(TSX: SCL.A, SCL.B)
TORONTO, Aug. 5 /CNW/ -
Financial Summary
(in thousands of Three Months Six Months
Canadian dollars except Ended June 30, Ended June 30,
per share amounts) 2009 2008 2009 2008
Restated Restated
(note 1) (note 1)
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Operating Results
Revenue $ 312,791 $ 295,118 $ 620,255 $ 588,475
EBITDA (note 2) 68,926 40,215 135,597 94,506
Operating income from
continuing operations 53,178 27,189 103,612 68,108
Income from continuing
operations 34,343 17,825 65,863 44,746
Income (loss) from
discontinued operations 293 10,553 314 10,484
Net income 34,636 28,378 66,177 55,230
Net income (loss) per share
(Class A and B) - Basic
Continuing operations 0.49 0.25 0.94 0.63
Discontinued operations 0.00 0.15 0.00 0.15
Total 0.49 0.40 0.94 0.78
Net income (loss) per share
(Class A and B) - Diluted
Continuing operations 0.49 0.25 0.93 0.62
Discontinued operations 0.00 0.15 0.00 0.15
Total 0.49 0.40 0.93 0.77
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Cash Flow
Cash provided by continuing
operating activities 58,075 66,040 96,820 54,471
Additions to property,
plant and equipment 6,031 26,653 20,174 38,914
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Financial Position
Working capital 239,297 175,524
Total assets 1,145,955 1,140,636
Shareholders' equity per
share (Class A and B)
(note 3) $ 10.67 $ 9.01
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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 six months
ended June 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 $ 34,343 $ 17,825 $ 65,863 $ 44,746
Add (deduct):
Income taxes 17,263 8,313 34,514 22,653
Interest expense - net 1,572 895 3,235 982
Amortization of property,
plant and equipment 14,653 13,182 29,795 26,125
Amortization of
intangible assets 1,095 - 2,190 -
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EBITDA $ 68,926 $ 40,215 $ 135,597 $ 94,506
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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.
Second Quarter 2009 Highlights
Consolidated revenue from continuing operations for the second quarter of 2009 totaled $312.8 million, 6.0% higher than the second quarter of 2008. The increase was due to increased revenue in the Pipeline and Pipe Services segment of the Company, primarily as a result of the impact of the weaker Canadian dollar on the translation of the Company's U.S. dollar denominated revenue partially offset by lower revenue from the Company's Petrochemical and Industrial segment.
During the second quarter 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 $25.1 million, $7.2 million and $3.8 million, respectively compared to the second quarter of 2008.
Net income in the quarter totaled $34.6 million ($0.49 per share, diluted) compared to $28.4 million ($0.40 per share, diluted) in the second quarter of 2008, an increase of $6.2 million or 21.8%. The improvement in earnings per share was primarily due to the increase in net income together with the benefit of the reduction in shares outstanding due to the repurchase of 602 thousand Class A Subordinate Voting shares under the Normal Course Issuer Bid over the preceding twelve months.
First Six Months of 2009 Highlights
Consolidated revenue from continuing operations in the first six months of 2009 was $620.2 million, compared to $588.5 million in the first six months of 2008, an increase of $31.7 million or 5.4%. The increase was primarily due to revenue of $23.6 million in the first six months of 2009 that was not present in the first six months of 2008 related to the Flexpipe Systems Inc. ("Flexpipe") acquisition on June 27, 2008 and the favourable effect of foreign exchange fluctuations.
During the first six 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 $56.0 million, $19.1 million and $12.5 million, respectively compared to the first six months of 2008.
The Company's backlog at June 30, 2009 of $301.5 million declined 25.1% from the level at the beginning of the quarter as strong revenue exceeded new order bookings. While the backlog may decline further in subsequent quarters, bidding activity remains high and the Company continues to pursue several large offshore pipe coating projects. These projects, if awarded to the Company, could generate significant revenues. Overall, consolidated revenue in 2009 is expected to be slightly below the record levels achieved in 2008; however, the Company expects that operating margins in 2009 will meet or exceed those achieved in 2008 as a result of several initiatives including programs to reduce costs and improve efficiencies.
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 June 30, March 31, June 30,
(in thousands of Canadian dollars) 2009 2009 2008
Restated(a)
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Revenue from continuing operations $312,791 $307,464 $295,118
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Operating income from continuing
operations $53,178 $50,434 $27,189
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Operating margin 17.0% 16.4% 9.2%
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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
June 30, 2009.
Second Quarter 2009 versus Second Quarter 2008
Consolidated revenue from continuing operations for the second quarter of 2009 totaled $312.8 million, an increase of $17.7 million or 6%, compared to the second quarter of 2008. The increase was primarily a result of higher revenue in the Pipeline and Pipe Services segment, partially offset by a decrease in the Petrochemical and Industrial segment.
During the second quarter 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 $25.1 million, $7.2 million and $3.8 million, respectively compared to the second quarter of 2008.
Operating income from continuing operations totaled $53.2 million (17.0% of revenue from continuing operations) in the second quarter, representing a 95.6% increase over $27.2 million (9.21% of revenue from continuing operations) achieved in the second quarter of 2008, with the improvement reflecting the increased revenue in the period together with improved operating margins in the Pipeline and Pipe Services segment.
Net income in the quarter totaled $34.6 million ($0.49 per share, diluted) compared to $28.4 million ($0.40 per share, diluted) in the second quarter of 2008, an increase of $6.2 million or 21.8%. The improvement in earnings per share was primarily due to the increase in net income together with the benefit of the reduction in shares outstanding due to the repurchase of 602 thousand Class A Subordinate Voting shares under the Normal Course Issuer Bid ("NCIB") over the preceding twelve months.
Second Quarter 2009 versus First Quarter 2009
Consolidated revenue from continuing operations in the second quarter of 2009 was marginally higher than the results from the first quarter of 2009. The increase was primarily due to an increase in the Pipeline and Pipe Services segment, partially offset by the unfavourable impact of foreign exchange rate fluctuations.
During the second quarter of 2009, the effect of foreign exchange fluctuations on the translation of foreign currency operating results had an unfavourable impact on revenue, operating income from continuing operations and net income of approximately $14.4 million, $2.8 million and $1.3 million, respectively, compared to the first quarter of 2009.
Operating income from continuing operations and net income in the second quarter of 2009 increased $2.7 million or 5.4% and $3.1 or 9.8%, respectively, compared to the first quarter of 2009, primarily due to the increase in consolidated revenue together with improved operating margins. The improvement in operating margins was as a result of greater manufacturing efficiencies and reduced manufacturing input costs, while net income was also favourably impacted by a lower effective income tax rate.
First six months of 2009 versus First six months of 2008
Consolidated revenue from continuing operations in the first six months of 2009 was $620.3 million, compared to $588.5 million in the first six months of 2008, an increase of $31.8 million or 5.4%. The increase was primarily due to revenue of $23.6 million in the first six months of 2009 that was not present in the first six months of 2008 related to the Flexpipe acquisition on June 27, 2008 and the favourable effect of foreign exchange fluctuations.
During the first six 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 $56.0 million, $19.1 million and $12.5 million, respectively compared to the first six months of 2008.
Operating income from continuing operations in the first six months of 2009 increased $35.5 million or 52.1%, compared to the first six months of 2008. The increase was primarily due to the increase in revenue and improved operating margins, the result of greater manufacturing efficiencies and reduced manufacturing input costs.
Net income for the first six months of 2009 increased $10.9 million or 19.8%, compared to the first six months of 2008, primarily due to the higher operating income, partially offset by higher interest costs and a higher effective income tax rate.
Pipeline and Pipe Services
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Three months ended June 30, March 31, June 30,
(in thousands of Canadian dollars) 2009 2009 2008
Restated(a)
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Revenue from continuing operations $283,888 $279,951 $258,984
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Operating income from continuing
operations $58,853 $56,646 $28,160
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Operating margin 20.7% 20.2% 10.9%
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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
June 30, 2009.
