TORONTO, Nov. 2 /CNW/ -
SHAWCOR LTD.
(TSX: SCL.A, SCL.B)
<<
Financial Summary
(In thousands of Canadian Three Months Ended Nine Months Ended
dollars except per share Sep. 30 Sep. 30
amounts) 2005 2004 2005 2004
-------------------------------------------------------------------------
Operating Results Restated Restated
Revenue $240,378 $190,125 $733,902 $552,892
EBITDA (note 1) 31,354 8,247 92,754 47,088
Income (loss) from operations 20,189 (6,205) 57,871 3,973
Net income (loss) from
continuing operations 33,138 (9,131) 55,187 (8,260)
Net income (loss) from
discontinued operations 57,614 473 63,063 (302)
Net income (loss) 90,752 (8,658) 118,250 (8,562)
Net income (loss) per share
(Class A and B) - Basic
Continuing operations 0.44 (0.11) 0.73 (0.11)
Discontinued operations 0.76 0.00 0.84 (0.00)
Total 1.20 (0.11) 1.57 (0.11)
Net income (loss) per share
(Class A and B) - Diluted
Continuing operations 0.44 (0.11) 0.73 (0.11)
Discontinued operations 0.76 0.00 0.84 (0.00)
Total 1.20 (0.11) 1.57 (0.11)
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Cash Flow
Cash from continuing operating
activities 22,320 591 49,240 18,548
Additions to property,
plant and equipment 13,315 6,346 30,676 24,160
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Financial Position
Working capital 269,483 163,972
Total assets 907,562 853,035
Shareholders' equity per share
(Class A and B) $ 7.20 $ 7.05
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Note 1: EBITDA is a non-GAAP measure calculated by adding back to net
income from continuing operations, interest, taxes, and
depreciation/amortization.
Net income for the nine months ended September 30, 2005 was
$118.3 million, or $1.57 per share, including a $48.8 million ($0.65 per
share) after-tax gain on the sale of the OMSCO drill string manufacturing
business.
The previously announced sale of the OMSCO division to Vallourec &
Mannesmann Tubes S.A. ("V&M") for net proceeds of $135.6 million was completed
on September 30, 2005. In accordance with Canadian accounting principles, the
Company has accounted for this division in the quarter as a discontinued
operation including restating current and prior year operating results. Also
as a result of this transaction, the Company has realigned its segmented
financial reporting into two market segments: Pipeline and Pipe Services and
Petrochemical and Industrial. The former segment includes the operations of
Bredero Shaw, Canusa-CPS, Shaw Pipeline Services and Guardian while the latter
segment is unchanged and is comprised of DSG-Canusa and ShawFlex. Prior period
segmented reporting has been restated to reflect these changes.
Consolidated revenue from continuing operations for the quarter of
$240.4 million was 26% higher than in the same quarter of last year. Revenue
in the Pipeline and Pipe Services segment increased 32% over the third quarter
of last year on strength in the Far Eastern and African areas of Bredero Shaw
together with continuing strong revenue from the Langeled pipecoating project
in Norway. Revenue in the Petrochemical and Industrial segment in the quarter
was slightly lower than in the corresponding period of last year reflecting
softness in the European automotive sector. On a year-to-date basis,
consolidated revenue for the nine months ended September 30, 2005 was
$733.9 million, 33% higher than in the corresponding period of last year.
Consolidated income from continuing operations, before interest, income
taxes and minority interest, totaled $20.2 million in the quarter compared to
a loss of $6.2 million in the third quarter of last year with the improvement
attributable to the revenue increase, improved operations execution and
reduced costs as a result of the closure of the Mobile facility. Compared to
the prior quarter, consolidated income from continuing operations improved
82%, mainly as a result of improved efficiencies and improved capacity
utilization at Bredero Shaw. For the nine months ended September 30, 2005,
consolidated income from continuing operations totaled $57.9 million compared
to $4.0 million in the corresponding period of 2004, which included losses
from the Mobile pipecoating operation of $34.1 million.
