(TSX: SCL.A, SCL.B)
TORONTO, Aug. 3 /CNW/ -
<<
Financial Summary
(In thousands of
Canadian dollars Three Months Six Months
except per share Ended Jun. 30 Ended Jun. 30
amounts) 2006 2005 2006 2005
-------------------------------------------------------------------------
Operating Results Restated Restated
Revenue $ 262,929 $ 230,411 $ 520,659 $ 473,270
EBITDA (note 1) 44,344 23,577 91,899 64,460
Operating income
from continuing
operations 35,805 12,499 73,258 41,825
Income from
continuing
operations 24,898 7,629 49,653 26,317
Income (loss) from
discontinued
operations (192) 2,111 (227) 1,181
Net income (loss) 24,706 9,740 49,426 27,498
Net income (loss)
per share (Class A
and B) - Basic
Continuing operations 0.34 0.10 0.67 0.35
Discontinued operations 0.00 0.03 0.00 0.02
Total 0.34 0.13 0.67 0.37
Net income (loss)
per share (Class A
and B) - Diluted
Continuing operations 0.34 0.10 0.67 0.35
Discontinued operations 0.00 0.03 0.00 0.02
Total 0.34 0.13 0.67 0.37
-------------------------------------------------------------------------
Cash Flow
Cash from (used in)
continuing operating
activities 29,412 36,758 78,350 48,207
Additions to property,
plant and equipment 12,582 12,084 19,108 17,296
-------------------------------------------------------------------------
Financial Position
Working capital 297,373 158,572
Total assets 952,409 838,350
Shareholders' equity
per share (Class A
and B) $ 7.76 $ 6.16
-------------------------------------------------------------------------
>>
Note 1: EBITDA is a non-GAAP measure calculated by adding back to income
from continuing operations, interest, taxes and
depreciation/amortization. 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.
Consolidated revenue for the quarter totaled $262.9 million compared to
$257.7 million last quarter and $230.4 million in the second quarter of 2005.
The growth in revenue reflected strong business activity at Bredero Shaw's
North American operations and the impact of several large pipecoating projects
which are in progress at the Company's pipecoating plants in Indonesia and
Malaysia. Revenue at the Company's other divisions remained at levels similar
to the prior quarter but some 7% ahead of the prior year led by increased
revenue at the Shawflex division. On a year-to-date basis, revenue totaled
$520.7 million, 10% higher than in the first six months of 2005.
Consolidated income from continuing operations totaled $24.9 million
($0.34 per share) in the quarter compared to $7.6 million ($0.10 per share) in
the second quarter of 2005 with the improvement mainly due to the increased
revenue and higher operating margins, resulting from improved operating
efficiencies, at Bredero Shaw. Consolidated income from continuing operations
in the quarter increased slightly from levels in the first quarter of the year
with a reduction in income tax expense offsetting the impact of reduced
activity at the North Sea plants and at Bredero Shaw's Nigerian operations.
Actions were taken during the quarter to reduce costs in the North Sea region
to reflect anticipated business levels over the near term and are expected to
show improvements in future periods.
The current outlook for the Company continues to show softness in the
second half of the year with the forecast for full year revenue slightly lower
than last year. A major factor in this outlook is the translation impact of
the stronger Canadian dollar which has the effect of reducing the value the
Company's U.S. dollar-based revenues when translated into the Canadian dollar
reporting currency. Profitability levels for full year 2006 are expected to be
maintained at levels similar to 2005, despite the lower revenue, due to
improved operational efficiencies at Bredero Shaw. Bidding activity continues
to be strong and several major pipeline projects are planned throughout the
world over the next several years. These factors result in the Company
anticipating strong business activity in 2007 and beyond.
The acquisition of Garneau Inc., which was announced in the quarter, has
been delayed pending review by the Competition Bureau, Canada (the "Bureau").
The Company remains committed to this transaction; however, there are no
assurances that the Company will receive the governmental clearance necessary
to complete the transaction.
MANAGEMENT DISCUSSION AND ANALYSIS
The following is management's interim discussion and analysis of
operations and financial position and should be read in conjunction with the
Consolidated Financial Statements and Management's Discussion and Analysis
included in the Company's 2005 Annual Report.
Revenue and Income from Operations
ShawCor classifies its revenue and income from operations in two industry
segments: Pipeline and Pipe Services, and Petrochemical and Industrial.
Consolidated revenue from continuing operations totaled $262.9 million in
the quarter and increased 14% from levels in the second quarter of 2005.
Consolidated income from continuing operations for the quarter totaled
$24.9 million ($0.34 per share), compared to $7.6 million ($0.10 per share) in
the second quarter of 2005. Consolidated revenue increased marginally compared
to last quarter of $257.7 million while income from continuing operations was
$0.2 million higher than the previous quarter reflecting the benefit of a
reduced income tax rate offsetting softness at Bredero Shaw's North Sea plants
and in Nigeria. Net income in the quarter after discontinued operations costs,
was $24.7 million ($0.34 per share) compared to $24.7 million ($0.33 per
share) last quarter and $9.7 million ($0.13 per share) in the second quarter
of 2005. The improvement in net income per share from the first quarter was
due to the reduction in shares outstanding as a result of the purchase of
shares for cancellation during the quarter.