Second Quarter 2009 vs. Second Quarter 2008
In the Pipeline and Pipe Services segment, revenue in the second quarter of 2009 totaled $283.9 million and was $24.9 million or 9.6% higher than in the second quarter of 2008, primarily due to an increase in revenue from Bredero Shaw and the inclusion of revenue from Flexpipe, which was acquired on June 27, 2008.
Revenue for Bredero Shaw in the second quarter of 2009 increased compared to the second quarter of 2008 with the favourable impact of the weaker Canadian dollar on the translation of the division's mainly U.S. dollar-based revenue as well as growth in the division's America's region offsetting a weakening of activity in the division's other regions. In the America's region, revenue in the second quarter of 2009 increased by 28% from the second quarter of 2008, mainly due to strong growth in Mexico and the commencement of the North East Offshore and Tobago pipeline projects in Trinidad, partially offset by a decrease in small diameter pipe coating activity in Western Canada and the United States, which declined by 72% and 43%, respectively. In the Asia Pacific region, revenue in the second quarter of 2009 decreased 24.5% over the second quarter of the prior year as a result of project delays experienced at the division's plant in Kabil, Indonesia. In the Europe, Africa and Russia region, and in the Middle East region, revenue in the quarter was 55% and 41.6% lower, respectively, than in the second quarter of 2008, reflecting reduced pipe coating project activity in those regions.
Operating income from continuing operations in the quarter for the segment totaled $58.8 million (20.7% of revenue from continuing operations) and increased 109.0% from $28.1 million (10.9% of revenue from continuing operations) in the second quarter of 2008. The improvement resulted from higher revenue combined with an operating margin improvement of 9.7 percentage points reflecting improved manufacturing efficiencies associated with higher factory utilization, reduced material prices and a $6.3 million reduction in fixed costs stemming from the reorganization of Bredero Shaw's Europe, Africa and Russia region.
Second Quarter 2009 versus First Quarter 2009
Revenue in the second quarter of 2009 in the Pipeline and Pipe Services segment was marginally higher than the levels achieved in the first quarter of 2009 as increases at Bredero Shaw and Shaw Pipeline Services of 8% and 33%, respectively were almost entirely offset by decreases at Flexpipe and Canusa-CPS.
Revenue in the quarter at Bredero Shaw increased mainly due to revenue relating to the Trinidad project, partially offset by lower small diameter pipe coating volumes in North America and the impact of the winding down of several large diameter pipe coating projects in the Middle East and Europe, Africa and Russia regions. Revenue in the quarter at Shaw Pipeline Services increased primarily due to increased offshore activity, partially offset by lower levels of U.S. land based activity. Revenue for Flexpipe decreased mainly as a result of lower demand for the division's small diameter composite pipe systems due to spring breakup in Western Canada and the build up of inventories of small diameter steel line pipe throughout North America following the dramatic decline in well completions. The decrease at Canusa-CPS was primarily due to a decrease in small diameter pipeline activity in Western Canada.
Operating income from continuing operations in the quarter was marginally higher than the level achieved in the prior quarter, primarily as a result of the increase in revenue in the second quarter of 2009. Operating margin in the second quarter of 2009 improved 0.5 percentage points when compared to the first quarter of 2009, reflecting improved factory utilization and continued reductions in manufacturing input costs.
First six months of 2009 versus First six months of 2008
Revenue in the first six months of 2009 in the Pipeline and Pipe Services segment was $49.1 million or 9.5% higher than in the first six months of 2008. The increase was primarily due to the inclusion of revenue from Flexpipe, which was acquired on June 27, 2008, increased project activity at Bredero Shaw and the favourable impact of the weaker Canadian dollar on the translation of foreign currency operating results.
Operating income from continuing operations in the first six months of 2009 was $115.5 million compared to $66.4 million for the first six months of 2008, an increase of $49.1 million or 74.0%. The increase was primarily due to the increase in revenue during the period and a 7.3 percentage point increase in operating margins, the result of improved operational efficiencies and a decrease in manufacturing input costs.
Petrochemical and Industrial ------------------------------------------------------------------------- Three months ended June 30, March 31, June 30, (in thousands of Canadian dollars) 2009 2009 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Revenue from continuing operations $30,100 $29,318 $36,585 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Operating income from continuing operations $2,208 $325 $5,316 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Operating margin 7.3% 1.1% 14.5% -------------------------------------------------------------------------
Second Quarter 2009 versus Second Quarter 2008
In the Petrochemical and Industrial segment, revenue in the second quarter of 2009 totaled $30.1 million compared to $36.6 million in the second quarter of 2008, a decrease of $6.5 million or 17.7%. The decrease was due to reduced business activity levels at both DSG-Canusa and ShawFlex as a result of the significantly weaker demand in industrial and automotive markets in North America and Western Europe.
Operating income from continuing operations in the quarter for the segment totaled $2.2 million (7.3% of revenue from continuing operations) compared to $5.3 million (14.5% of revenue from continuing operations) in the second quarter of 2008 and reflected the impact of the lower revenue in the period.
Second Quarter 2009 versus First Quarter 2009
Revenue for the segment in the second quarter of 2009 increased 2.7% over levels in the first quarter of 2009 and reflected some improvement in business activity at DSG-Canusa and ShawFlex.
Operating income in the quarter increased $1.8 million from the prior quarter reflecting the favourable impact on costs resulting from the restructuring of DSG-Canusa's European operations.
First six months of 2009 versus First six months of 2008
Revenue for the Petrochemical and Industrial segment in the first six months of 2009 was $59.4 million compared to $74.7 million for the first six months of 2008, a decrease of $15.3 million or 20.5%. The decrease was mainly due to declines at both DSG-Canusa and ShawFlex reflecting the current global economic downturn, especially in the automotive industry. ShawFlex revenue was negatively impacted during the first six months of 2009 due to lower industry wire and cable prices as a result of the lower price of copper compared to the first six months of 2008.
Operating income in the first six months of 2009 was $2.5 million and in the first six months of 2008 was $11.4 million, a decrease of $8.9 million or 78.1%. The decrease was primarily as a result of the decrease in revenue during the period and a 11.0 percentage point decrease in operating margins, resulting from the impact of lower revenue on factory utilization and an increase in fixed costs related to restructuring at DSG-Canusa.
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. Financial and corporate costs for the second quarter of 2009, before net foreign exchange losses of $1.5 million, totaled $6.3 million compared to $5.4 million in the second quarter of 2008, before net foreign exchange losses of $1.1 million. The increase in corporate costs reflects compensation and other costs associated with an increase in personnel active in the deployment of the Company's operational improvement programs.
Net Interest Expense
Net interest expense totaled $1.6 million in the second quarter of 2009, compared to $895 thousand in the second quarter of 2008, an increase of $705 thousand, primarily due to lower cash balances compared to the second quarter of 2008 as a result of the Flexpipe acquisition on June 27, 2008 and cash employed to repurchase shares under the NCIB and pay dividends totaling $36.5 million over the twelve month period.
Income Taxes
Income tax expense related to continuing operations in the second quarter of 2009 was $17.2 million, an effective rate of 33.5%, compared to $8.3 million or an effective rate of 31.6% in the second quarter of 2008 and $17.3 million, an effective rate of 35.4%, in the first quarter of 2009. The effective tax rate in the second quarter of 2009 was higher than the Company's expected tax rate of 31%, primarily as a result of foreign withholding taxes on inter-corporate dividends and the impact of certain costs which are not deductible for income tax purposes.