Consolidated net income from continuing operations in the quarter totaled
$33.1 million ($0.44 per share) compared to a loss of $9.1 million ($0.11 per
share) in the same quarter of last year. Consolidated net income from
continuing operations for the nine months ended September 30, 2005 totaled
$55.2 million ($0.73 per share) compared to a loss of $8.3 million ($0.11 per
share) last year. Net income for the quarter and year-to-date includes a
reduction in income taxes of $18.4 million ($0.25 per share) from the
utilization of previous years' income tax losses not previously recognized in
the accounts.
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 2004 Annual Report.
Revenue and Income from Operations
As a result of the sale of the OMSCO division, the Company has realigned
its segmented reporting into two industry segments: Pipeline and Pipe Services
and Petrochemical and Industrial. The former segment includes the operations
of Bredero Shaw, Shaw Pipeline Services, Canusa-CPS and Guardian while the
latter segment includes ShawFlex and DSG-Canusa. All comparative figures have
been reclassified to reflect this new structure.
Consolidated revenue for the quarter totaled $240.4 million compared to
$235.3 million last quarter and $190.1 million in the third quarter of 2004
with the improvements over the prior quarter driven by large diameter coating
activity in the Far East and Africa and increased onshore pipecoating volume
in North America. On a year-to-date basis, consolidated revenue for the nine
months ended September 30, 2005 was $733.9 million compared to $552.9 million
in the corresponding period of last year, reflecting the much higher activity
levels in the Company's Pipeline and Pipe Services businesses. Compared to
last year, the stronger Canadian dollar versus to the U.S. dollar and the Euro
reduced Canadian dollar revenues for the nine months by $29.7 million.
Consolidated income from continuing operations, before interest, income
taxes and minority interest, totaled $20.2 million in the quarter compared to
$11.1 million last quarter and a loss of $6.2 million in the third quarter of
last year, with the improvement due to the increased revenue together with
improved efficiencies at Bredero Shaw. On a year-to-date basis, income from
continuing operations totaled $57.9 million compared to $4.0 million in the
first nine months of 2004.
On September 30, 2005, the Company completed the sale of its OMSCO
division for proceeds of U.S.$120 million ($140.7 million), less closing and
other transactions costs, which resulted in the Company recording an after-tax
gain on the sale of $48.8 million ($0.65 per share). The consolidated net
income for the quarter was $90.8 million or $1.20 per share, inclusive of this
gain, compared to $9.7 million or $0.13 per share last quarter and a net loss
of $8.7 million or $0.11 per share in the third quarter of 2004. On a year-to-
date basis, net income for the nine months ended September 30, 2005 totaled
$118.3 million ($1.57 per share) compared to a net loss of $8.6 million ($0.11
per share) in the corresponding period of last year. Net income from
continuing operations of $55.2 million includes a reduction in income tax
expense of $18.4 million from the utilization of prior years' tax losses not
previously recognized in the financial statements.
In the Pipeline and Pipe Services segment, revenue for the quarter was
$210.8 million compared to $203.5 million in the second quarter and
$159.8 million in the third quarter of last year. Revenue in the quarter was
positively impacted by increased large diameter coating activity in the Far
Eastern region and by increased onshore pipecoating activity in the United
States and Canada. Business activity at Guardian increased from the prior
quarter, however, activity at Canusa-CPS and Shaw Pipeline Services, although
still very strong, decreased slightly from the high levels in the second
quarter of the year. On a year-to-date basis, revenue for the segment totaled
$641.7 million compared to $458.2 million in the first nine months of 2004.
Income from operations for the segment totaled $21.3 million in the quarter
compared to $11.5 million last quarter and a loss of $6.8 million in the third
quarter of 2004 with the improvement over the previous quarter the result of
increased efficiencies at the North Sea pipecoating plants together with
improved factory utilization in the Far East and the recording of some
customer approved variations orders related to costs incurred in prior
periods. On a year-to-date basis, income from operations for the segment for
the nine months ended September 30, 2005 totaled $59.7 million compared to a
loss of $1.6 million in the corresponding period of last year, including
$34.1 million of losses from the Mobile, Alabama pipecoating plant. Coating
operations at Mobile are now shut-down. The objective is to have pipe load out
activities completed, and all full time staff offsite, by year-end, subject to
customer agreement.