In the Pipeline and Pipe Services segment, revenue in the quarter totaled
$227.1 million, 2% higher than in the prior quarter and 14% higher than in the
second quarter of 2005. Revenue in the quarter at Bredero Shaw was virtually
unchanged from the prior quarter as large diameter project activity in the
division's Far East region, more than offset slower North Sea activity
resulting from the completion of the Langeled project in Norway. Revenue at
the division in the second quarter increased 17% from levels in the same
quarter of last year reflecting stronger business activity in North America
and the Far East. Income from continuing operations for the Pipeline and Pipe
Services segment remained strong at $36.3 million (16% of segment sales) in
the quarter compared to $37.3 million (16.6% of segment sales) in the
preceding quarter and was significantly improved over the $12.9 million (6% of
segment sales) in the second quarter of last year. The continuation of the
strong performance from the first quarter and improvement over the prior year
reflected improved operating margins at Bredero Shaw resulting from better
operational efficiency and more favourable project mix in the North America
and Far East operations. On a year-to-date basis, revenue for the segment
totaled $450.2 million and income from continuing operations totaled
$73.5 million compared to $410.7 million and $43.0 million, respectively, in
the corresponding period of last year.
In the Petrochemical and Industrial segment, revenue in the quarter of
$36.2 million was 3% higher than in the prior quarter and increased 13% from
the level in the second quarter of last year driven mainly by strong business
activity at ShawFlex. Revenue in the quarter at both DSG-Canusa and Shawflex
increased by 3% over the first quarter of 2006 and increased by 3% and 39%
respectively over the second quarter of 2005. Income from continuing
operations for the segment totaled $3.9 million in the quarter and increased
11% from the second quarter of last year, however, decreased from $4.6 million
last quarter. ShawFlex operating income was adversely impacted in the quarter
by higher material prices, primarily copper, prior to being able to pass these
increases on to customers through price increases. On a year-to-date basis,
revenue for the segment totaled $71.2 million and income from continuing
operations totaled $8.6 million representing increases of 12% and 17%,
respectively, over the same period last year.
Finance
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. Financial and corporate
costs for the quarter, before net foreign exchange losses of $54 thousand,
totaled $4.3 million compared to $5.0 million in the prior quarter, before net
foreign exchange gains of $550 thousand.
Net interest income totaled $424 thousand in the quarter, compared to
$114 thousand in the prior quarter and net interest expense of $1.5 million in
the second quarter of 2005. The improvement over the second quarter of last
year reflects the improved cash position of the Company resulting from the
divestiture of the OMSCO division in the third quarter of 2005 together with
cash generated during the twelve month period.
Income tax expense was $10.4 million in the quarter compared to
$12.8 million in the prior quarter and $3.0 million in the second quarter of
last year. The effective tax rate (income taxes as a percentage of income from
continuing operations before income taxes and non-controlling interest) of 29%
in the quarter was impacted by the benefit of earnings in the United States
sheltered by previously unrecognized tax losses and by tax rate reductions in
Canada, partially offset by losses in other countries which were not
tax-effected.
Cash Flow
Cash flow generated from operating activities in the quarter totaled
$29.4 million compared to $48.9 million last quarter and $36.8 million in the
second quarter of 2005 with the decrease due primarily to the significant
reduction in working capital in the preceding quarter compared with a
$2.0 million increase in the current quarter. On a year-to-date basis, cash
flow generated from operating activities totaled $78.4 million compared to
$48.2 million in the first six months of 2005.
Capital expenditures in the quarter totaled $12.6 million compared to
$6.5 million last quarter and $12.1 million in the second quarter of last
year. Major capital additions in the quarter included the purchase of land
near Bredero Shaw's Camrose, Alberta plant, the purchase of a pipecoating line
in the Far Eastern region from an inactive facility, to be used for an
anticipated upcoming project mobilization, the commencement of capital
spending for the Company's new pipecoating facility in Portland Oregon, and an
ongoing production capacity expansion program at ShawFlex. On a year-to-date
basis, cash flow used in investing activities totaled $19.1 million compared
to $17.2 million in the corresponding period of last year.
Cash flow used in financing activities totaled $7.0 million in the
quarter consisted of dividends paid to shareholders of $3.3 million and the
cost of shares repurchased under the Normal Course Issue Bid of $4.2 million,
partially offset by $478 thousand received from the issuance of shares on the
exercise of stock options. Cash used in financing activities totaled
$10.0 million in the second quarter of 2005, reflecting the repayment of bank
indebtedness of $6.9 million and dividends paid to shareholders of
$3.3 million, partially offset by the receipt of $262 thousand on the exercise
of stock options. On a year-to-date basis, cash flow used in investing
activities totaled $8.7 million compared to $2.9 million in the first six
months of last year.
