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Shawcor Ltd. Announces Third Quarter 2009 Results
(TSX: SCL.A, SCL.B)
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
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
Operating income from continuing operations totaled
First Nine Months of 2009 Highlights
Consolidated revenue from continuing operations in the first nine months of 2009 was
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
Net income in the first nine months of 2009 totaled
The Company's backlog at
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
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
Operating income from continuing operations totaled
Net income in the third quarter of 2009 totaled
Third Quarter 2009 versus Second Quarter 2009
Consolidated revenue from continuing operations in the third quarter of 2009 decreased by
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
Operating income from continuing operations and net income in the third quarter of 2009 decreased
First nine months of 2009 versus First nine months of 2008
Consolidated revenue from continuing operations in the first nine months of 2009 was
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
Operating income from continuing operations in the first nine months of 2009 increased
Net income for the first nine months of 2009 increased
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
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
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
Operating income from continuing operations in the quarter for the segment totaled
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
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
Operating income from continuing operations in the first nine months of 2009 was
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
Operating income from continuing operations in the quarter for the segment totaled
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
Operating income in the first nine months of 2009 was
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
Third Quarter 2009 versus Second Quarter 2009
Financial and corporate costs decreased by
First nine months of 2009 versus First nine months of 2008
Financial and corporate costs for the first nine months of 2009 totaled
Net Interest Expense
Third Quarter 2009 versus Third Quarter 2008
Net interest expense totaled
Third Quarter 2009 versus Second Quarter 2009
Net interest expense decreased by
First nine months of 2009 versus First nine months of 2008
Net interest expense for the first nine months of 2009 totaled
Income Taxes
Income tax expense related to continuing operations in the third quarter of 2009 was
Cash Flow
Cash provided by continuing operating activities
Cash provided by continuing operating activities in the third quarter of 2009 totaled
Cash provided by continuing operating activities in the first nine months of 2009 totaled
Cash used in continuing investing activities
Cash used in continuing investing activities in the third quarter of 2009 totaled
Cash used in continuing investing activities in the first nine months of 2009 totaled
Cash provided by (used in) continuing financing activities
Cash used in continuing financing activities in the third quarter of 2009 totaled
Cash used in continuing financing activities in the first nine months of 2009 totaled
Other Comprehensive Loss
Other comprehensive loss in the quarter totaled
Liquidity and Capitalization
At
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
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)
---------------------------
---------------------------
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)
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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
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
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
-------------
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
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
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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
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
The Company's consolidated order backlog at
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
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
---------- ---------- ---------- ----------
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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
a) Goodwill and Intangible Assets
On
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
2. Stock-based compensation
The Board of Directors approved the granting of 520,200 stock options during the nine months ended
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
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
4. Discontinued operations
On
The following table summarizes the financial results and cash flows from discontinued operations for the three and nine months ended
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
Long-term notes receivable as of
8. Bank indebtedness and Long-term debt
As of
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
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
11. Capital stock
The following shares were outstanding as of
(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
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
-------------
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
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
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
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
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
The following is an analysis of the change in the allowance for doubtful accounts for the nine months ended
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
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
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
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
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
In
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.
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