In the Petrochemical and Industrial segment, revenue for the third
quarter totaled $29.9 million compared to $32.2 million last quarter and
$30.7 million in the third quarter of last year. Business activity remained
stable at ShawFlex and in the North American region of DSG-Canusa but declined
slightly at DSG-Canusa in Europe, reflecting the economic environment in that
region. The exchange rate between the Euro and the Canadian dollar, which was
approximately 8% lower in the quarter compared to the same quarter last year,
also had an adverse impact on the reported results of the division, in terms
of Canadian dollars. Income from operations for the segment totaled
$3.0 million in the quarter compared to $3.5 million in the prior quarter and
$4.1 million in the third quarter of last year. Revenue for the segment for
the nine months ended September 30, 2005 was $93.3 million compared to
$95.9 million in the same period last year. Income from operations for the
segment for the first nine months of 2005 totaled $10.4 million compared to
$12.7 million in 2004. A reduction in revenue of $2.0 million from last year's
levels was due to translation of foreign currency revenues into Canadian
dollars.
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 quarter totaled $4.2 million including foreign exchange losses
of $78 thousand, compared to $4.0 million in the prior quarter, including
foreign exchange losses of $226 thousand.
Net interest expense in the quarter totaled $1.1 million compared to
$1.5 million in the prior quarter and $1.2 million in the third quarter of
2004 and reflected increased cash balances in the quarter.
Cash Flow
Cash flow generated from continuing operating activities in the quarter
totaled $22.3 million compared to $591 thousand in the same quarter last year,
mainly due to the higher earnings in the period. On a year-to-date basis, cash
flow generated by continuing operations totaled $49.2 million for the nine
months ended September 30, 2005 compared to $18.5 million in the corresponding
period of 2004.
Cash flow used in investing activities in the quarter totaled
$13.0 million, mainly capital expenditures of $13.3 million, partially offset
by proceeds on the disposal of assets of $338 thousand. In the third quarter
of last year, cash flow used in investing activities totaled $6.3 million. For
the nine months ended September 30, 2005, cash flow used in investing
activities totaled $30.3 million compared to $20.0 million in the same period
of 2004.
Cash flow used in financing activities totaled $2.6 million in the
quarter, primarily due to the repayment of some bank indebtedness, compared to
an inflow of $4.0 million in the third quarter of 2004. For the year-to-date,
cash used in financing activities totaled $4.9 million compared to an inflow
of $2.3 million in the first nine months of last year.
Cash flow from discontinued operations totaled $141.3 million for the
quarter, compared to $389 thousand in the third quarter of last year, and
included proceeds on the disposal of OMSCO of $135.6 million. For the nine
months ended September 30, 2005, cash flow from discontinued operations
totaled $140.1 million compared to an outflow of $42 thousand in the same
period of last year.
Liquidity and Capitalization
As at September 30, 2005 the Company has a working capital ratio of
2.15 to 1, compared to 1.74 to 1 at June 30, 2005 and 1.67 to 1 at the
beginning of the year. Operating working capital, excluding cash, cash
equivalents and bank indebtedness decreased $49.1 million in the quarter to
$43.5 million, primarily the result of the sale of OMSCO. Cash and cash
equivalents, net of bank indebtedness, increased $148.2 million in the quarter
to $226.0 million reflecting the proceeds on the OMSCO divestment.
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 September 30, 2005, the Company had notional amounts of $108.5 million
of forward contracts outstanding (December 31, 2004 - $67.2 million) with a
fair value of $1.5 million (December 31, 2004 - $214 thousand). 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.
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, with the exception of a specific obligation related to the
sale of the OMSCO division which occurred in the quarter. The Asset Purchase
Agreement between the Company and V&M included a purchase price adjustment for
changes in OMSCO's working capital balances between the date of the agreement
and the closing date of the transaction. Accordingly, the Company expects to
pay V&M approximately $6.4 million in the fourth quarter representing cash
received by the Company from the reduction of OMSCO's working capital prior to
the closing of the sale transaction.