Liquidity and Capitalization
At June 30, 2006, the Company recorded a working capital ratio of 2.16 to
1 compared to 2.05 to 1 at December 31, 2005. Operating working capital,
excluding cash and cash equivalents, increased $893 thousand in the quarter to
$51.9 million as increased investments in accounts receivable and prepaid
contract costs were mostly offset by increased accounts payable. Cash and cash
equivalents increased $1.7 million in the quarter to $245.5 million, compared
with an increase of $42.7 million last quarter and $16.1 million in the second
quarter of 2005.
Financial Instruments
The Company manages interest rate risk and foreign exchange risk through
the use of derivative financial instruments including foreign exchange option
contracts and forward exchange contracts. These instruments are used to hedge
exposures related to commercial activities only. The Company does not use them
for speculative purposes. Short-term movements on financial instruments
acquired as a hedge of a specific foreign currency purchase obligation or
revenue source are deferred and matched with the specific transaction.
At June 30, 2006, the Company had notional amounts of $45.8 million of
forward contracts outstanding (December 31, 2005 - $104.5 million) with a fair
value of negative $1.3 million (December 31, 2005 - positive $1.9 million).
These amounts are used to express the volume of transactions and are not
recognized in the consolidated financial statements.
Critical Accounting Estimates
The preparation of the consolidated financial statements in conformity
with Canadian Generally Accepted Accounting Principles ("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.
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 the Company's
projections, business, results of operations and financial condition. There
were no material changes in the nature or magnitude of such business risks
during the quarter. The Company's 2005 Annual Report and 2005 Annual
Information Form include a more detailed discussion of these risks and
uncertainties.
Contractual Obligations
There were no material changes to the Company's contractual obligation
during the quarter, other than those that would be expected in the ordinary
course of business.
Summary of Quarterly Results
The following is selected financial information for the ten most recently
completed quarters:
<<
(In thousands of
Canadian dollars
except per share
amounts) First Second Third Fourth Full Year
-------------------------------------------------------------------------
Revenue
2006 $ 257,730 $ 262,929 $ $ $
2005 242,859 230,411 239,164 291,685 1,004,119
2004 163,352 174,311 172,440 227,681 737,784
Operating income
from continuing
operations
2006 37,452 35,806
2005 29,326 12,499 21,869 31,719 95,413
2004 15,499 12,758 10,690 28,231 67,178
Income from
continuing
operations
2006 24,755 24,898
2005 18,688 7,629 34,693 21,780 82,790
2004 11,268 8,128 7,434 12,297 39,127
Income (loss) from
discontinued
operations
2006 (35) (192)
2005 (930) 2,111 56,059 (1,190) 56,050
2004 (7,683) (11,617) (16,092) (90,396) (125,788)
Net income (loss)
2006 24,720 24,898
2005 17,758 9,740 90,752 20,590 138,840
2004 3,585 (3,489) (8,658) (78,099) (86,661)
Operating income
from continuing
operations per share
(Classes A and B)
Basic and Diluted
2006 0.51 0.48
2005 0.39 0.17 0.29 0.42 1.27
2004 0.21 0.17 0.14 0.38 0.90
Income from continuing
operations per share
(Classes A and B)
Basic and Diluted
2006 0.33 0.34
2005 0.25 0.10 0.45 0.30 1.10
2004 0.15 0.11 0.10 0.16 0.52
Income (loss) from
discontinued
operations per share
(Classes A and B)
Basic and Diluted
2006 0.00 0.00
2005 (0.01) 0.03 0.75 (0.02) 0.75
2004 (0.10) (0.16) (0.21) (1.21) (1.68)
Net income (loss)
per share
(Class A and B)
2006 0.33 0.34
2005 0.24 0.13 1.20 1.28 1.85
2004 0.05 (0.05) (0.11) (1.05) (1.16)
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>>
The following are key factors affecting the comparability of quarterly
financial results.
The Company's pipecoating operations are largely project-based. The
nature and timing of projects can result in variability in the Company's
quarterly revenue and profitability.
The Company's operations are subject to a degree of seasonality
particularly in the Pipeline and Pipe Services market segment. Generally, the
Western Canadian operations of Bredero Shaw and Guardian tend to be stronger
in the first and fourth quarters of the year reflecting the winter pipe lay
and drilling operations of their customers. In the case of Bredero Shaw in
2006 this historical seasonal trend has been altered by very strong market
demand in Western Canada with the volume levels experienced in the first
quarter 2006 continuing through the second quarter. It is now expected however
that volumes will weaken in the second half. The following are additional key
factors impacting the comparability of the quarterly information disclosed
above:
The majority of the Company's revenue is transacted in currencies other
than Canadian dollars, with a majority transacted in U.S. dollars. Changes in
the rates of exchange between the Canadian dollar and other currencies could
have a significant effect on the amounts of these revenues when they are
translated into Canadian dollars.
On November 3, 2004, the Company announced the closure of its Mobile,
Alabama facility. This event had a significant impact on the financial results
for the fourth quarter of 2004. Operations at the facility ceased in the
fourth quarter of 2005 and discontinued operations accounting treatment was
adopted in that quarter with prior quarters restated on a comparable basis.
On September 30, 2005, the Company completed the sale of its OMSCO drill
pipe manufacturing division. The division has been accounted for as a
discontinued operation.
