds 1.7763 1.9632 1.7154 1.9038
Fourth Quarter 2009 versus Fourth Quarter 2008
Consolidated revenue decreased by $172.9 million or 40.0% in the fourth quarter of 2009 compared to the fourth quarter of 2008. The decrease was due primarily to a decline in revenue of $166.0 million in the Pipeline and Pipe Services segment as a result of lower levels of drilling activity which impacted North American volumes for small diameter pipe coating and flexible composite pipe. Also contributing to the Pipeline and Pipe Services revenue decline was a reduction in pipe coating project activity in the Europe, Middle East, Africa and Russia ("EMAR") region and the unfavourable impact of foreign exchange fluctuations.
During the fourth 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 $27.2 million, $6.7 million and $5.9 million, respectively, compared to the fourth quarter of 2008.
Operating income from continuing operations decreased by $37.0 million or 49.0% in the fourth quarter of 2009 compared to the fourth quarter of 2008. The decrease was primarily due to the decline in revenue across both of the Company's operating segments as discussed above and the impact of the lower revenue on facility utilization and overhead absorption.
Net income decreased to $31.5 million in 2009 compared to $56.6 million 2008, a decrease of $25.1 million or 44.3%. The decrease was primarily due to the decrease in operating income explained above.
Fourth Quarter 2009 versus Third Quarter 2009
Consolidated revenue decreased by $41.9 million or 13.8% in the fourth quarter of 2009 compared to the third quarter of 2009. The decrease was due to declines in both the Pipeline and Pipe Services and the Petrochemical and Industrial segments of $37.5 million and $4.4 million, respectively. The decrease in Pipeline and Pipe Services was primarily due to the completion in the third quarter of several significant pipe coating projects for Trinidad and the U.S. Gulf of Mexico. Partially offsetting this decline was an increase in activity in the Company's facilities in Malaysia, Scotland and Norway relating to the Gumusut, Skarv, and various offshore concrete coating projects. The decrease in Petrochemical and Industrial was primarily due to large project sales in the third quarter of 2009 and continuing weakness in the segment's automotive and industrial markets.
During the fourth 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 $3.9 million, $633 thousand and $624 thousand, respectively, compared to the third quarter of 2009.
Operating income from continuing operations and net income in the fourth quarter of 2009 decreased $11.4 million or 22.8% and $2.2 million or 6.6%, respectively, compared to the third quarter of 2009, primarily due to the decrease in consolidated revenue.
Full Year 2009 versus Full Year 2008
Consolidated revenue decreased to $1.18 billion in 2009, a decrease of $195.6 million or 14.2%. The decrease was due to lower revenues in both of the Company's operating segments, partially offset by the favorable impact of foreign exchange fluctuations as discussed below.
During 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 $34.6 million, $14.2 million and $10.2 million, respectively, compared to 2008.
Operating income from continuing operations decreased by $3.8 million in 2009 compared to 2008, while operating margin increased by 2.0 percentage points. The decrease in operating income was primarily due to the reduction in revenue explained above and the movement in foreign exchange losses (gains). The 2 percentage point improvement in operating income margin resulted from the Company's initiatives to improve operating efficiencies.
Net income decreased to $131.4 million in 2009 compared to $145.7 million in 2008, a decrease of $14.3 million or 9.8%. The decrease was primarily due to the decrease in operating income explained above, and the change in income from discontinued operations relating to the lawsuit settlement recorded in 2008.
The Company's backlog as at December 31, 2009 was $410.5 million compared to $239.9 million as at September 30, 2009, an increase of $170.6 million or 71.1%, indicating a gradual improvement in market outlook. The two largest projects included in the backlog, the PNG project and Epic project, are scheduled for production in the second half of 2010 with the result that the Company expects that both revenue and operating income should strengthen as the year progresses.
Pipeline and Pipe Services
Three Months Ended
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(in thousands of December 31, September 30, December 31,
Canadian dollars) 2009 2009 2008(a)
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Revenue
North America $ 85,357 $ 109,688 $ 183,408
Latin America 29,208 81,723 33,679
EMAR 49,829 29,777 111,329
Asia Pacific 71,364 52,074 73,352
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Total revenue $ 235,758 $ 273,262 $ 401,768
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Operating income from
continuing operations $ 43,847 $ 53,433 $ 75,841
Operating margin 18.6% 19.6% 18.9%
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(a) Restated as a result of the adoption of recent accounting policy
changes.