Summary of Quarterly Results
The following is selected financial information for the eleven most
recently completed quarters. Prior quarters have been restated to exclude
OMSCO revenues and operating result from continuing operations.
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(In thousands of
Canadian dollars
except per share
amounts) First Second Third Fourth Full Year
-------------------------------------------------------------------------
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Revenue
2005 $258,177 $235,347 $240,378 $ - $ -
2004 175,736 187,031 190,125 248,855 801,747
2003 220,963 203,360 163,679 180,866 768,868
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Income (loss) from
continuing
operations
2005 26,611 11,071 20,189 - -
2004 9,013 1,165 (6,205) (14,249) (10,276)
2003 19,777 18,297 (1,530) 6,113 42,657
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Asset impairment
charges
2005 - - - - -
2004 - - - (50,390) (50,390)
2003 - - - - -
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Net income (loss)
from continuing
operations
2005 15,912 6,137 33,138 - -
2004 4,349 (3,478) (9,131) (79,677) (87,937)
2003 10,325 9,332 (2,968) (1,286) 15,403
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Net income (loss)
from discontinued
operations
2005 1,846 3,603 57,614 - -
2004 (764) (11) 473 1,578 1,276
2003 297 (736) 3,065 6,322 8,948
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Net income (loss)
2005 17,758 9,740 90,752 - -
2004 3,585 (3,489) (8,658) (78,099) (86,661)
2003 10,622 8,596 97 5,036 24,351
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Basic earnings (loss)
per share from
continuing operations
(Classes A and B)
2005 0.21 0.08 0.44 - -
2004 0.06 (0.06) (0.11) (1.07) (1.18)
2003 0.15 0.14 (0.04) (0.02) 0.23
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Basic earnings (loss)
per share from
discontinued
operations
(Classes A and B)
2005 0.03 0.05 0.76 - -
2004 (0.01) 0.01 0.00 0.02 0.02
2003 0.00 (0.01) 0.04 0.09 0.12
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Total basic earnings
(loss) per share
(Classes A and B)
2005 0.24 0.13 1.20 - -
2004 0.05 (0.05) (0.11) (1.05) (1.16)
2003 0.15 0.13 0.00 0.07 0.35
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Diluted earnings (loss)
per share from
continuing operations
(Classes A and B)
2005 0.21 0.08 0.44 - -
2004 0.06 (0.06) (0.11) (1.07) (1.18)
2003 0.15 0.13 (0.04) (0.02) 0.22
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Diluted earnings (loss)
per share from
discontinued operations
(Classes A and B)
2005 0.03 0.05 0.76 - -
2004 (0.01) 0.01 0.00 0.02 0.02
2003 0.00 (0.01) 0.04 0.09 0.12
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Total diluted earnings
(loss) per share
(Classes A and B)
2005 0.24 0.13 1.20 - -
2004 0.05 (0.05) (0.11) (1.05) (1.16)
2003 0.15 0.12 0.00 0.07 0.34
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The following are key factors affecting the comparability of quarterly
financial results.
The Company's business is heavily leveraged toward major oil and gas
pipeline projects, the timing of which can have significant impacts on any
given quarter. Due to the Company's large foreign operations, fluctuations in
foreign exchange rates can also impact quarterly results.
In November 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.
On September 30, 2005, the Company sold its OMSCO division. As a result,
the Company recorded an after-tax gain of $48.8 million ($0.65 per share) in
the third quarter of 2005 and adopted discontinued operations accounting
treatment for the OMSCO division.
Outstanding Share Capital
As at October 24, 2005, the Company had 61,575,601 Class A Subordinate
Voting Shares ("Class A") outstanding and 13,599,165 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 October 24, 2005, the
Company had stock options outstanding to purchase up to 2,651,690 Class A
shares.