Proposed Transaction
On April 20, 2006, the Company announced that it had entered into an
agreement to acquire all of the outstanding common shares of Garneau Inc. by
way of a court approved plan of arrangement. Under the terms of the
arrangement, shareholders of Garneau (other than ShawCor and certain members
of the Garneau family) will receive a cash payment of $2.20 per share of
Garneau. Members of the Garneau family will exchange their common shares of
Garneau Inc. for non-voting preferred shares of Garneau Inc. which preferred
shares will be redeemable after 3 years and retractable after 2 years at a
price to be based on future profitability of certain ShawCor pipecoating
operations, subject to a minimum of $2.20 per share and a maximum of $3.78 per
share, and bear fixed cumulative dividends of 5% per annum. As part of the
plan of arrangement, Garneau Inc. will sell its equipment manufacturing
division to Garneau Industries Ltd., a corporation controlled by Glen Garneau,
for a purchase price of $3.0 million. Including outstanding stock options,
there are 12.5 million common shares of Garneau Inc. outstanding, of which
3.6 million are owned by the Garneau family and 2.2 million by ShawCor.
On May 30, 2006, a resolution approving the plan of arrangement was
passed by the required vote of shareholders at the Garneau Inc. special and
general annual shareholders meeting. The final order from the Court of Queen's
Bench of Alberta approving the arrangement was then issued. Prior to
completing the transaction, the Company announced that the closing of the plan
of arrangement had been delayed at the request of the Competition Bureau,
Canada ("the Bureau"). While the Company remains committed to completing the
Garneau acquisition, further delays at the request of the Bureau are possible
and there are no assurances that the Company will receive the governmental
clearance necessary to complete the transaction.
Outstanding Share Capital
As at July 25, 2006, the Company had 60,850,600 Class A Subordinate
Voting Shares ("Class A") outstanding and 13,078,232 Class B Multiple Voting
Shares ("Class B") outstanding. Each Class B share is convertible into a
Class A share at the option of the holder. In addition, as at July 25, 2006,
the Company had stock options outstanding to purchase up to 2,860,205 Class A
shares.
Outlook
The Company's consolidated order backlog, representing customer orders
expected to be completed within one year, totaled $266 million at June 30,
2006. Including the Rockies Express contract that was announced in July 2006,
the consolidated order backlog increases to $308 million compared with
$333 million at the beginning of the second quarter.
The Company continues to anticipate slower business activity in the
second half of the year as the North Sea region activity will be minimal and
large pipecoating projects currently underway in the Far East are completed.
The strong activity in the first half of the year in western Canada and Mexico
will moderate in the second half following which the recently announced North
American large diameter pipecoating projects are expected to generate strong
performance in 2007 and beyond. The revenue for the full year is forecast at
levels slightly lower than in 2005; however, profitability levels are expected
to be maintained at levels similar to 2005, despite the lower revenue, due to
improved operational efficiencies at Bredero Shaw.
Pipecoating bid activity remains strong and the Company continues to win
large pipecoating contracts with several announced so far during 2006. In
addition, several large pipeline projects are being planned globally, which
will provide the significant growth opportunities for the Company. These
factors point to strengthening business activity in 2007 and beyond.
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, as more fully described in our 2005 Annual
Information Form and 2005 Annual Report. Please refer to the Company's 2005
Annual Information Form and 2005 Annual Report for more information.
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 Friday, August 4, 2006 at 10:00 AM EDT, which will discuss the
company's second quarter 2006 financial results. Please visit our website at
www.shawcor.com for further details.
ShawCor Ltd.
Notes to the Consolidated Financial Statements (Unaudited)
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. These unaudited interim financial statements have
been prepared in accordance with accounting policies outlined in the
Company's audited financial statements for the year ended December 31,
2005. Accordingly, these interim financial statements should be read in
conjunction with the Company's annual consolidated financial statements.
2. Stock-based compensation
On May 12, 2006, the Board of Directors approved the granting of 2,000
stock options under the 2001 Employee Plan with a fair value, calculated
using the Black-Scholes pricing model, of $13 thousand. The fair value of
these options will be amortized to compensation expense over the 5 year
vesting period of the options. The assumptions used in calculating the
fair value of the options are as follows: expected life of options from
4.25 years to 8.25 years, expected stock price volatility ranges from
25.9% to 33.0%, expected dividend yield 0.87%, and risk free interest
rate ranging from 4.23% to 4.39% over the life of the options. The
compensation cost from the continuing amortization of granted stock
options for the three months and six months ended June 30, 2006 included
in operating expenses is $819 thousand and $1.4 million, respectively
(June 30, 2005 - $601 thousand and $1.2 million, respectively).
3. Foreign exchange gains and losses
Included in operating expenses for the three months ended June 30, 2006
are foreign exchange losses totaling $54 thousand, while foreign exchange
gains for the six months ended June 30, 2006 totaled $496 thousand
(June 30, 2005 - losses of $225 thousand and $801 thousand,
respectively). These gains and losses arise from foreign currency
transactions and from the translation of the financial statements of
foreign integrated subsidiaries.