Cash Flow
Cash provided by continuing operating activities in the second quarter of 2009 totaled $58.1 million, compared to $66.0 million in the second quarter of 2008 and $38.7 million in the first quarter of 2009 with the changes reflecting the changes in income from continuing operations as well as the movement in net working capital. During the quarter, the change in non-cash working capital and foreign exchange was a decrease of $5.6 million, with reduced accounts receivable, inventory, prepaid project expenses and higher taxes payable, partially offset by lower accounts payable and deferred revenue.
Cash used in continuing investing activities in the second quarter of 2009 totaled $10.6 million, compared to $14.0 million in the first quarter of 2009 and $145.4 million in the second quarter of 2008, and was comprised of capital expenditures on property, plant and equipment of $6 million and a long-term notes receivable of $4.2 million advanced to an unrelated party to support the construction of port facilities for the Bredero Shaw plant in Kabil, Indonesia. The expanded port facilities are necessary to support major international pipeline projects that are anticipated to occur in the region over the next few years.
Cash used in continuing financing activities in the second quarter of 2009 totaled $51.6 million, compared to $18.7 million last quarter and cash provided by continuing financing activities of $59.4 million in the second quarter of 2008, and consisted of dividends paid to shareholders of $22.9 million and the repayment of the Senior Notes of $28.7 million.
Other Comprehensive Loss
Other comprehensive loss in the quarter totaled $28.8 million and was comprised of an unrealized foreign currency translation loss, net of hedging activities, primarily due to the favourable impact of foreign exchange fluctuations and a gain on foreign exchange related to the $28.7 million repayment on the Senior Notes transferred to net income in the current quarter.
Liquidity and Capitalization
At June 30, 2009, the Company recorded a working capital ratio (the ratio of current assets to current liabilities) of 1.85 to 1 compared to 1.65 to 1 at December 31, 2008. Operating working capital, excluding cash and cash equivalents, bank indebtedness, the current portion of long-term debt, current future taxes and working capital of discontinued operations, decreased $17.8 million during the quarter to $176.4 million, reflecting lower accounts receivables and inventory levels.
Change in Accounting Policies
The following are changes in the Company's accounting policies which came into effect in the first quarter of 2009:
a) Goodwill and Intangible Assets
On January 1, 2009, the Company adopted CICA Handbook section 3064, Goodwill and Intangible Assets. Also as of this date, as is required on adoption of this section, the Company no longer applies Emerging Issues Committee Abstract EIC-27, Revenues and Expenditures During the Pre-operating Period. As required, this accounting standard has been adopted retrospectively with restatement of prior year figures. The following adjustments were made to the Company's consolidated financial statements as a result of adopting this accounting standard:
Change in Consolidated Balance Sheets:
As at As at
Dec. 31, Dec. 31,
(in thousands of Canadian dollars) 2008 2007
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Increase in inventories $ 1,678 $ 2,501
Decrease in other assets (3,285) (5,067)
Increase in future taxes 484 770
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Decrease in total assets $ (1,123) $ (1,796)
---------------------------
---------------------------
Future income taxes $ - $ -
Decrease in retained earnings (1,123) (1,796)
---------------------------
Decrease in total liabilities and
shareholders' equity $ (1,123) $ (1,796)
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---------------------------
Change in Consolidated Statement of Income:
Three Months Six Months
Ended Ended
June 30, June 30,
(in thousands of Canadian dollars) 2008 2008
------------------------------------------- ------------- -------------
Increase in cost of goods sold $ 6,260 $ 6,560
Decrease in income taxes (1,878) (1,968)
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Decrease in income from continuing operations $ 4,382 $ 4,592
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Decrease in net income $ 4,382 $ 4,592
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Earnings per share
Basic
Continuing operations $ (0.06) $ (0.06)
Total $ (0.06) $ (0.06)
Diluted
Continuing operations $ (0.06) $ (0.06)
Total $ (0.06) $ (0.06)
The following is a description of the revised accounting policy adopted by the Company as a result of implementing this accounting change:
Costs incurred in the mobilization of project-specific plants for fixed term projects are included in work-in-process inventories and are charged to costs of goods sold on a percentage-of-completion basis. Such costs are to be included in inventories only if incurred after the Company is awarded the project and if directly related to the performance of the contract.
b) Credit Risk and the Fair Value of Financial Assets and Financial
Liabilities
On January 1, 2009, the Company adopted EIC-173, Credit Risk and the Fair Value of Financial Assets and Financial Liabilities. The adoption of this accounting standard had no effect on the Company's consolidated financial statements.
International Financial Reporting Standards
During 2008, the AcSB confirmed that publicly accountable enterprises, including the Company, will be required to adopt International Financial Reporting Standards ("IFRS") in place of Canadian Generally Accepted Accounting Principles ("GAAP") for interim and annual reporting purposes. The required changeover date is for fiscal years beginning on or after January 1, 2011.
The Company has commenced the process to transition to IFRS and has developed a project plan, which was described in the Company's 2008 Annual Report to Shareholders.
The Company is currently engaged in the solution development phase of the project, which involves the training of project team members and the development of new IFRS accounting policies and implementation guidance. This phase of the project is expected to be completed by the end of the fourth quarter of 2009.
During the implementation phase, the Company will execute the changes to business processes, financial systems, accounting policies, disclosure controls and internal controls over financial reporting that will be required to implement IFRS. This phase of the project is expected to be completed by the end of the second quarter of 2010.
At this time, the impact on the Company's consolidated financial statements is not reasonably determinable.
Financial Instruments
The following table sets out the notional amounts outstanding under foreign exchange contracts, the average contractual exchange rates and the settlement of these contracts as at June 30, 2009:
June 30, (in thousands) 2009 ------------------------------------------------------- ---------- U.S. dollars sold for Canadian dollars Less than one year US$ 12,000 Weighted-average rate 1.1544 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
As of June 30, 2009, the Company had notional amounts of $20.8 million of forward contracts outstanding ($25.5 million as of December 31, 2008) with the fair value of the Company's net benefit from all foreign exchange forward contracts totaling $128 thousand ($1.5 million, net obligation, as of December 31, 2008).
Critical Accounting Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. These estimates and assumptions are made with management's best judgment given the information available at the time; however, actual results could differ from the estimates. Critical estimates used in preparing the consolidated financial statements were materially unchanged during the quarter, as compared to those disclosed in the Company's last annual MD&A contained in the Company's 2008 Annual Report.
Risks and Uncertainties
Operating in an international environment, servicing predominantly the oil and gas industry, ShawCor faces a number of business risks and uncertainties that could materially adversely affect its projections, businesses, results of operations and financial condition. There were no material changes in the nature or magnitude of such business risks during the quarter. A more complete outline of the risks and uncertainties facing the Company are included in the annual MD&A contained in the Company's 2008 Annual Report.
Contractual Obligations
There were no material changes to the Company's contractual obligations during the quarter, other than those that would be expected in the ordinary course of business.
Summary of Quarterly Results
The following is a summary of selected financial information for the ten most recently completed quarters:
(in thousands of
Canadian dollars
except per share
amounts) First Second Third Fourth Full Year
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Revenue (Restated
- see note below)
2009 $ 307,464 $ 312,791 $ - $ - $ -
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 - - -
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 - - -
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 - - -
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 - - -
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 - - -
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 - - -
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 - - -
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 - - -
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 - - -
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 - - -
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 - - -
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 - - -
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 June 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 July 28, 2009, the Company had 57,389,017 Class A Subordinate Voting Shares outstanding and 13,060,209 Class B Multiple Voting Shares outstanding. Each Class B share is convertible into a Class A share at the option of the holder. In addition, as at July 28, 2009, the Company had stock options outstanding to purchase up to 2,907,386 Class A shares.
Management's Health, Safety and Environmental Commitment
The Company is committed to providing a safe and healthy workplace and ensuring that all business activities are conducted in a manner that protects the environment. This commitment includes designing and operating its plants and individual processes in compliance with applicable government requirements regulating the discharge of substances into the environment or otherwise relating to the protection of the environment. The Company's program for health, safety and environmental management is further described in the Company's Annual Information Form under Health, Safety, and Environmental Policy.