Outlook
The 12 month backlog of orders continued to be strong at the end of the
quarter and stood at $373.0 million at September 30, 2005, compared to
$383.1 million, restated to exclude OMSCO, at the beginning of the quarter,
with the decrease attributable to foreign exchange rate fluctuations and
continuing production on the Langeled project.
The strength of the backlog indicates continuing favourable market
conditions for the Company's businesses. Quotation and bid levels remain high
in the Pipeline and Pipe Services segment's businesses and several large
projects were awarded in the Far Eastern region and in Latin America during
the quarter. Business conditions at the Petrochemical and Industrial segment's
businesses are expected to remain stable. The Company's Bredero Shaw
continuous improvements programs continue to demonstrate positive results.
With the winding down of the Ormen Lange project work by the end of the first
quarter of next year, the challenge will be to replace those volumes with
other large project work around the world. With the cash proceeds from the
sale of OMSCO, the Company's balance sheet is well positioned to finance the
internal and external growth opportunities that are expected to be available
going forward.
This document contains forward-looking statements, which are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those reflected in such statements.
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 Thursday, November 3, 2005 at 10:00 a.m. EST to discuss the
Company's third quarter 2005 financial results. Please visit our website at
www.shawcor.com for further details.
SHAWCOR LTD.
INTERIM FINANCIAL INFORMATION (Unaudited)
(in thousands of Canadian dollars except per share data)
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Three Months Ended Nine Months Ended
Sept 30 Sept 30
--------------------- ---------------------
2005 2004 2005 2004
Restated Restated
--------------------- ---------------------
Revenue $240,378 $190,125 $733,902 $552,892
---------- ---------- ---------- ----------
Operating expenses 207,964 181,111 636,595 504,830
Amortization 11,073 14,224 34,970 42,565
Research and development 2,002 1,342 5,817 3,818
---------- ---------- ---------- ----------
221,039 196,677 677,382 551,213
---------- ---------- ---------- ----------
Share of earnings in
associated company 850 347 1,351 2,294
---------- ---------- ---------- ----------
Income (loss) from operations 20,189 (6,205) 57,871 3,973
Interest expense (note 4) 1,145 1,213 3,679 4,022
---------- ---------- ---------- ----------
Income (loss) before income
taxes and non-controlling
interest 19,044 (7,418) 54,192 (49)
Income taxes (14,002) 1,941 (1,082) 8,761
---------- ---------- ---------- ----------
Income (loss) before non-
controlling interest 33,046 (9,359) 55,274 (8,810)
Non-controlling interest 92 228 (87) 550
---------- ---------- ---------- ----------
Income (loss) from continuing
operations $ 33,138 (9,131) $ 55,187 (8,260)
Income (loss) from
discontinued operation
(note 10) 57,614 473 63,063 (302)
---------- ---------- ---------- ----------
Net income (loss) $ 90,752 $ (8,658) $118,250 $ (8,562)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings (loss) per share
Class A and B - Basic
Continuing operations $ 0.44 $ (0.11) $ 0.73 $ (0.11)
Discontinued operation 0.76 (0.00) 0.84 (0.00)
---------- ---------- ---------- ----------
Total $ 1.20 $ (0.11) $ 1.57 $ (0.11)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings (loss) per share
Class A and B - Diluted
Continuing operations $ 0.44 $ (0.11) $ 0.73 $ (0.11)
Discontinued operation 0.76 (0.00) 0.84 (0.00)
---------- ---------- ---------- ----------
Total $ 1.20 $ (0.11) $ 1.57 $ (0.11)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
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SEGMENTED INFORMATION Three Months Ended Nine Months Ended
Sept 30 Sept 30
--------------------- ---------------------
2005 2004 2005 2004
Restated Restated
---------- ---------- ---------- ----------
Revenue
Pipeline and Pipe Services $210,806 $159,780 $641,736 $458,211
Petrochemical and Industrial 29,920 30,729 93,268 95,906
Intersegment Eliminations (348) (384) (1,102) (1,225)
---------- ---------- ---------- ----------
$240,378 $190,125 $733,902 $552,892
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Income (loss) from operations
Pipeline and Pipe Services $ 21,330 $ (6,759) $ 59,705 $ (1,559)
Petrochemical and Industrial 3,022 4,134 10,372 12,677
Financial and Corporate (4,163) (3,580) (12,206) (7,145)
---------- ---------- ---------- ----------
$ 20,189 $ (6,205) $ 57,871 $ 3,973
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
SHAWCOR LTD.