Fourth Quarter 2009 versus Fourth Quarter 2008
In the Pipeline and Pipe Services segment, revenue in the fourth quarter of 2009 totaled $235.8 million and was $166.0 million or 41.3% lower than in the fourth quarter of 2008, primarily due to declines in the North America and EMAR regions of $98.1 million and $61.5 million, respectively.
The decrease in North America resulted from the significant decline in oil and gas drilling activity as a result of the global economic recession. Reduced drilling and well completions in Canada and the United States ("U.S.") negatively impacted volumes in several of the Company's key product markets including small diameter pipe coating, joint protection sleeves, spoolable composite pipe and drill pipe services.
The decrease in EMAR was primarily due to lower pipe coating volumes in Europe and the Middle East due to reduced project activity in the North Sea and the fourth quarter 2008 completion of two large projects in Ras Al Khaimah.
Operating income from continuing operations decreased by $32.0 million or 42.2% in the fourth quarter of 2009 compared to the fourth quarter of 2008. The decrease was primarily due to the decline in revenue in North America and EMAR as discussed above.
Fourth Quarter 2009 versus Third Quarter 2009
In the Pipeline and Pipe Services segment, revenue in the fourth quarter of 2009 was 13.7% lower than in the third quarter of 2009 primarily due to declines in Latin America and North America of $52.5 million and $24.3 million, respectively, partially offset by increases in EMAR and Asia Pacific of $20.0 million and $19.3 million, respectively.
Revenue in Latin America decreased as a result of the completion of the Trinidad NEO and Tobago Pipeline projects in the third quarter of 2009.
The decline in North America was primarily due to a reduction in the land-based pipeline inspection market on lower pipeline construction activity coupled with the third quarter 2009 completion of several pipe coating projects in the U.S. Gulf of Mexico.
The increase in EMAR and Asia Pacific was primarily due to an increase in activity in the Company's facilities in Malaysia, Scotland and Norway relating to the Gumusut, Skarv and various offshore concrete coating projects.
Operating income from continuing operations decreased by $9.6 million or 17.9% in the fourth quarter of 2009 compared to the third quarter of 2009. The decrease was primarily due to the decline in revenue as discussed above. Overall operating income margins decreased from 19.6% in the third quarter of 2009 to 18.6% in the fourth quarter of 2009 as lower revenue significantly impacted utilization and fixed cost overhead absorption.
Full Year 2009 versus Full Year 2008
Revenue in 2009 was $1.07 billion, a decrease of $167.0 million or 13.5% compared to 2008. The decrease was due to lower revenues in EMAR and North America of $155.5 million and $152.5 million, respectively, partially offset by an increase in Latin America and Asia Pacific of $115.2 million and $25.8 million, respectively.
The decrease in North America resulted from the significant decline in oil and gas drilling activity as a result of the global economic recession. Reduced drilling and well completions in Canada and the U.S. negatively impacted volumes in several of the Company's key product markets including small diameter pipe coating, joint protection sleeves, spoolable composite pipe and drill pipe services.
The decrease in EMAR was mainly due to lower pipe coating volumes in Europe and the Middle East. The record activity levels for insulation coating at the Company's facility in Orkanger, Norway in 2008 were not repeated in 2009 due to reduced project activity in the North Sea and the 2008 completion of the Pluto project. Elsewhere in the region, concrete coating volumes for offshore pipelines also declined on reduced project activity in the North Sea and offshore Middle East.
The increase in Latin America was due to the $81 million Trinidad North East Offshore and Tobago Pipeline projects in 2009 and strong growth in Mexico on increased pipeline investment by Pemex, the national oil company of Mexico.
The increase in Asia Pacific was primarily due to a higher level of pipe coating activity at the region's plants in Indonesia and Malaysia as a result of continuing growth in oil and gas demand within Asia coupled with growth in investment by energy producing companies to develop new oil and gas resources in the region.
Operating income from continuing operations in 2009 was $212.8 million compared to $195.0 in 2008, an increase of $17.8 million or 9.1%, while operating margin improved by 4.1 percentage points. The increase was primarily due to the favourable effect of foreign exchange fluctuations, the Company's strengthened competitive position and improved operating efficiencies.
Petrochemical and Industrial
Three Months Ended
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(in thousands of December 31, September 30, December 31,
Canadian dollars) 2009 2009 2008
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Revenue
North America $ 12,775 $ 17,931 $ 20,249
EMAR 12,378 11,619 11,836
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Total revenue $ 25,153 $ 29,550 $ 32,085
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Operating income from
continuing operations $ 436 $ 2,092 $ 2,528
Operating margin 1.7% 7.1% 7.9%
Fourth Quarter 2009 versus Fourth Quarter 2008
In the Petrochemical and Industrial segment, revenue in the fourth quarter of 2009 totaled $25.2 million compared to $32.1 million in the fourth quarter of 2008, a decrease of $6.9 million or 21.6%. The decrease was primarily due to a decline in North America of $7.5 million, partially offset by an increase in EMAR of $542 thousand.