4. Employee future benefits
The Company's cost under both defined benefit and defined contribution
arrangements included in operating expenses for the three months and six
months ended June 30, 2006 is $2.8 million and $5.2 million, respectively
(June 30, 2005 - $2.0 million and $4.0 million, respectively).
<<
5. Interest expense (income)
Three Months Six Months
Ended Jun. 30 Ended Jun. 30
(in thousands) 2006 2005 2006 2005
-------------------------------------------------------------------------
Interest on
short-term deposits $ (2,295) $ (227) $ (4,038) $ (713)
Interest on bank
indebtedness 569 217 803 364
Interest on
long-term debt 1,302 1,496 2,697 2,883
-------------------------------------------------------------------------
$ (424) $ 1,486 $ (538) $ 2,534
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>
Net interest received during the three months and six months ended
June 30, 2006 totaled $16 thousand and $409 thousand, respectively
(June 30, 2005 - interest paid of $2.0 million and $3.0 million,
respectively).
6. Income taxes
Net income taxes paid during the three months and six months ended
June 30, 2006 totaled $18.6 million and $23.0 million, respectively
(June 30, 2005 - $1.1 million and $6.6 million, respectively).
7. Discontinued operations
On September 30, 2005, the Company concluded the sale of its OMSCO drill
pipe manufacturing division ("OMSCO") and accordingly adopted
discontinued operations accounting treatment for the division in the
third quarter of 2005. On November 2, 2004, the Company announced its
decision to close the Mobile, Alabama pipecoating facility and operations
at the facility ceased in the fourth quarter of 2005. The Company adopted
discontinued operations accounting treatment for the Mobile facility in
the fourth quarter of 2005.
The following table summarizes the financial results and cash flows from
discontinued operations for the six months ended June 30, 2006 and 2005
and the assets and liabilities of the discontinued operations as at those
dates:
<<
Six Months Six Months
Ended June 30, 2006 Ended June 30, 2005
-------------------------- ----------------------------
(in thousands
of Canadian Mobile Mobile
dollars) OMSCO Facility Total OMSCO Facility Total
------------------------------------------ -----------------------------
Revenue $ - $ 60 $ 60 $ 60,062 $ 20,255 $ 80,317
-------------------------- -----------------------------
Income (loss)
from operations - (227) (227) 9,214 (4,602) 4,612
Interest
expenses - - - 133 - 133
Income
(loss) from
discontinued
operations
before income
taxes - (227) (227) 9,081 (4,602) 4,479
Income
tax expense - - - 3,298 - 3,298
-------------------------- -----------------------------
Net income
(loss) from
discontinued
operations $ - $ (227) $ (227) $ 5,783 $ (4,602) $ 1,181
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash flow
from (used in)
operating
activities - 262 262 36,532 (14,094) 22,438
Cash flow
from (used in)
investing
activities - - - (101) - (101)
Cash flow
from (used in)
financing
activities - - - - - -
----------------------------------------------------------------
Net cash
provided by
(used in)
discontinued
operations $ - $ 262 262 $ 36,431 $(14,094) $ 22,337
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Current assets - - - 59,853 12,868 72,721
Property,
plant and
equipment, net - 4,830 4,830 18,085 14,376 32,461
Current
liabilities 8,797 8,797 18,437 16,276 34,713
-------------------------------------------------------------------------
-------------------------------------------------------------------------
8. Other assets
Jun. 30, Dec. 31, Jun. 30,
(in thousands of Canadian dollars) 2006 2005 2005
-------------------------------------------------------------------------
Long-term investment $ 2,875 $ 2,875 $ 2,875
Deferred financing costs 2,192 2,031 2,355
Deferred project costs 13,844 8,637 11,206
Accrued employee future benefit asset 4,046 4,384 3,952
Future income taxes 21,875 24,597 23,453
----------------------------------
Total $ 44,832 $ 42,524 $ 43,841
----------------------------------
----------------------------------
>>
Other assets include a long-term investment in Garneau Inc., a Canadian-
based, publicly traded pipecoating company with a market value of
$4.6 million at June 30, 2006.
9. Bank indebtedness
As at June 30, 2006, the Company had operating lines of credit of US$175
million, of which CAD$98.2 million has been utilized for various types of
standby letters of credit for performance and bid bonds (December 31,
2005 - $98.0 million, June 30, 2005 - $75.2 million) and bank
indebtedness of nil (December 31, 2005 - $1.7 million, June 30, 2005 -
$4.6 million). The Company renewed its Unsecured Bank Credit Facility for
five years, effective June 27, 2006, with terms and conditions similar to
the prior agreement except that the maximum borrowing limit has been
reduced from US$165 million to US$125 million. There were no changes to
the Company's other credit facilities, totaling US$50 million, in the
quarter.