INTERIM FINANCIAL INFORMATION (Unaudited)
(in thousands of Canadian dollars)
CONSOLIDATED STATEMENTS OF CASH FLOW
Three Months Ended Nine Months Ended
Sept 30 Sept 30
--------------------- ---------------------
2005 2004 2005 2004
Restated Restated
--------------------- ---------------------
Operating activities:
Net income (loss) from
continuing operations $ 33,138 $ (9,131) $ 55,187 $ (8,260)
Items not requiring an
outlay of cash:
Amortization 11,073 14,224 34,970 42,565
Gain on disposal of
investment in shares - - - (4,710)
Change in deferred project
costs (1,358) (294) (5,140) 4,831
Future income taxes (2,788) 597 (537) (3,258)
Non-controlling interest in
earnings of subsidiaries (79) (228) 87 (550)
Share of earnings of
associated company (850) (347) (1,351) (475)
Change in non-cash working
capital and other (16,816) (4,230) (33,976) (11,595)
---------- ---------- ---------- ----------
Cash provided by operating
activities 22,320 591 49,240 18,548
---------- ---------- ---------- ----------
Investing activities:
Additions to property,
plant and equipment (13,315) (6,346) (30,676) (24,160)
Proceeds on disposal of
assets 338 2 402 268
Proceeds on disposal of
investment in shares - - - 6,729
Investment in shares - - - (2,874)
---------- ---------- ---------- ----------
Cash (used in) investing
activities (12,977) (6,344) (30,274) (20,037)
---------- ---------- ---------- ----------
Financing activities:
Increase (decrease) in bank
indebtedness (2,868) 3,992 (2,142) 4,932
Issue of shares 280 - 613 363
Dividends paid to
non-controlling shareholders
of subsidiaries - - - (7)
Dividends paid to shareholders - - (3,323) (2,980)
---------- ---------- ---------- ----------
Cash provided by (used in)
financing activities (2,588) 3,992 (4,852) 2,308
---------- ---------- ---------- ----------
Foreign exchange on foreign
cash and cash equivalents (2,795) (1,206) (2,972) (1,029)
---------- ---------- ---------- ----------
Net cash provided by (used in)
continuing operations 3,960 (2,967) 11,142 (210)
Net cash provided by (used in)
discontinued operation
(note 10) 141,339 389 140,109 (42)
Cash and cash equivalents at
beginning of period 82,449 82,586 76,497 80,260
---------- ---------- ---------- ----------
Cash and cash equivalents at
end of period $227,748 $ 80,008 $227,748 $ 80,008
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
SHAWCOR LTD.
INTERIM FINANCIAL INFORMATION (Unaudited)
(in thousands of Canadian dollars)
CONSOLIDATED BALANCE SHEETS
Sept. 30 Dec. 31 Sept. 30
2005 2004 2004
---------- ---------- ----------
Assets
Current assets
Cash and cash equivalents $227,748 $ 76,497 $ 80,008
Accounts receivable and prepaid
expenses 201,785 183,690 189,691
Inventories 75,280 94,444 82,588
Future income taxes - 5,010 1,977
---------- ---------- ----------
504,813 359,641 354,264
Property, plant and equipment, net 189,406 222,765 283,523
Goodwill 169,206 176,393 183,798
Investment in associated company 4,953 4,226 4,835
Other assets (note 5) 39,184 32,637 26,615
---------- ---------- ----------
$907,562 $795,662 $853,035
---------- ---------- ----------
---------- ---------- ----------
Liabilities
Current liabilities
Bank indebtedness (note 7) $ 1,738 $ 4,495 $ 4,978
Accounts payable and accrued
liabilities 203,211 188,591 161,216
Taxes payable 30,381 22,142 24,098
---------- ---------- ----------
235,330 215,228 190,292
Long-term debt 87,953 90,360 98,498
Future income taxes 39,764 43,350 32,009
Non-controlling interest in subsidiaries 3,771 3,318 3,261
---------- ---------- ----------
366,818 352,256 324,060
---------- ---------- ----------
Shareholders' Equity
Capital stock (note 8) 208,322 206,904 206,873
Contributed surplus (note 9) 7,837 7,196 6,867
Retained earnings 415,742 300,815 382,294
Cumulative translation account (91,157) (71,509) (67,059)
---------- ---------- ----------
540,744 443,406 528,975
---------- ---------- ----------
$907,562 $795,662 $853,035
---------- ---------- ----------
---------- ---------- ----------
SHAWCOR LTD.