Revenue in North America decreased primarily due to a weaker market for wire and cable associated with decline in industrial capital investment in the fourth quarter of 2009 compared with the fourth quarter of 2008.
Operating income from continuing operations decreased by $2.1 million or 82.8% in the fourth quarter of 2009 compared to the fourth quarter of 2008. The decrease was primarily due to the decline in revenue in North America as discussed above and one-time costs of approximately $1.5 million related to the restructuring of operations in EMAR including the closure of a facility in Poland.
Fourth Quarter 2009 versus Third Quarter 2009
In the Petrochemical and Industrial segment, revenue in the fourth quarter of 2009 was 14.9% lower than in the third quarter of 2009 primarily due to a decrease in North America of $5.2 million.
The decrease in North America was mainly due to large project sales in the third quarter of 2009 not repeated to the same extent in the fourth quarter of 2009 and continuing weakness in the segments automotive and industrial markets.
Operating income from continuing operations decreased by $1.7 million or 79.2% in the fourth quarter of 2009 compared to the third quarter of 2009. The decrease was primarily due to a decline in revenue as discussed above. Overall operating income margins decreased from 7.1% in the third quarter of 2009 to 1.7% in the fourth quarter of 2009 as lower revenue significantly impacted utilization and fixed cost overhead absorption.
Full Year 2009 versus Full Year 2008
Revenue was $111.1 million in 2009, a decrease of $28.6 million or 20.4% compared to 2008. The decrease was primarily due to lower revenues in North America and EMAR of $15.1 million and $13.5 million, respectively.
The decrease in North America resulted from a significant decrease in 2009 in the number of industrial building permits issued in Canada with a resulting impact on the demand for wire and cable, lower wire and cable prices as a result of reductions in the price of copper in 2009 compared to 2008, and the impact of the global economic recession in 2009, particularly on demand for heat shrink tube products in the industrial and automotive industries. The decrease in EMAR was primarily due to a decline in demand in the automotive and electrical markets in Europe as a result of the global economic recession in 2009 and tighter capital markets.
Operating income from continuing operations in 2009 was $5.1 million compared to $19.1 million in 2008, a decrease of $14.0 million or 73.5%, while operating margin decreased by 9.1 percentage points. The decrease was primarily due to the lower revenues discussed above, the impact of lower business activity on factory utilization and one-time costs of approximately $3.0 million related to the restructuring of operations in EMAR including the closure of a facility in Poland.
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.
Fourth Quarter 2009 versus Fourth Quarter 2008
Financial and corporate costs for the fourth quarter of 2009, before net foreign exchange losses of $1.3 million, totaled $4.4 million a decrease of $4.3 million from the $8.7 million in the fourth quarter of 2008, before net foreign exchange gains of $5.9 million. The decrease was primarily due to lower professional fees and lower management incentive compensation costs reflecting lower profits of the Company in 2009 compared to 2008 and the impact of a $1.3 million write-down of the Company's investment in Garneau Inc. in the fourth quarter of 2008, which was not repeated in the fourth quarter of 2009.
Fourth Quarter 2009 versus Third Quarter 2009
Financial and corporate costs increased by $1.2 million in the fourth quarter of 2009 compared to the third quarter of 2009, primarily as a result of a lower allocation of corporate R&D expense to operating divisions due to increased corporate R&D activity.
Full Year 2009 versus Full Year of 2008
Financial and corporate expense, before foreign exchange gains and losses, decreased by $4.4 million or 16.6% in 2009 compared to 2008. The decrease was primarily due to the reversal of a provision related to resolved workers compensation claims, lower professional fees in 2009 compared to 2008, a higher allocation of corporate costs to R&D expense reported in the Pipeline and Pipe Services segment due to increased R&D activity and lower management incentive compensation costs reflecting the lower profits of the Company in 2009 compared to 2008.
Interest Expense - net
Fourth Quarter 2009 versus Fourth Quarter 2008
Interest expense-net was $762 thousand in the fourth quarter of 2009 compared to $2.2 million in the fourth quarter of 2008, a decrease of $1.4 million or 64.6%. The decrease was primarily due to lower interest expense on bank indebtedness and long-term debt in 2009 compared to 2008 mainly as a result of the repayment of Senior Notes in the second quarter of 2009.