Outlook
The Company's international business continues to be strong and includes several major projects that are currently being executed. These include the Kumang Cluster and Gumusut projects in Asia and the NEO project in Trinidad. Bidding activity remains high and the Company continues to pursue several large offshore pipe coating projects. These projects, if awarded to the Company, could generate significant revenues. The Company's consolidated order backlog at June 30, 2009, representing the value of firm customer purchase orders expected to be completed within one year, totaled $301.5 million, 25.1% lower than at the beginning of the quarter. Due to project timing, the Company expects that revenue will soften in the fourth quarter.
On a full year basis, the Company's current outlook is for pipeline activity to decline marginally from the levels experienced in 2008 with full year 2009 consolidated revenues for the Company expected to be slightly below the record levels achieved in the prior year. However, the Company expects that operating margins in 2009 will meet or exceed those achieved in 2008 as a result of several initiatives including programs to reduce costs and improve efficiencies.
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 August 6, 2009 at 10:00 am ET to discuss the Company's second quarter 2009 financial results. Please visit our website at www.shawcor.com for future details.
SHAWCOR LTD.
INTERIM FINANCIAL INFORMATION (Unaudited)
(in thousands of Canadian dollars except per share data)
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
2009 2008 2009 2008
Restated Restated
- note 1 - note 1
------------ ------------ ------------ ------------
Revenue $ 312,791 $ 295,118 $ 620,255 $ 588,475
Cost of goods sold 184,039 201,284 367,988 389,238
------------ ------------ ------------ ------------
Gross profit 128,752 93,834 252,267 199,237
Selling, general and
administrative
expenses (notes 2
and 3) 56,174 50,634 111,769 103,642
Amortization of
property, plant
and equipment 14,653 13,182 29,795 26,125
Amortization of
intangible assets 1,095 - 2,190 -
Foreign exchange
losses (gains) 1,556 1,106 185 (2,039)
Research and
development expenses 2,096 1,723 4,716 3,401
------------ ------------ ------------ ------------
Operating income from
continuing operations 53,178 27,189 103,612 68,108
Interest income on
short-term deposits 81 610 316 2,062
Interest expense on
bank indebtedness (404) (315) (975) (671)
Interest expense on
long-term debt (1,249) (1,190) (2,576) (2,373)
------------ ------------ ------------ ------------
Income before income
taxes and non-
controlling interest 51,606 26,294 100,377 67,126
Income taxes 17,263 8,313 34,514 22,653
------------ ------------ ------------ ------------
Income before non-
controlling interest 34,343 17,981 65,863 44,473
Non-controlling
interest - (156) - 273
------------ ------------ ------------ ------------
Income from continuing
operations 34,343 17,825 65,863 44,746
Income from discontinued
operations (note 4) 293 10,553 314 10,484
------------ ------------ ------------ ------------
Net income $ 34,636 $ 28,378 $ 66,177 $ 55,230
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Earnings per shares
(note 19)
Basic
Continuing
operations $ 0.49 $ 0.25 $ 0.94 $ 0.63
Discontinued
operations - 0.15 - 0.15
------------ ------------ ------------ ------------
Total $ 0.49 $ 0.40 $ 0.94 $ 0.78
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted
Continuing
operations $ 0.49 $ 0.25 $ 0.93 $ 0.62
Discontinued
operations - 0.15 - 0.15
------------ ------------ ------------ ------------
Total $ 0.49 $ 0.40 $ 0.93 $ 0.77
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
-------------------------------------------------------------------------
SEGMENTED INFORMATION
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
2009 2008 2009 2008
Restated Restated
- note 1 - note 1
------------ ------------ ------------ ------------
Revenue
Pipeline and Pipe
Services $ 283,888 $ 258,984 $ 563,839 $ 514,778
Petrochemical and
Industrial 30,100 36,585 59,418 74,722
Intersegment
Eliminations (1,197) (451) (3,002) (1,025)
------------ ------------ ------------ ------------
$ 312,791 $ 295,118 $ 620,255 $ 588,475
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Income (loss) from
operations
Pipeline and Pipe
Services $ 58,853 $ 28,160 $ 115,499 $ 66,368
Petrochemical and
Industrial 2,208 5,316 2,533 11,391
Financial and
Corporate (7,883) (6,287) (14,420) (9,651)
------------ ------------ ------------ ------------
$ 53,178 $ 27,189 $ 103,612 $ 68,108
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
SHAWCOR LTD.
INTERIM FINANCIAL INFORMATION (Unaudited)
(in thousands of Canadian dollars)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
2009 2008 2009 2008
Restated Restated
- note 1 - note 1
------------ ------------ ------------ ------------
Operating activities:
Income from
continuing
operations $ 34,343 $ 17,825 $ 65,863 $ 44,746
Items not requiring
an outlay of cash:
Amortization of
property, plant
and equipment 14,653 13,182 29,795 26,125
Amortization of
intangible assets 1,095 - 2,190 -
Amortization of
transaction costs 112 110 222 220
Asset retirement
obligation expense
(note 10) 672 666 2,460 1,732
Stock-based
compensation
(note 2) 774 806 1,622 1,693
Future income taxes 1,087 3,469 1,650 (265)
Loss on disposal
of property, plant
and equipment 189 112 333 103
Gain on short-term
investments (1,129) - (1,129) -
Impairment of
available-for-sale
financial assets - - 336 1,498
Non-controlling
interest in
earnings of
subsidiaries - 156 - (273)
Gain on disposal
of subsidiary - (1,063) - (1,063)
Settlement of asset
retirement
obligations
(note 10) (17) (415) (1,964) (1,374)
Change in employee
future benefits 730 866 1,815 1,632
Change in non-cash
working capital and
foreign exchange 5,566 30,326 (6,373) (20,303)
------------ ------------ ------------ ------------
Cash provided by
continuing operating
activities 58,075 66,040 96,820 54,471
------------ ------------ ------------ ------------
Investing activities:
Purchases of
property, plant
and equipment (6,031) (26,653) (20,174) (38,914)
Proceeds on disposal
of property, plant
and equipment 7 - 105 32
Acquisition of
subsidiaries
(note 21) - (124,376) - (124,376)
Increase in
long-term notes
receivable (4,248) - (4,248) -
Proceeds on disposal
of subsidiaries - 5,635 - 5,635
------------ ------------ ------------ ------------
Cash used in
continuing investing
activities (10,272) (145,394) (24,317) (157,623)
------------ ------------ ------------ ------------
Financing activities:
Increase (decrease)
in bank indebtedness (482) 62,961 (14,729) 62,970
Repayment of
long-term debt (28,705) - (28,705) -
Issue of shares
(note 11) 456 976 485 1,435
Purchase of shares
for cancellation - - - (12,642)
Dividends paid to
shareholders (22,855) (4,533) (27,355) (8,548)
------------ ------------ ------------ ------------
Cash provided by
(used in) continuing
financing activities (51,586) 59,404 (70,304) 43,215
------------ ------------ ------------ ------------
Foreign exchange on
foreign cash and
cash equivalents (4,437) (1,225) (3,916) 4,493
------------ ------------ ------------ ------------
Net cash used in
continuing operations (8,220) (21,175) (1,717) (55,444)
Net cash provided by
discontinued
operations (note 4) 789 2,676 677 3,936
Cash and cash
equivalents at
beginning of period 85,323 142,008 78,932 175,017
------------ ------------ ------------ ------------
Cash and cash
equivalents at end
of period $ 77,892 $ 123,509 $ 77,892 $ 123,509
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
SHAWCOR LTD.