INTERIM FINANCIAL INFORMATION (Unaudited)
(in thousands of Canadian dollars)
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Three Months Ended Nine Months Ended
Sept 30 Sept 30
--------------------- ---------------------
2005 2004 2005 2004
--------------------- ---------------------
Balance at beginning of
period $324,990 $390,952 $300,815 $396,037
Adjustment for stock based
compensation - - - (2,201)
---------- ---------- ---------- ----------
Balance at beginning of
period, adjusted 324,990 390,952 300,815 393,836
Net income (loss) 90,752 (8,658) 118,250 (8,562)
---------- ---------- ---------- ----------
415,742 382,294 419,065 385,274
Dividends paid - - 3,323 2,980
---------- ---------- ---------- ----------
Balance at end of period $415,742 $382,294 $415,742 $382,294
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
ShawCor Ltd.
Notes to the Interim 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 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, 2004. Accordingly, these unaudited interim
consolidated financial statements should be read in conjunction with the
Company's annual consolidated financial statements.
2. Stock-based compensation
On August 9, 2005, the Board of Directors approved the granting of 4,000
stock options under the 2001 Director Plan. The total, average fair value
of the stock options, calculated using the Black-Scholes pricing model,
was $16 thousand. The options granted under the 2001 Director Plan vest
immediately and as a result, the fair value of the options are charged to
compensation cost immediately. The assumptions used in calculating the
fair value of the options are as follows: expected life of options 3.25
years, expected stock price volatility 25%, expected dividend yield
0.47%, and risk free interest rate 3.47%. The compensation cost
recognized in the accounts for the three months and nine months ended
September 30, 2005 is $244 thousand and $1.4 million, respectively
(September 30, 2004 - $532 thousand and $1.6 million, respectively).
3. Foreign exchange gains and losses
Included in income from operations for the three months and nine months
ended September 30, 2005 are foreign exchange losses totaling
$78 thousand and $880 thousand, respectively (September 30, 2004 -
$326 thousand loss and $2.0 million gain, respectively).
4. Interest expense (income)
Three Months Ended Nine Months Ended
(in thousands of Sept 30 Sept 30
Canadian dollars) 2005 2004 2005 2004
-------------------------------------------------------------------------
Interest on short-term
deposits $ (380) $ (339) $ (1,093) $ (868)
Interest on bank indebtedness 94 123 458 563
Interest on long-term debt 1,431 1,429 4,314 4,327
-------------------------------------------
$ 1,145 $ 1,213 $ 3,679 $ 4,022
-------------------------------------------
-------------------------------------------
Net interest paid during the three months and nine months ended
September 30, 2005 totaled $928 thousand and $3.9 million, respectively
(September 30, 2004 - $1.5 million and $4.5 million, respectively).
5. Other assets
(in thousands of Sept 30, Dec. 31, Sept 30,
Canadian dollars) 2005 2004 2004
-------------------------------------------------------------------------
Long-term investment $ 2,875 $ 2,875 $ 2,875
Deferred financing costs 2,193 2,627 2,842
Deferred project costs 12,206 7,260 7,741
Future income taxes 21,910 19,875 13,157
-------------------------------------------------------------------------
Total $ 39,184 $ 32,637 $ 26,615
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other assets include a long-term investment in Garneau Inc., a Canadian-
based, publicly traded pipe-coating company with a market value of
$2.9 million at September 30, 2005.