Fourth Quarter 2009 versus Third Quarter 2009
Interest expense-net was $762 thousand in the fourth quarter of 2009 compared to $675 thousand in the third quarter of 2009, a marginal increase of $87 thousand, due to lower interest rates on invested cash balances.
Full Year 2009 versus Full Year 2008
Interest expense - net decreased by $987 thousand in 2009 compared to 2008. The decrease was primarily due to lower interest expense on bank indebtedness and long-term debt. The decrease in interest expense on bank indebtedness was mainly due to lower debt levels in 2009 compared to 2008. The decrease in interest expense on long-term debt was due to lower debt levels in 2009 compared to 2008 as a result of the repayment of Senior Notes made in the second quarter of 2009.
Income Taxes
Income tax expense relating to continuing operations in the fourth quarter of 2009 totaled $6.3 million (16.6% of income from continuing operations before non-controlling interest and income taxes) compared to $17.5 million (23.8% of income from continuing operations before non-controlling interest and income taxes) in the fourth quarter of 2008 and $15.6 million (31.7% of income from continuing operations before non-controlling interest and income taxes) in the third quarter of 2009. The effective tax rate for the fourth quarter of 2009 was considerably lower than the Company's expected tax rate of 31.0%, mainly as a result of a larger proportion of the Company's income having been generated in lower-tax foreign jurisdictions, primarily in the Asia Pacific region and a $1.5 million benefit from the utilization of tax losses not previously recognized.
The Company recorded income tax expense of $56.4 million (30.1% of income from continuing operations before income taxes and non-controlling interest) in 2009, compared to tax expense of $55.9 million (29.4% of income from continuing operations before income taxes and non-controlling interest). The effective tax rate in 2009 was largely in line with the rate in the prior year and was lower than the Company's expected effective tax rate of 31.0%. The reduction from the expected rate resulted primarily from income generated in lower-taxed foreign jurisdictions.
Cash Flow
Cash provided by continuing operating activities
Cash provided by continuing operating activities in the fourth quarter of 2009 totaled $130.7 million, compared to $75.9 million in the fourth quarter of 2008 and $59.6 million in the third 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 $96.0 million, with reduced accounts receivable, inventory and increased deferred revenue, partially offset by lower accounts payable.
On a full year basis, cash provided by continuing operating activities totaled $287.1 million, an increase of $132.8 million or 86.0% versus 2008, primarily due to the movement in non-cash working capital and foreign exchange of $170.4 million, partially offset by a decrease in the movement of non-cash items. Non-cash working capital benefited from reduced accounts receivable and inventories and higher deferred revenues, partially offset by lower accounts payable. Non-cash items decreased mainly due to changes in future income taxes combined with a decrease in amortization of property, plant and equipment and impairment charges recorded in 2008 for asset retirement obligations and available-for-sale financial assets.
Cash used in continuing investing activities
Cash used in continuing investing activities in the fourth quarter of 2009 totaled $7.7 million, compared to $5.6 million in the third quarter of 2009 and $29.1 million in the fourth quarter of 2008, and was comprised of capital expenditures on property, plant and equipment of $8.4 million partially offset by proceeds on disposal of property, plant and equipment of $562 thousand.
On a full year basis, cash used in continuing investing activities totaled $37.7 million, a decrease of $172.1 million or 82.0% versus 2008, as a result of a decrease in capital expenditures and the 2008 acquisition of Flexpipe.
Cash used in continuing financing activities
Cash used in continuing financing activities in the fourth quarter of 2009 totaled $4.6 million, compared to $4.7 million in the third quarter of 2009 and $49.5 million in the fourth quarter of 2008, and mainly consisted of dividends paid to shareholders of $4.9 million.
On a full year basis, cash used in continuing financing activities increased by $48.9 or 159.2% in 2009 compared to 2008, primarily due to the repayment on the Senior Notes in the second quarter of 2009, a decrease in bank indebtedness and the $18.0 million special dividend paid during the year.
Other Comprehensive Loss
Other comprehensive loss in the quarter totaled $6.3 million and was comprised primarily 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 December 31, 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 $84.2 million during the quarter to $79.6 million, reflecting lower accounts receivables and inventory levels and an increase in deferred revenue.
Outlook
The primary driver of demand for the Company's products and services in the Pipeline and Pipe Services segment is the level of energy industry investment in pipeline infrastructure for hydrocarbon development and transportation around the globe. This investment, in turn, is driven by global levels of economic activity and the resulting growth in hydrocarbon demand, the need to replace the supply of hydrocarbons as a result of resource depletion and the financial position of the major energy companies. The relationship between global hydrocarbon demand and supply and the level of energy industry investment in infrastructure tends to be cyclical.