INTERIM FINANCIAL INFORMATION (Unaudited)
(in thousands of Canadian dollars)
CONSOLIDATED BALANCE SHEETS
December 31,
2008
June 30, Restated
2009 - Note 1
------------- -------------
Assets
Current assets
Cash and cash equivalents (note 5) $ 77,892 $ 78,932
Short-term investments 1,129 -
Accounts receivable 260,489 307,933
Taxes receivable 11,363 9,261
Inventories 138,595 152,284
Prepaid expenses 15,844 14,635
Derivative financial instruments 548 523
Current future income taxes 2,972 3,532
Current assets of discontinued operation
(note 4) 11,509 12,256
------------- -------------
520,341 579,356
Property, plant and equipment, net 291,840 307,735
Goodwill 223,146 229,549
Intangible assets (note 6) 64,962 66,452
Future income taxes 30,702 31,173
Derivative financial instruments 105 -
Other assets (note 7) 14,859 13,024
------------- -------------
$ 1,145,955 $ 1,227,289
------------- -------------
------------- -------------
Liabilities
Current liabilities
Bank indebtedness (note 8) $ 689 $ 15,418
Accounts payable and accrued liabilities 159,032 193,675
Taxes payable 58,502 53,405
Derivative financial instruments 524 2,049
Deferred revenues 33,471 54,692
Current portion of long-term debt 28,755 30,672
Current liabilities of discontinued
operation (note 4) 71 455
------------- -------------
281,044 350,366
Long-term debt 28,466 60,554
Future income taxes 74,768 73,939
Other non-current liabilities (note 9) 9,840 9,978
------------- -------------
394,118 494,837
------------- -------------
Shareholders' Equity
Capital stock (note 11) 202,734 202,073
Contributed surplus (note 12) 15,958 14,512
Retained earnings 640,229 601,407
Accumulated other comprehensive loss (note 13) (107,084) (85,540)
------------- -------------
751,837 732,452
------------- -------------
$ 1,145,955 $ 1,227,289
------------- -------------
------------- -------------
SHAWCOR LTD.
INTERIM FINANCIAL INFORMATION (Unaudited)
(in thousands of Canadian dollars)
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
2009 2008 2009 2008
Restated Restated
- note 1 - note 1
------------ ------------ ------------ ------------
Balance at beginning
of period $ 628,448 $ 499,642 $ 601,407 $ 489,836
Transitional
adjustment (note 1) - - - (1,796)
------------ ------------ ------------ ------------
Adjusted balance at
beginning of year 628,448 499,642 601,407 488,040
Net income 34,636 28,378 66,177 55,230
------------ ------------ ------------ ------------
663,084 528,020 667,584 543,270
Excess of purchase
price paid over
stated value of
shares (note 11) - - - (11,235)
Dividends declared (22,855) (4,533) (27,355) (8,548)
------------ ------------ ------------ ------------
Balance at end of
period $ 640,229 $ 523,487 $ 640,229 $ 523,487
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
2009 2008 2009 2008
Restated Restated
- note 1 - note 1
------------ ------------ ------------ ------------
Net income $ 34,636 $ 28,378 $ 66,177 $ 55,230
Other comprehensive
income (loss), net
of income taxes:
Unrealized gain (loss)
on translating
financial statements
of self-sustaining
foreign operations (33,438) 1,197 (25,552) 23,300
Loss on translating
financial statements
of self-sustaining
foreign operations
transferred to net
income in the
current period 678 - 678 -
Gain (loss) on hedges
of unrealized foreign
currency translation 4,215 1,060 3,488 (2,218)
Income tax benefit
(expense) (282) - (158) -
------------ ------------ ------------ ------------
Unrealized foreign
currency translation
gain, net of hedging
activities (28,827) 2,257 (21,544) 21,082
------------ ------------ ------------ ------------
Unrealized loss on
available-for-sale
financial assets
arising during
the period - - (336) (911)
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 - - - 840
------------ ------------ ------------ ------------
Gain on derivatives
designated as cash
flow hedges - - - -
Income tax expense - - - -
Gain on derivatives
designated as cash
flow hedges in
prior periods
transferred to net
income in the
current period - - - (1,508)
Income tax expenses
transferred to net
income in the
current period - - - 512
------------ ------------ ------------ ------------
Change in loss on
derivatives
designated as cash
flow hedges - - - (996)
------------ ------------ ------------ ------------
(28,827) 2,257 (21,544) 20,926
------------ ------------ ------------ ------------
Comprehensive income $ 5,809 $ 30,635 $ 44,633 $ 76,156
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
ShawCor Ltd.
Notes to the Consolidated Financial Statements (Unaudited)
(in thousands of Canadian Dollars, except per share amounts, unless
otherwise stated)
1. Accounting policies
The accompanying unaudited interim consolidated financial statements of
ShawCor Ltd. (the "Company") have been prepared in accordance with
Canadian generally accepted accounting principles ("GAAP") for the
preparation of interim financial statements. They do not include all of
the information and disclosures required by GAAP for annual consolidated
financial statements. Except as noted below, these unaudited interim
consolidated financial statements have been prepared in accordance with
accounting policies outlined in the Company's audited consolidated
financial statements for the year ended December 31, 2008. Accordingly,
the unaudited interim consolidated financial statements should be read in
conjunction with the Company's annual consolidated financial statements.
a) Goodwill and Intangible Assets
On January 1, 2009, the Company adopted CICA Handbook section 3064,
Goodwill and Intangible Assets. Also as of this date, as is required on
adoption of this section, the Company no longer applies Emerging Issues
Committee Abstract EIC-27, Revenues and Expenditures During the Pre-
operating Period. As required, this accounting standard has been adopted
retrospectively with restatement of prior year figures. The following
adjustments were made to the Company's consolidated financial statements
as a result of adopting this accounting standard:
Change in Consolidated Balance Sheets:
As at As at
December 31, December 31,
2008 2007
-------------------------------------------------------------------------
Increase in inventories $ 1,678 $ 2,501
Decrease in other assets (3,285) (5,067)
Increase in future taxes 484 770
---------------------------
Decrease in total assets $ (1,123) $ (1,796)
---------------------------
---------------------------
Future income taxes $ - $ -
Decrease in retained earnings (1,123) (1,796)
---------------------------
Decrease in total liabilities and
shareholders' equity $ (1,123) $ (1,796)
---------------------------
---------------------------
Change in Consolidated Statement of Income:
Three Months Six Months
Ended, Ended,
June 30, June 30,
2008 2008
------------- -------------
Increase in cost of goods sold $ 6,260 $ 6,560
Decrease in income taxes (1,878) (1,968)
------------- -------------
Decrease in income from continuing operations $ 4,382 $ 4,592
------------- -------------
------------- -------------
Decrease in net income $ 4,382 $ 4,592
------------- -------------
------------- -------------
Earnings per share
Basic
Continuing operations $ (0.06) $ (0.06)
Total $ (0.06) $ (0.06)
Diluted
Continuing operations $ (0.06) $ (0.06)
Total $ (0.06) $ (0.06)
The following is a description of the revised accounting policy adopted
by the Company as a result of implementing this accounting change:
Costs incurred in the mobilization of project-specific plants for fixed
term projects are included in work-in-process inventories and are charged
to costs of goods sold on a percentage-of-completion basis. Such costs
are to be included in inventories only if incurred after the Company is
awarded the project and if directly related to the performance of the
contract.
b) Credit Risk and the Fair Value of Financial Assets and Financial
Liabilities
On January 1, 2009, the Company adopted EIC-173, Credit Risk and the Fair
Value of Financial Assets and Financial Liabilities. The adoption of this
accounting standard had no effect on the Company's consolidated financial
statements.