<<
10. Other non-current liabilities
Jun. 30, Dec. 31, Jun. 30,
(in thousands of Canadian dollars) 2006 2005 2005
-------------------------------------------------------------------------
Non-current asset retirement
obligations $ 2,307 $ 2,249 $ 2,833
Accrued employee future benefit
obligations 2,375 1,953 1,878
Future income taxes 28,966 34,575 33,641
Non-controlling interest in
subsidiaries 3,814 2,842 3,542
----------------------------------
Total $ 37,462 $ 41,619 $ 41,894
----------------------------------
----------------------------------
11. Capital stock
(in thousands except share Jun. 30, Dec. 31, Jun. 30,
information) 2006 2005 2005
-------------------------------------------------------------------------
Number of shares: Class A
Balance, beginning of the period 61,006,045 61,224,968 61,224,968
Issued - stock options 68,272 206,727 177,923
Conversion Class B to Class A 9,728 657,950 18,400
Purchased and cancelled under
Normal Course Issuer Bid (235,900) (1,083,600) -
------------------------------------
Balance, end of the period 60,848,145 61,006,045 61,421,291
------------------------------------
Number of shares: Class B 13,078,287 13,088,015 13,727,565
------------------------------------
Total number of shares
Class A and Class B 73,926,432 74,094,060 75,148,856
------------------------------------
------------------------------------
Stated Value: Class A
Balance, beginning of the period $ 203,716 $ 205,849 $ 205,849
Issued - stock options 859 1,459 1,036
Conversion Class B to Class A - 51 1
Purchased and cancelled under
Normal Course Issuer Bid (789) (3,643) -
------------------------------------
Balance, end of the period $ 203,786 $ 203,716 $ 206,886
------------------------------------
Stated Value: Class B 1,004 1,004 1,055
------------------------------------
Total stated value Class A
and Class B $ 204,790 $ 204,720 $ 207,941
------------------------------------
------------------------------------
12. Contributed surplus
Three Months Six Months
(In thousands of Ended Jun. 30 Ended Jun. 30
Canadian dollars) 2006 2005 2006 2005
-------------------------------------------------------------------------
Balance, beginning
of period $ 9,719 7,242 $ 9,231 7,196
Adjustment for
stock-based
compensation - - - -
Stock compensation
expense (note 2) 819 601 1,401 1,202
Fair value of stock
options exercised (187) (149) (281) (704)
---------------------------------------
Balance, end
of period $ 10,351 7,694 $ 10,351 7,694
---------------------------------------
---------------------------------------
>>
13. Derivative Financial instruments
Foreign exchange options and forward exchange contracts are used to hedge
foreign exchange exposures related to commercial activities. They are not
used by the Company for speculative purposes. At June 30, 2006, the
Company had notional amounts of $45.8 million of forward contracts
outstanding (December 31, 2005 - $104.5 million, June 30, 2005 -
$86.2 million). These amounts are used to express the volume of
transactions and are not recognized in the consolidated financial
statements. These financial instruments are contracted with major,
chartered banks; as a result, credit and liquidity risks related to these
instruments are considered to be low.
The fair values of foreign exchange forward contracts represent an
approximation of the amounts the Company would have paid to or received
from counterparties to unwind its positions at June 30, 2006. The fair
value of the Company's net liability for all foreign exchange forward
contracts at June 30, 2006 not recognized in the consolidated financial
statements was approximately $1.3 million (December 31, 2006 -
$1.9 million net benefit, June 30, 2005 - $1.3 million net benefit). If
these contracts ceased to be effective as hedges, unrecognized gains or
losses pertaining to the portion of the hedging transactions in excess of
projected foreign-denominated cash flows would be recognized in income at
the time this condition was identified.
<<
14. Segmented information
Three Months Six Months
(in thousands) Ended Jun. 30 Ended Jun. 30
-------------------------------------------------------------------------
Revenue 2006 2005 2006 2005
---------- ---------- ---------- ----------
Pipeline and Pipe
Services $ 227,056 $ 198,569 $ 450,164 $ 410,674
Petrochemical and
Industrial 36,207 32,168 71,23 63,348
Intersegment
Eliminations (335) (326) (738) (752)
---------- ---------- ---------- ----------
$ 262,928 $ 230,411 $ 520,659 $ 473,270
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Operating income
(loss) from
continuing
operations
Pipeline and
Pipe Services $ 36,276 $ 12,901 $ 73,537 $ 42,977
Petrochemical
and Industrial 3,928 3,538 8,564 7,349
Financial and
Corporate (4,398) (3,940) (8,843) (8,501)
---------- ---------- ---------- ----------
$ 35,806 $ 12,499 $ 73,258 $ 41,825
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Goodwill
Pipeline and Pipe Services $ 148,908 $ 157,829
Petrochemical and Industrial 16,595 17,521
---------- ----------
$ 165,503 $ 175,350
---------- ----------
---------- ----------
Total assets
Pipeline and Pipe Services $ 955,412 $ 712,835
Petrochemical and Industrial 79,612 75,490
Financial and Corporate 1,170,083 812,053
Elimination (1,252,698) (762,028)
---------- ----------
$ 952,409 $ 838,350
---------- ----------
---------- ----------
>>
15. Proposed Transaction
On April 20, 2006, the Company announced that it had entered into an
arrangement whereby the Company would acquire all of the outstanding
common shares of Garneau Inc. The transaction will be effected by means
of a court approved plan of arrangement. Under the terms of the
arrangement, shareholders of Garneau (other than ShawCor and certain
members of the Garneau family) will receive a cash payment of $2.20 per
share of Garneau. Members of the Garneau family will exchange their
common shares of Garneau Inc. for non-voting preferred shares of Garneau
Inc. which preferred shares will be redeemable after 3 years and
retractable after 2 years at a price to be based on future profitability
of certain ShawCor pipecoating operations, subject to a minimum of $2.20
per share, and bear fixed cumulative dividends of 5% per annum. As part
of the plan of arrangement, Garneau Inc. will sell its equipment
manufacturing division to Garneau Industries Ltd., a corporation
controlled by Glen Garneau, for a purchase price of $3.0 million.