In 2009, the global economic recession resulted in reduced energy demand and tighter capital markets. Total world liquid fuel consumption decreased by 1.9% in 2009 compared to 2008, the first year over year decline in 25 years. Lower energy demand and reduced capital available for investment resulted in pipeline project delays and cancellations in Europe, and the Middle East and a 42% decline in well completions in North America, with a resulting impact on small diameter pipe coating orders. However as a result of strong project activity in Asia Pacific and the Trinidad project, coupled with the implementation of various cost savings initiatives, the Company was able to continue to produce strong financial results.
A gradual improvement in market outlook is indicated by the Company's order backlog, representing customer orders expected to be completed within one year that totaled $410.5 million at December 31, 2009, an improvement from $239.9 million at the end of the third quarter of 2009. The two largest projects included in the backlog, the PNG project and Epic project, are scheduled for production in the second half of 2010 with the result that the Company expects that both revenue and operating income should strengthen as the year progresses.
While global economic activity appears to have stabilized, overall market demand for ShawCor's products and services is not likely to return to pre-recession levels until after 2010, an expectation reinforced by the fact that the order backlog, while improved, remains 10% below the level of $456 million at the beginning of 2009.
The Petrochemical and Industrial segment's markets should show some improvement from 2009 with the Company's new facility in China providing access to the growing market for automotive and electrical products in China as well as a low cost source for product that can be exported to North America and Western Europe. In the Pipeline and Pipe Services segment, market activity is expected to vary significantly from region to region as noted below:
North America
The number of drilling rigs active in North America did improve during the second half of 2009 but active rig counts remain 27% below the peak levels of 2007. If current drilling levels continue in 2010 then ShawCor expects that the Company's businesses that are related to well completions, primarily small diameter pipe coating, flexible composite pipe, and pipe joint protection, will see a modest improvement in volumes over 2009 levels. ShawCor businesses that are related to transmission pipeline construction, primarily large diameter pipe coating, will continue to be driven by project activity. In this area the volume expectations are largely consistent with the prior year.
Latin America and Caribbean
In 2009 revenue was supported by the US$81.3 million Trinidad North East Offshore and Tobago Pipeline projects which are now complete. The decline in revenue from the completion of these projects may be partially offset by expected increases in activity in South America.
EMAR
Project activity in EMAR was greatly affected by the economic recession in 2009 with a number of projects delayed or cancelled. Thus the potential exists for a modest upturn in project activity in the second half of 2010 if customer investment decisions lead to new project commencement. Of strategic importance is the Company's new pipe coating venture in Russia that will start operations in 2010 and provide concrete weight pipe coatings for offshore pipelines in the Russian Arctic. This joint venture will contribute modest revenues in 2010 but could provide growth opportunities in the longer term as Northern Russian gas and oil fields are developed.
Asia Pacific
In contrast to other global regions, the level of project activity in Asia Pacific is expected to increase significantly commencing in the second half of 2010. The Company has been awarded two large pipe coating contracts that will start production in mid-2010, the US$185.0 million PNG LNG project and the US$42.0 million Epic Energy QSN3 project in Eastern Australia. Other markets in South East Asia, where the Company has maintained a significant market share are also expected to be strong in 2010. Beyond 2010, the Company expects that increasing energy demand in the region will necessitate increasing investment in pipeline infrastructure as new sources of oil and gas are developed and connected to growing markets in India, China and South East Asia. There are a large number of potential LNG projects being evaluated to develop natural gas resources from offshore fields in the North West of Australia, from coal seam resources in Eastern Australia, and from other gas fields in the region, that are expected to sustain a high level of demand for new pipeline infrastructure over an extended timeframe.
During 2009, the Company's financial position continued to strengthen with the result that it has the financial capacity to fund significant growth opportunities through geographic expansion into emerging markets, new product introductions, and through the acquisition of companies that complement current business activities and/or that provide new product and service offerings within the Company's core pipeline focus. Execution of these growth initiatives should provide the potential for continued growth for the Company in the years ahead.