2. Stock-based compensation
The Board of Directors approved the granting of 490,200 stock options on
February 24, 2009 and 20,000 on March 12, 2009 under the 2001 Employee
Plan. The total fair value of the stock options granted during the six
months ended June 30, 2009 was $2.6 million (2008 - $4.1 million) and the
weighted average fair value of the options was $5.58 (2008 - $10.54),
calculated using the Black-Scholes pricing model with the following
assumptions:
2009 2008
------------- -------------
Expected life of options 6.25 years 6.25 years
Expected stock price volatility 34.68% 29.30%
Expected dividend yield 1.55% 0.75%
Risk-free interest rate 2.38% 3.68%
The fair value of options granted under the 2001 Employee 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 six months ended June 30, 2009,
included in selling, general and administrative ("SG&A") expenses, was
$774 thousand and $1.6 million, respectively ($806 thousand and
$1.7 million, for the three and six months ended June 30, 2008,
respectively).
3. Employee future benefits
The Company's cost under both defined benefit and defined contribution
arrangements included in selling, general and administrative expenses for
the three and six months ended June 30, 2009 was $2.1 million and
$4.9 million, respectively ($2.4 million and $4.8 million, for the three
and six months ended June 30, 2008, respectively).
4. Discontinued operations
On November 2, 2004, the Company announced its decision to close the
Mobile, Alabama pipe coating facility (the "Mobile Facility") and by
December 31, 2005, operations at the Mobile Facility had ceased. The
Company adopted discontinued operation accounting treatment for the
Mobile Facility in 2005. The Mobile Facility was part of the Pipeline and
Pipe Services market segment.
The following table summarizes the financial results and cash flows from
discontinued operations for the three and six months ended June 30, 2009
and 2008 and the asset and liabilities as of those dates:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
2009 2008 2009 2008
------------ ------------ ------------ ------------
Revenue $ - $ - $ - $ -
------------ ------------ ------------ ------------
Income (loss) from
operations 293 17,156 314 17,087
Interest expense - - - -
------------ ------------ ------------ ------------
Income (loss) from
discontinued
operations before
income taxes 293 17,156 314 17,087
Income tax recovery
(expense) - (6,603) - (6,603)
------------ ------------ ------------ ------------
Income (loss) from
discontinued
operations $ 293 $ 10,553 $ 314 $ 10,484
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Cash flow used in
operating activities $ 789 $ 2,676 $ 677 $ 3,936
Cash flow from
(used in) investing
activities - - - -
------------ ------------ ------------ ------------
Cash flow used in
operating activities $ 789 $ 2,676 $ 677 $ 3,936
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Current assets $ 11,509 $ 9,785
Property, plant and
equipment, net $ - $ -
Current liabilities $ 71 $ 38,198
5. Cash and cash equivalents
June 30, December 31,
2009 2008
------------- -------------
Cash $ 77,892 $ 78,932
Cash equivalents - -
------------- -------------
$ 77,892 $ 78,932
------------- -------------
------------- -------------
6. Intangible assets
December 31,
2008
June 30, Restated
2009 - 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 4,092 1,902
------------- -------------
$ 64,962 $ 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
December 31,
2008
June 30, Restated
2009 - note 1
------------- -------------
Long-term investment $ 24 $ 360
Long-term prepaid expenses 5,314 5,931
Long-term notes receivable 4,248 -
Accrued employee future benefit asset 5,273 6,733
------------- -------------
$ 14,859 $ 13,024
------------- -------------
------------- -------------
Long-term investment as of June 30, 2009 represents an investment in
Garneau Inc., a Canadian-based, publicly traded pipe coating company. The
Company has reviewed the 2008 financial performance of Garneau, as
outlined in its public filings, and the protracted decline in its share
price and has concluded that the decrease in fair value, based on quoted
market prices, of the investment from original cost is other than
temporary. The Company has recorded a charge to SG&A expense, in the
financial and corporate segment, during the three and six months ended
June 30, 2009 of $nil and $336 thousand, respectively ($nil and
$1.5 million for the three and six months ended June 30, 2008,
respectively).
Long-term notes receivable as of June 30, 2009 relates to amount advanced
by the Company to an external party to support the construction of port
facilities at a Bredero Shaw plant location in Kabil, Indonesia.
8. Bank indebtedness and Long-term debt
As of June 30, 2009, the Company had total operating credit lines of
$275.5 million ($293.5 million as of December 31, 2008), of which
$74.5 million has been drawn for various standby letters of credit for
performance, bid and surety bonds ($81.5 million as of December 31,
2008), to yield unutilized credit facilities of $201.0 million
($198.0 million as of December 31, 2008), excluding the Company's
proportionate share of the bank indebtedness of its joint venture,
Arabian Pipecoating Company Limited of $689 thousand ($15.4 million as of
December 31, 2008).
Under the terms of the Company's 5.11% Senior Notes ("Senior Notes"), the
Company is required to repay the Senior Notes in three equal annual
installments of USD$25 million. On June 30, 2009, the Company made the
first repayment of $28.7 million ("Repayment") using the current exchange
rate. As at June 30, 2009, $57.1 million was outstanding under the Senior
Notes, of which $28.8 has been reclassified as current portion of long-
term debt. The Repayment was funded by USD$25.0 million that was
permanently repatriated from the Company's U.S. dollar based operations
("Repatriation"). The Repatriation gave rise to a net foreign exchange
loss of $678 thousand and was transferred from accumulated other
comprehensive income to the consolidated statement of income during the
second quarter of 2009.
9. Other non-current liabilities
June 30, December 31,
2009 2008
------------- -------------
Non-current asset retirement obligations
(note 10) $ 6,187 $ 6,680
Accrued employee future benefit obligations 3,653 3,298
------------- -------------
$ 9,840 $ 9,978
------------- -------------
------------- -------------
10. Assets retirement obligations
June 30, December 31,
2009 2008
------------- -------------
Balance, at beginning of year $ 22,606 $ 14,082
Liabilities settled in year (1,964) (891)
Liabilities incurred in year 1,208 8,675
Revisions to cash flow estimates 673 -
Accretion expense 579 703
Translation of self-sustaining foreign
operations 356 37
------------- -------------
$ 23,458 $ 22,606
------------- -------------
------------- -------------
Asset retirement obligations are included in the consolidated balance
sheets as follows:
June 30, December 31,
2009 2008
------------- -------------
Accounts payable and accrued liabilities $ 17,271 $ 15,926
Other non-current liabilities 6,187 6,680
------------- -------------
$ 23,458 $ 22,606
------------- -------------
------------- -------------
The total undiscounted cash flows which are estimated to be required to
settle all asset retirement obligations is $26.4 million ($24.0 million
as of December 31, 2008) and the credit-adjusted risk-free rates at which
the estimated cash flows have been discounted range between 5.11% and
7.0%.
11. Capital stock
The following shares were outstanding as of June 30, 2009 and
December 31, 2008:
(in thousands of Canadian dollars except June 30, December 31,
number of shares information) 2009 2008
------------- -------------
Number of shares: Class A
Balance, beginning of the period 57,358,537 58,234,570
Issued - stock options 30,480 113,234
Conversions Class B to Class A - 17,933
Purchase - normal course issuer bid - (1,007,200)
------------- -------------
Balance, end of the period 57,389,017 57,358,537
------------- -------------
Number of shares: Class B 13,060,209 13,060,209
------------- -------------
Total number of shares 70,449,226 70,418,746
------------- -------------
------------- -------------
Stated value:
Balance, beginning of the period $ 201,070 $ 202,248
Issued - stock options 485 1,763
Conversions Class B to Class A - 1
Purchase - normal course issuer bid - (3,518)
Compensation cost on exercised options 176 576
------------- -------------
Balance, end of the period 201,731 201,070
------------- -------------
Stated value: Class B 1,003 1,003
------------- -------------
Total stated value $ 202,734 $ 202,073
------------- -------------
------------- -------------
During the six months ended June 30, 2009, the Company repurchased and
cancelled nil Class A Subordinated Voting Shares (405,000 during the six
months ended June 30, 2008) under the terms of a Normal Course Issuer
Bid. The excess of cost over stated capital of the acquired shares, which
for the six months ended June 30, 2009 totaled $nil ($11.2 million for
the six months ended June 30, 2008), was charged to retained earnings.