Including outstanding stock options, there are 12.5 million common shares
of Garneau Inc. outstanding, of which 3.6 million are owned by the
Garneau family and 2.2 million by ShawCor.
On May 30, 2006, a resolution approving the plan of arrangement was
passed by the required vote of shareholders at the Garneau Inc. special
and general annual shareholders meeting. The final order from the Court
of Queen's Bench of Alberta approving the arrangement was then issued.
Prior to completing the transaction, the Company announced that the
closing of the plan of arrangement had been delayed at the request of the
Competition Bureau, Canada ("the Bureau"). While the Company remains
committed to completing the Garneau acquisition, there are no assurances
that the Company will receive the governmental clearance necessary to
complete the transaction.
16. Comparative figures
Comparative figures have been reclassified where necessary to correspond
with the current year's presentation.
<<
SHAWCOR LTD.
INTERIM FINANCIAL INFORMATION (Unaudited)
(in thousands of Canadian dollars except per share data)
CONSOLIDATED STATEMENTS OF INCOME
Three Months Six Months
(in thousands) Ended Jun. 30 Ended Jun. 30
----------------------------------------------
2006 2005 2006 2005
Restated - Restated -
Note 7 Note 7
----------------------- ------------------------
Revenue $ 262,929 $ 230,411 $ 520,659 $ 473,270
---------- ---------- ---------- ----------
Operating expenses
(notes 2, 3 and 4) 217,881 204,429 427,884 405,329
Amortization 9,493 11,466 19,615 22,801
Research and
development 1,448 2,062 2,897 3,816
---------- ---------- ---------- ----------
228,822 217,957 450,396 431,946
---------- ---------- ---------- ----------
Share of earnings
in associated
company 1,699 45 2,995 501
---------- ---------- ---------- ----------
Operating income
from continuing
operations 35,806 12,499 73,258 41,825
Interest expense
(income) (note 5) (424) 1,486 (538) 2,534
---------- ---------- ---------- ----------
Income before
income taxes and
non-controlling
interest 36,230 11,013 73,796 39,291
Income taxes
(note 6) 10,377 2,996 23,169 12,808
---------- ---------- ---------- ----------
Income before
non-controlling
interest 25,853 8,017 50,627 26,483
Non-controlling
interest (955) (388) (974) (166)
---------- ---------- ---------- ----------
Income from
continuing
operations 24,898 7,629 49,653 26,317
Income (loss) from
discontinued
operations
(note 7) (192) 2,111 (227) 1,181
---------- ---------- ---------- ----------
Net income $ 24,706 $ 9,740 $ 49,426 $ 27,498
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings per share,
Class A and B -
Basic and Diluted
Continuing
operations $ 0.34 $ 0.10 $ 0.67 $ 0.35
Discontinued
operations - 0.03 - 0.02
---------- ---------- ---------- ----------
Total $ 0.34 $ 0.13 $ 0.67 $ 0.37
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
SEGMENTED INFORMATION
Three Months Six Months
(in thousands) Ended Jun. 30 Ended Jun. 30
-------------------------------------------------------------------------
2006 2005 2006 2005
Restated - Restated -
Revenue Note 7 Note 7
----------------------------------------------------
Pipeline and Pipe $ 227,056 $ 198,569 $ 450,164 $ 410,674
Services
Petrochemical and
Industrial 36,207 32,168 71,233 63,348
Intersegment
Eliminations (334) (326) (738) (752)
----------- ----------- ------------ ------------
$ 262,929 $ 230,411 $ 520,659 $ 473,270
----------- ---------- ------------ ------------
----------- ---------- ------------ ------------
Income (loss) from operations
Pipeline and
Pipe Services $ 36,276 $ 12,901 $ 73,537 $ 42,977
Petrochemical and
Industrial 3,928 3,538 8,564 7,349
Financial and
Corporate (4,398) (3,940) (8,843) (8,501)
----------- ---------- ------------ ------------
$ 35,806 $ 12,499 $ 73,258 $ 41,825
----------- ---------- ------------ ------------
----------- ---------- ------------ ------------
SHAWCOR LTD.