Forward Looking Information
This document includes certain statements that reflect management's expectations and objectives for the Company's future performance, opportunities and growth, which statements constitute forward-looking information under applicable securities laws. Such statements, other than statements of historical fact, are predictive in nature or depend on future events or conditions. Forward-looking information involves 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. Specifically, this document includes forward-looking information in respect of, among other things, the impact of global economic activity on the demand for the Company's products as well as the prices of commodities used by the Company, the impact of changing energy demand, supply and prices, the impact of changes in competitive conditions in the markets in which the Company participates, the impact of changing laws for environmental compliance on the Company's capital and operating costs, the Company's relationships with its employees, the continued establishment of international operations, the effect of continued development in emerging economies, as well as the Company's plans as they relate to research and development activities and the maintenance of its current dividend policies.
Forward-looking information involves known and unknown risks and uncertainties that could cause actual results to differ materially from those predicted by the forward-looking information. We caution readers not to place undue reliance on forward-looking information as a number of factors could cause actual events, results and prospects to differ materially from those expressed in or implied by the forward looking information. Significant risks facing the Company 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; exposure to product and other liability claims; compliance with environmental, trade and other laws; political, economic and other risks arising from the Company's international operations; fluctuations in foreign exchange rates, as well as other risks and uncertainties, as more fully described herein under the heading "Risks and uncertainties".
These statements of forward-looking information are based on assumptions, estimates and analysis made by management 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. These assumptions include assumptions in respect of the potential for improvement in demand for the Company's products and services as a result of continued global economic recovery, the potential for increased investment in global energy infrastructure as a result of stabilization of capital markets, the Company's ability to execute projects under contract, the continued supply of and stable pricing for commodities used by the Company, and the availability of personnel resources sufficient for the Company to operate its businesses. The Company believes that the expectations reflected in the forward-looking information are based on reasonable assumptions in light of currently available information. However, should one or more risks materialize or should any assumptions prove incorrect, then actual results could vary materially from those expressed or implied in the forward-looking information included in this document and the Company can give no assurance that such expectations will be achieved.
When considering the forward-looking information in making decisions with respect to the Company, readers should carefully consider the foregoing factors and other uncertainties and potential events. ShawCor Ltd. does not assume the obligation to revise or update forward-looking information after the date of this document, or to revise it to reflect the occurrence of future unanticipated events, except as may be required under applicable securities laws.
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 March 4, 2010 at 10:00 am ET to discuss the Company's fourth quarter and full year 2009 financial results. Please visit our website at www.shawcor.com for future details.
SHAWCOR LTD.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars except per share data)
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Twelve Months Ended
December 31, December 31,
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2009 2008(a) 2009 2008(a)
----------- ----------- ----------- -----------
Revenue $ 260,911 $ 433,853 $1,183,978 $1,379,577
Cost of goods sold 154,183 269,236 695,521 892,937
----------- ----------- ----------- -----------
Gross profit 106,728 164,617 488,457 486,640
Selling, general and
administrative expenses 48,611 69,194 219,901 224,789
Amortization of property,
plant and equipment 14,044 22,090 57,244 63,997
Amortization of intangible
assets 1,095 849 4,380 1,902
Foreign exchange losses
(gains) 1,284 (5,894) 3,790 (8,180)
Research and development
expenses 3,103 2,790 10,967 8,121
----------- ----------- ----------- -----------
Operating income from
continuing operations 38,591 75,588 192,175 196,011
Interest income (expense)
on short-term deposits 409 (391) 916 1,895
Interest expense on bank
indebtedness (437) (353) (1,780) (2,518)
Interest expense on
long-term debt (734) (1,410) (3,808) (5,036)
----------- ----------- ----------- -----------
Income before income
taxes and non-controlling
interest 37,829 73,434 187,503 190,352
Income taxes 6,276 17,484 56,397 55,878
----------- ----------- ----------- -----------
Income before non-
controlling interest 31,553 55,950 131,106 134,474
Non-controlling interest - 64 - 248
----------- ----------- ----------- -----------
Income from continuing
operations 31,553 56,014 131,106 134,722
Income (loss) from
discontinued operations (27) 609 344 11,011
----------- ----------- ----------- -----------
Net income $ 31,526 $ 56,623 $ 131,450 $ 145,733
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings per share
Basic
Continuing operations $ 0.44 $ 0.79 $ 1.86 $ 1.90
Discontinued operations - 0.01 - 0.16
----------- ----------- ----------- -----------
Total $ 0.44 $ 0.80 $ 1.86 $ 2.06
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted
Continuing operations $ 0.43 $ 0.78 $ 1.85 $ 1.88
Discontinued operations - 0.01 - 0.15
----------- ----------- ----------- -----------
Total $ 0.43 $ 0.79 $ 1.85 $ 2.03
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
(a) Prior year figures have been restated as a result of the adoption
of recent accounting policy changes and reclassified to conform to
current year presentation.