12. Contributed surplus
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
2009 2008 2009 2008
------------------------- -------------------------
Balance, beginning
of period $ 15,351 $ 12,415 $ 14,512 $ 11,729
Stock compensation
expense (note 2) 774 806 1,622 1,693
Fair value of stock
options exercised (167) (297) (176) (498)
------------------------- -------------------------
Balance, end of
period $ 15,958 $ 12,924 $ 15,958 $ 12,924
------------------------- -------------------------
------------------------- -------------------------
13. Accumulated other comprehensive loss
June 30, December 31,
2009 2008
------------- -------------
Unrealized foreign currency translation
losses, net of hedging activities $ (107,084) $ (85,540)
Unrealized loss on available-for-sale
financial asset - -
Gain on derivatives designated as cash
flow hedges - -
------------- -------------
$ (107,084) $ (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:
June 30, 2009 December 31, 2008
----------------------- -----------------------
Weighted Weighted
Average Average
Total Exercise Total Exercise
Shares Price Shares Price
----------- ----------- ----------- -----------
Balance outstanding,
beginning of period 2,470,466 $ 19.14 2,173,980 $ 17.24
Granted 510,200 15.58 428,600 30.03
Exercised (30,480) 15.93 (113,234) 15.56
Forfeited (42,800) 21.32 (16,880) 19.24
Expired - - (2,000) 15.94
----------- ----------- ----------- -----------
Balance outstanding,
end of period 2,907,386 $ 18.85 2,470,466 $ 19.14
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Options Outstanding Options Exercisable
-------------------------------------------------- ----------------------
Weighted
average
Outstanding remaining Weighted Weighted
as at contractual average Exercisable average
Range of June 30, life exercise at June 30, exercise
exercise prices 2009 in years price 2009 price
---------------- ----------- ------------ -------- ----------- ----------
$10.00 to $15.00 470,166 3.91 $12.64 470,166 $12.64
$15.01 to $20.00 1,642,420 6.18 $16.47 952,844 $16.80
$20.01 to $25.00 40,000 6.01 $20.90 25,600 $20.96
$25.01 to $30.00 724,800 7.95 $27.61 212,840 $26.79
$30.01 to $35.00 30,000 8.51 $31.77 6,000 $31.77
----------- -----------
2,907,386 1,667,450
----------- -----------
----------- -----------
Options Outstanding Options Exercisable
-------------------------------------------------- ----------------------
Weighted
average
Outstanding remaining Weighted Exercisable Weighted
at contractual average at average
Range of December 31, life exercise December 31, exercise
exercise prices 2008 in years price 2008 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:
June 30, December 31,
2009 2008
------------- -------------
Financial assets:
Held for trading, measured at fair value
Cash $ 77,892 $ 78,932
Short-term investments $ 1,129 -
Loans and receivables, recorded at
amortized cost
Accounts receivable $ 260,489 $ 307,933
Taxes receivable $ 11,363 $ 9,261
Long-term notes receivable $ 4,248 $ -
Available for sale, measured at fair value
Long-term investments $ 24 $ 360
Derivatives, measured at fair value
Derivative financial instruments $ 653 $ 523
Financial liabilities:
Other liabilities, recorded at amortized cost
Bank indebtedness $ 689 $ 15,418
Accounts payable and accrued liabilities $ 159,032 $ 193,675
Taxes payable $ 58,502 $ 53,405
Current portion of long-term debt $ 28,755 $ 30,672
Long-term debt $ 28,466 $ 60,554
Derivatives, measured at fair value
Derivative financial instruments $ 524 $ 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 June 30, 2009:
June 30,
2009
----------
U.S. dollars sold for Canadian dollars
Less than one year US$ 12,000
Weighted-average rate 1.1544
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
As of June 30, 2009, the Company had notional amounts of $20.8 million of
forward contracts outstanding ($25.5 million as of December 31, 2008)
with the fair value of the Company's net benefit from all foreign
exchange forward contracts totaling $129 thousand ($1.5 million, net
obligation, as of December 31, 2008).
c) Financial Risk Management
The Company's operations expose it to a variety of financial risks
including: market risk (including foreign exchange and interest rate
risk), credit risk and liquidity risk. The Company's overall risk
management program focuses on the unpredictability of financial markets
and seeks to minimize potential adverse effects on the Company's
financial position and financial performance. Risk management is the
responsibility of Company management. Material risks are monitored and
are regularly reported to the Board of Directors.
Foreign exchange risk
The majority of the Company's business is transacted outside of Canada
through subsidiaries operating in several countries. The net investments
in these subsidiaries as well as their revenue, operating expenses and
non-operating expenses are based in foreign currencies. As a result, the
Company's consolidated revenue, expenses and financial position, may be
impacted by fluctuations in foreign exchange rates as these foreign
currency items are translated into Canadian dollars. As of June 30, 2009,
fluctuations of +/- 5% in the Canadian dollar, relative to those foreign
currencies, would impact the Company's consolidated revenue, operating
income from continuing operations and income from continuing operations
for the three months then ended by approximately $12.8 million,
$3.4 million and $2.7 million, respectively, prior to hedging activities.
In addition, such fluctuations would impact the Company's consolidated
total assets, consolidated total liabilities and consolidated total
shareholders' equity by $56.3 million, $24.0 million and $32.3 million,
respectively. The Company utilizes foreign exchange forward contracts to
manage foreign exchange risk from its underlying customer contracts. The
Company does not enter into foreign exchange contracts for speculative
purposes.
The Company's Senior Notes and associated interest expense are
denominated in U.S. dollars. Fluctuations in the exchange rate between
the Canadian and U.S. dollar would impact the carrying value of the
Senior Notes in terms of Canadian dollars as well as the amount of
interest expense when translated into Canadian dollars. Effective July 3,
2003, the Company designated the Senior Notes as a hedge of a portion of
its net investment in the Company's U.S. dollar based operations ("Net
Investment"). On April 1, 2009, The Company de-designated
USD$25.0 million of the hedge against the Net Investment. As a result, on
April 1, 2009 the remaining balance of the Senior Notes of
USD$50.0 million was hedged against the Net Investment. The de-
designation gave rise to a $2.1 million foreign exchange gain during the
second quarter of 2009, which was recognized in the consolidated
statement of income. Foreign exchange gains and losses from the hedged
portion of the Senior Notes are not included in the consolidated
statement of income, but are shown in accumulated other comprehensive
income. As of June 30, 2009, fluctuations of +/- 5% in the Canadian
dollar, relative to the U.S. dollar, would impact the Company's
accumulated other comprehensive income by $2.5 million for the three
months then ended.
The objective of the Company's foreign exchange risk management
activities is to minimize transaction exposures associated with the
Company's foreign currency-denominated cash streams and the resulting
variability of the Company's earnings. The Company utilizes foreign
exchange forward contracts to manage this foreign exchange risk. The
Company does not enter into foreign exchange contracts for speculative
purposes. With the exception of the Company's U.S. dollar based
operations, the Company does not hedge translation exposures.
Interest rate risk
The following table summarizes the Company's exposure to interest rate
risk at June 30, 2009:
Fixed interest rate
-------------------------
Maturing Maturing
Floating in one year after
rate or less one year Total
------------ ------------ ------------ ------------
Financial assets
Cash and cash
equivalents $ 77,892 $ - $ - $ 77,892
Long-term notes
receivable 4,248 - - 4,248
------------ ------------ ------------ ------------
Total $ 82,140 $ - $ - $ 82,140
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Financial liabilities
Bank indebtedness $ 689 $ - $ - $ 689
Current portion of
long-term debt - 28,755 - 28,755
Long-term debt - - 28,466 28,466
------------ ------------ ------------ ------------
Total $ 689 $ 28,755 $ 28,466 $ 57,910
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
------------ ------------ ------------
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
June 30, 2009, $9.7 million, or 4.0% of trade accounts receivable, were
more than 90 days overdue, which is consistent with prior period aging
analysis.