INTERIM FINANCIAL INFORMATION (Unaudited)
(in thousands of Canadian dollars)
CONSOLIDATED STATEMENTS OF CASH FLOW
Three Months Six Months
Ended Jun. 30 Ended Jun. 30
------------------------- --------------------------
2006 2005 2006 2005
Restated - Restated -
Note 7 Note 7
------------------------- --------------------------
Operating activities:
Income from
continuing
operations $ 24,898 $ 7,629 $ 49,653 $ 26,317
Items not requiring
an outlay of cash:
Amortization 9,493 11,466 19,615 22,801
Future income
taxes (2,281) (2,783) (2,887) 2,085
Non-controlling
interest in
earnings of
subsidiaries 955 388 974 166
Share of earnings
of associated
company (1,699) (45) (2,995) (501)
Change in non-cash
working capital
and other (1,954) 20,103 13,990 (2,661)
----------- ---------- ------------ ------------
Cash provided by
operating activities 23,536 36,758 72,474 48,207
----------- ---------- ------------ ------------
Investing activities:
Purchases of property,
plant and equipment (12,582) (12,084) (19,108) (17,296)
Proceeds on disposal
property, plant and
equipment - 64 41 80
----------- ---------- ------------ ------------
Financing activities:
Increase (decrease)
increase in bank
indebtedness - (6,932) (1,715) 111
Issue of shares 478 262 578 333
Purchase of shares
for cancellation (4,188) - (4,188)
Dividends paid to
shareholders (3,282) (3,323) (3,282) (3,323)
----------- ---------- ------------ ------------
Cash used in
continuing financing
activities (6,992) (9,993) (8,607) (2,879)
----------- ---------- ------------ ------------
Foreign exchange on
foreign cash and
cash equivalents (7,585) 455 (5,721) 177
----------- ---------- ------------ ------------
Net cash provided
by continuing
operations 2,253 15,200 44,955 28,289
Net cash provided
by (used in)
discontinued
operations (note 7) (548) 2,374 262 (22,337)
Cash and cash
equivalents at
beginning of period 243,816 64,875 200,304 76,497
----------- ---------- ------------ ------------
Cash and cash
equivalents at
end of period $ 245,521 $ 82,449 $ 245,521 $ 82,449
----------- ---------- ------------ ------------
----------- ---------- ------------ ------------
SHAWCOR LTD.
INTERIM FINANCIAL INFORMATION (Unaudited)
(in thousands of Canadian dollars)
CONSOLIDATED BALANCE SHEETS
June. 30
2005
June. 30 Dec. 31 Restated-
2006 2005 Note 7
---------------- -------------- ---------------
Assets
Current assets
Cash and cash
equivalents $ 245,521 $ 200,304 $ 82,449
Accounts receivable 205,223 213,416 161,835
Inventories 78,662 81,012 68,997
Taxes receivable 4,976 5,711 -
Prepaid expenses 18,792 14,393 12,237
Future income taxes - - 2,354
Current assets of
discontinued
operation (note 7) - 799 72,721
---------------- -------------- ---------------
553,174 515,635 400,593
Property, plant and
equipment, net 176,242 177,317 181,764
Goodwill 165,503 167,172 175,350
Investment in
associated company 7,828 5,061 4,341
Other assets (note 8) 44,832 42,524 43,841
Non-current assets of
discontinued operations
(note 7) 4,830 7,974 32,461
---------------- -------------- ---------------
$ 952,409 $ 915,683 $ 838,350
---------------- -------------- ---------------
---------------- -------------- ---------------
Liabilities
Current liabilities
Bank indebtedness
(note 9) $ - $ 1,715 $ 4,606
Accounts payable and
accrued liabilitie 173,154 167,473 151,299
Deferred revenues 25,363 23,975 13,132
Taxes payable 48,487 46,203 38,271
Current liabilities
of discontinued
operation (note 7) 8,797 12,250 34,713
---------------- -------------- ---------------
255,801 251,616 242,021
Long-term debt 84,248 87,210 92,415
Other non-current
liabilities (note 10) 37,462 41,619 41,894
---------------- -------------- ---------------
377,511 380,445 376,330
---------------- -------------- ---------------
Shareholders' Equity
Capital stock (note 11) 204,790 204,720 207,941
Contributed surplus
(note 12) 10,351 9,231 7,694
Retained earnings 464,292 421,547 324,990
Cumulative translation
account (104,535) (100,260) (78,605)
---------------- -------------- ---------------
574,898 535,238 462,020
---------------- -------------- ---------------
$ 952,409 $ 915,683 $ 838,350
---------------- -------------- ---------------
---------------- -------------- ---------------
SHAWCOR LTD.
INTERIM FINANCIAL INFORMATION (Unaudited)
(in thousands of Canadian dollars)
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Three Months Six Months
Ended Jun. 30 Ended Jun. 30
------------------------- --------------------------
2006 2005 2006 2005
----------- ---------- ------------ ------------
Balance at beginning
of period $ 446,267 $ 318,573 $ 421,547 $ 300,815
Net income 24,706 9,740 49,426 27,498
----------- ---------- ------------ ------------
470,973 328,313 470,973 328,313
Excess of purchase
price paid over
stated value
of shares (3,399) - (3,399)
Dividends paid (3,282) (3,323) (3,282) (3,323)
----------- ---------- ------------ ------------
Balance at end of
period $ 464,292 $ 324,990 $ 464,292 $ 324,990
----------- ---------- ------------ ------------
----------- ---------- ------------ ------------
>>