-------------------------------------------------------------------------
SEGMENTED INFORMATION
Three Months Ended Twelve Months Ended
December 31, December 31,
----------------------- -----------------------
2009 2008(a) 2009 2008(a)
----------- ----------- ----------- -----------
Revenue
Pipeline and Pipe
Services $ 235,758 $ 401,768 $1,072,858 $1,239,893
Petrochemical and
Industrial 25,153 32,085 111,120 139,684
----------- ----------- ----------- -----------
$ 260,911 $ 433,853 $1,183,978 $1,379,577
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Income (loss) from
operations
Pipeline and Pipe
Services $ 43,847 $ 75,841 $ 212,779 $ 194,974
Petrochemical and
Industrial 436 2,528 5,062 19,089
Financial and Corporate (5,692) (2,781) (25,666) (18,052)
----------- ----------- ----------- -----------
$ 38,591 $ 75,588 $ 192,175 $ 196,011
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
(a) Prior year figures have been restated as a result of the adoption
of recent accounting policy changes and reclassified to conform to
current year presentation.
SHAWCOR LTD.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended Twelve Months Ended
December 31, December 31,
----------------------- -----------------------
2009 2008(a) 2009 2008(a)
----------- ----------- ----------- -----------
Operating activities:
Income from continuing
operations $ 31,553 $ 56,014 $ 131,106 $ 134,722
Items not requiring an
outlay of cash:
Amortization of
property, plant and
equipment 14,044 22,090 57,244 63,997
Amortization of
intangible assets 1,095 849 4,380 1,902
Amortization of
transaction costs 111 110 444 440
Amortization of long-
term prepaid expenses 92 211 1,173 930
Asset retirement
obligation expense (6,886) (1,199) (4,852) 703
Stock-based compensation 771 830 3,165 3,359
Future income taxes (3,482) 11,368 (3,809) 11,777
Gain on disposal of
property, plant and
equipment 4 46 1,365 404
Impairment of asset
retirement obligation
asset - 7,770 - 7,770
Impairment of
intangible assets - 600 - 600
Impairment of goodwill - 352 - 352
Impairment of
available-for-sale
financial assets - 1,318 336 2,816
Non-controlling
interest in earnings
of subsidiaries - (248) - (248)
Gain on disposal of
subsidiary - (680) - (864)
Settlement of asset
retirement obligations 937 (233) (1,307) (891)
Change in employee
future benefits (3,544) (3,889) (457) (1,400)
Change in non-cash
working capital and
foreign exchange 96,042 (19,385) 98,344 (72,008)
----------- ----------- ----------- -----------
Cash provided by
continuing operating
activities 130,737 75,924 287,132 154,361
----------- ----------- ----------- -----------
Investing activities:
Purchases of property,
plant and equipment (8,432) (27,800) (34,358) (89,799)
Proceeds on disposal
of property, plant
and equipment 562 13 606 46
Acquisition of
subsidiaries - (1,347) - (125,723)
Increase in long-term
notes receivable 125 - (3,943) -
Proceeds on disposal
of subsidiaries - 84 - 5,719
----------- ----------- ----------- -----------
Cash used in continuing
investing activities (7,745) (29,050) (37,695) (209,757)
----------- ----------- ----------- -----------
Financing activities:
Increase (decrease) in
bank indebtedness - (42,654) (15,418) 10,311
Increase(decrease) in
capital leases (107) 830 (107) 830
Repayment of long-term
debt - - (28,705) -
Issue of shares 378 24 1,679 1,763
Purchase of shares for
cancellation - (3,226) - (26,022)
Dividends paid to
shareholders (4,852) (4,512) (37,057) (17,597)
----------- ----------- ----------- -----------
Cash used in continuing
financing activities (4,581) (49,538) (79,608) (30,715)
----------- ----------- ----------- -----------
Foreign exchange on
foreign cash and cash
equivalents (2,579) 19,752 (10,974) 25,776
----------- ----------- ----------- -----------
Net cash provided by
(used in) continuing
operations 115,832 17,088 158,855 (60,335)
Net cash provided by
(used in) discontinued
operations 10,785 (2,048) 12,201 (35,750)
Cash and cash equivalents
at beginning of period 123,371 63,892 78,932 175,017
----------- ----------- ----------- -----------
Cash and cash equivalents
at end of period $ 249,988 $ 78,932 $ 249,988 $ 78,932
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
(a) Prior year figures have been restated as a result of the adoption
of recent accounting policy changes and reclassified to conform to
current year presentation.