The following is an analysis of the change in the allowance for doubtful
accounts for the six months ended June 30, 2009 and 2008:
Six Months Ended June 30,
---------------------------
2009 2008
------------- -------------
Balance, beginning of period $ 6,237 $ 4,165
Bad debt expense 503 295
Write-offs of bad debts (629) (251)
Recovery of previously written-off amounts (413) -
Impact of change in foreign exchange rates (3) (58)
------------- -------------
Balance, end of period $ 5,695 $ 4,151
------------- -------------
------------- -------------
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 June 30,
2009, the Company has cash and cash equivalents totaling $77.9 million
($78.9 million as of December 31, 2008) and has unutilized lines of
credit available to use of $201.0 million ($198.0 million as of
December 31, 2008). The following are the contractual maturities of the
Company's financial liabilities as of June 30, 2009:
Less than 1 - 2 3 - 4
1 Year Years Years Thereafter Total
--------------------------------------------------
Accounts payable and
accrued liabilities $136,673 $4,669 $438 - $141,780
Asset retirement
obligations 17,252 943 1,310 6,930 26,435
Bank indebtedness 689 - - - 689
Long-term debt 28,755 28,466 - - 57,221
Obligations under
capital leases 228 519 146 - 893
Interest on obligations
under capital leases 22 42 15 - 79
Interest on financial
instruments 2,934 1,467 - - 4,401
Derivative financial
instruments 524 - - - 524
--------------------------------------------------
Total $187,077 $36,106 $1,909 $6,930 $232,022
--------------------------------------------------
--------------------------------------------------
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 June 30, 2009, total managed capital was $809.6 million
($839.2 million as of December 31, 2008), comprised of shareholders
equity of $751.8 million ($732.5 million as of December 31, 2008), long-
term debt of $28.4 million ($60.6 million as of December 31, 2008),
current portion of long-term debt of $28.7 million ($30.7 million as of
December 31, 2008) and bank indebtedness of $689 thousand ($15.4 million
as of December 31, 2008).
The Company manages its capital structure and makes adjustments to it in
light of changes in economic conditions, the risk characteristics of the
underlying assets and business investment opportunities. To maintain or
adjust the capital structure, the Company may attempt to issue or re-
acquire shares, acquire or dispose of assets, or adjust the amount of
cash, cash equivalents, bank indebtedness or long-term debt balances. The
Company's capital is not subject to any capital requirements imposed by
any regulators; however, it is limited by the terms of its credit
facility and long-term debt agreements. Specifically, the Company is
required to maintain a Fixed Charge Coverage Ratio (Earnings Before
Interest, Taxes, Depreciation and Amortization ("EBITDA") divided by
interest expense) of more than 2.5 to 1 and a debt to total
capitalization ratio of less than 0.45 to one. The Company's capital
structure at June 30, 2009 was within the parameters established by these
agreements.
17. Segmented information
The Company classifies its operations into two general segments of the
global energy industry: Pipeline and Pipe Services and Petrochemical and
Industrial. Revenue and income (loss) from operations for the three
months and six months ended June 30, 2009 and 2008, and goodwill and
total assets as of those dates by segment are as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
2008 2008
Restated Restated
2009 - note 1 2009 - note 1
------------ ------------ ------------ ------------
Revenue
Pipeline and Pipe
Services $ 283,888 $ 258,984 $ 563,839 $ 514,778
Petrochemical and
Industrial 30,100 36,585 59,418 74,722
Intersegment
Eliminations (1,197) (451) (3,002) (1,025)
------------ ------------ ------------ ------------
$ 312,791 $ 295,118 $ 620,255 $ 588,475
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Income (loss) from
operations
Pipeline and Pipe
Services $ 58,853 $ 28,160 $ 115,499 $ 66,368
Petrochemical and
Industrial 2,208 5,316 2,533 11,391
Financial and
Corporate (7,883) (6,287) (14,420) (9,651)
------------ ------------ ------------ ------------
$ 53,178 $ 27,189 $ 103,612 $ 68,108
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Goodwill
Pipeline and Pipe
Services $ 204,098 $ 190,779
Petrochemical
and Industrial 19,048 18,629
------------ ------------
$ 223,146 $ 209,408
------------ ------------
------------ ------------
Total assets
Pipeline and Pipe
Services $ 1,336,802 $ 1,193,716
Petrochemical and
Industrial 78,863 84,242
Financial and
Corporate 840,636 945,539
Elimination (1,110,346) (1,082,861)
------------ ------------
$ 1,145,955 $ 1,140,636
------------ ------------
------------ ------------
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 Six Months Ended
June 30, June 30,
------------------------- -------------------------
2008 2008
Restated Restated
2009 - note 1 2009 - note 1
------------ ------------ ------------ ------------
Revenue $ 15,998 $ 21,277 $ 34,577 $ 37,965
Operating and other
expenses 12,313 17,180 26,119 31,339
Net income before
income taxes 3,685 4,097 8,458 6,626
Provision for taxes 716 820 1,771 1,221
------------ ------------ ------------ ------------
Net income $ 2,969 $ 3,277 $ 6,687 $ 5,405
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Cash provided by
(used in):
Operating
activities $ 10,092 $ 4,099 $ 14,497 $ 5,404
Investing
activities $ (651) $ (1,627) $ (1,832) $ (3,799)
Financing
activities $ (6,734) $ - $ (8,479) $ (2,872)
Current assets $ 28,197 $ 26,621
Property, plant and
equipment, net $ 14,071 $ 14,426
Goodwill $ 4,747 $ 5,135
Current liabilities $ 14,664 $ 16,610
Long-term Liabilities $ 733 $ 7,405
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 Six Months Ended
June 30, June 30,
------------------------- -------------------------
2008 2008
Restated Restated
2009 - note 1 2009 - note 1
------------ ------------ ------------ ------------
Basic
Class A 57,375,956 57,874,420 57,367,680 57,922,183
Class B 13,060,209 13,077,909 13,060,209 13,077,909
------------ ------------ ------------ ------------
Total 70,436,165 70,952,329 70,427,889 71,000,092
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Dilutive effect of
stock options
Class A 357,549 796,673 175,496 873,513
Class B - - - -
------------ ------------ ------------ ------------
Total 357,549 796,673 175,496 873,513
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted
Class A 57,733,505 58,671,093 57,543,176 58,795,696
Class B 13,060,209 13,077,909 13,060,209 13,077,909
------------ ------------ ------------ ------------
Total 70,793,714 71,749,002 70,603,385 71,873,605
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
20. Recent accounting pronouncements
On February 13, 2008, The Accounting Standards Board ("AcSB") confirmed
that the use of International Financial Reporting Standards ("IFRS") will
be required in Canada for publicly accountable profit-oriented
enterprises for fiscal years beginning on or after January 1, 2011 and
the Company will be required to report using IFRS beginning on this date.
The Company has begun the process of evaluating the effect of and the
planning for the transition to IFRS. The impact of the ultimate adoption
of IFRS on the Company has not yet been finalized.
In January 2009, the AcSB issued the following new Handbook sections:
1582 - Business Combinations, 1601 - Consolidations, and 1602 - Non-
Controlling Interests. These standards are effective January 1, 2011. The
Company has not yet determined the impact of the adoption of these
standards on its consolidated financial statements.
21. Comparative figures
Comparative figures have been reclassified from statements previously
stated to conform to the presentation of the current year consolidated
financial statements, and to show the effects of retrospective
application of a new accounting policy (see note 1).