SHAWCOR LTD.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars)
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
2009 2008(a)
------------ ------------
Assets
Current assets
Cash and cash equivalents $ 249,988 $ 78,932
Accounts receivable 191,821 307,933
Taxes receivable 14,055 9,261
Inventories 109,379 152,284
Prepaid expenses 14,392 14,635
Derivative financial instruments 1,782 523
Current future income taxes 4,668 3,322
Current assets of discontinued operation - 12,256
------------ ------------
586,085 579,146
Property, plant and equipment, net 270,219 307,735
Goodwill 214,449 229,059
Intangible assets 62,784 67,152
Future income taxes 36,249 31,173
Derivative financial instruments 39 -
Other assets 16,152 13,024
------------ ------------
$ 1,185,977 $ 1,227,289
------------ ------------
------------ ------------
Liabilities
Current liabilities
Bank indebtedness $ - $ 15,418
Accounts payable and accrued liabilities 133,275 192,705
Taxes payable 42,971 53,405
Derivative financial instruments 510 2,049
Deferred revenues 75,100 54,692
Current portion of long-term debt 26,235 30,672
Current obligations under capital lease 371 581
Current liabilities of discontinued operation 56 455
------------ ------------
278,518 349,977
Long-term debt 26,052 60,554
Obligations under capital lease 492 389
Future income taxes 76,552 73,939
Other non-current liabilities 13,941 9,978
------------ ------------
395,555 494,837
------------ ------------
Shareholders' Equity
Capital stock 204,151 202,073
Contributed surplus 17,277 14,512
Retained earnings 695,800 601,407
Accumulated other comprehensive loss (126,806) (85,540)
------------ ------------
790,422 732,452
------------ ------------
$ 1,185,977 $ 1,227,289
------------ ------------
------------ ------------
(a) Prior year figures have been restated as a result of the adoption
of recent accounting policy changes and reclassified to conform to
current year presentation.
SHAWCOR LTD.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars)
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Three Months Ended Twelve Months Ended
December 31, December 31,
----------------------- -----------------------
2009 2008(a) 2009 2008(a)
----------- ----------- ----------- -----------
Balance at beginning of
period $ 669,126 $ 547,145 $ 601,407 $ 492,903
Transitional adjustment - 4,668 - 2,872
----------- ----------- ----------- -----------
Adjusted balance at
beginning of period 669,126 551,813 601,407 495,775
Net income 31,526 56,623 131,450 145,733
----------- ----------- ----------- -----------
700,652 608,436 732,857 641,508
Excess of purchase price
paid over stated value
of shares - (2,517) - (22,504)
Dividends declared (4,852) (4,512) (37,057) (17,597)
----------- ----------- ----------- -----------
Balance at end of period $ 695,800 $ 601,407 $ 695,800 $ 601,407
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
(a) Prior year figures have been restated as a result of the adoption
of recent accounting policy changes and reclassified to conform to
current year presentation.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended Twelve Months Ended
December 31, December 31,
----------------------- -----------------------
2009 2008(a) 2009 2008(a)
----------- ----------- ----------- -----------
Net income $ 31,526 $ 56,623 $ 131,450 $ 145,733
Other comprehensive
income (loss), net of
income taxes:
Unrealized gain (loss)
on translating
financial statements
of self-sustaining
foreign operations (7,775) 38,195 (49,149) 55,627
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 1,480 (14,085) 8,428 (18,060)
Income tax benefit
(expense) (34) 2,401 (1,223) 3,079
----------- ----------- ----------- -----------
Unrealized foreign
currency translation
gain, net of hedging
activities (6,329) 26,511 (41,266) 40,646
----------- ----------- ----------- -----------
Unrealized loss on
available-for-sale
financial assets
arising during the
period - (359) (336) (2,229)
Unrealized loss on
available-for-sale
financial assets
transferred to net
income in the current
period - 1,318 336 2,816
Income tax expense
transferred to net
income in the period - - - 253
----------- ----------- ----------- -----------
Change in unrealized loss
on available-for-sale
financial assets - 959 - 840
----------- ----------- ----------- -----------
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)
----------- ----------- ----------- -----------
(6,329) 27,470 (41,266) 40,490
----------- ----------- ----------- -----------
Comprehensive income $ 25,197 $ 84,093 $ 90,184 $ 186,223
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
(a) Prior year figures have been restated as a result of the adoption
of recent accounting policy changes and reclassified to conform to
current year presentation.
SOURCE ShawCor Ltd.
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