6. 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 September 30, 2005, the
Company had notional amounts of $108.5 million of forward contracts
outstanding (December 31, 2004 - $67.2 million) with a fair value of
$1.5 million (December 31, 2004 - $214 thousand). These amounts are used
to express the volume of transactions and are not recognized in the
consolidated financial statements. During the quarter, the Company
entered into a series of forward contracts with notional values totaling
$43.8 million, with large international financial institutions, to hedge
expected U.S. dollar, Euro, U.K. Pound and Brazilian Real cash flows.
These contacts are accounted for as hedges of the related cash flows and
short-term movements in the fair value of these financial instruments are
deferred and matched with the hedged cash flows. The Company monitors the
effectiveness of the hedges on an on-going basis and if the hedges are no
longer considered effective, hedge accounting is discontinued.
7. Bank indebtedness
As at September 30, 2005, the Company had unused operating lines of
credit of $172.4 million, net of $1.7 million in bank indebtedness and
$78.0 million for various types of standby letters of credit for
performance and bid bonds.
8. Capital stock
(in thousands except Sep. 30, Dec. 31, Sep. 30,
share information) 2005 2004 2004
-------------------------------------------------------------------------
Number of shares: Class A
Balance, beginning of the period 61,224,968 61,206,202 61,206,202
Issued - stock options 200,975 44,736 41,270
Conversion Class B to A 146,000 24,030 14,200
Share issuance - - -
Purchases under Normal Course
Issuer Bid - (50,000) -
------------------------------------
Balance, end of the period 61,571,944 61,224,968 61,261,672
------------------------------------
Number of shares: Class B 13,599,965 13,745,965 13,755,795
------------------------------------
Total number of shares Class A
and Class B 75,171,909 74,970,933 75,017,467
------------------------------------
------------------------------------
Stated Value: Class A
Balance, beginning of the period $ 205,849 $ 205,454 $ 205,454
Issued - stock options 1,418 561 363
Conversion Class B to A 11 2 1
Share issuance - - -
Purchases under Normal Course
Issuer Bid - (168) -
------------------------------------
Balance, end of the period $ 207,278 $ 205,849 $ 205,818
------------------------------------
Stated Value: Class B 1,044 1,055 1,055
------------------------------------
Total stated value Class A
and Class B $ 208,322 $ 206,904 $ 206,873
------------------------------------
------------------------------------
9. Contributed surplus
Three Months Ended Nine Months Ended
(in thousands of Sept 30 Sept 30
Canadian dollars) 2005 2004 2005 2004
-------------------------------------------------------------------------
Balance, beginning of period $ 7,694 $ 6,335 $ 7,196 $ 3,027
Adjustment for stock-based
compensation - - - 2,201
Stock compensation expense
(note 2) 244 532 1,446 1,639
Fair value of stock options
exercised (101) - (805) -
-------------------------------------------
Balance, end of period $ 7,837 $ 6,867 $ 7,837 $ 6,867
-------------------------------------------
-------------------------------------------
10. Discontinued operation
On September 30, 2005, the Company concluded the sale of its OMSCO
division to Vallourec & Mannesmann Tubes S.A. ("V&M") for proceeds of
U.S.$120 million ($140.7 million), less closing and other transaction
costs estimated to be $5.1 million. The transaction was a sale of assets
consisting of net working capital totaling $43.8 million and property,
plant and equipment with a net book value of $16.7 million. As a result
of this transaction, the Company has accounted for its OMSCO division as
a discontinued operation and has restated current and prior operating
results accordingly. The following table summarizes the results of OMSCO,
including the gain recognized on the sale of the division, for the
quarter and the year-to-date:
Three Months Ended Nine Months Ended
(in thousands of Sept 30 Sept 30
Canadian dollars) 2005 2004 2005 2004
-------------------------------------------------------------------------
Revenue $ 31,271 $ 18,737 $ 91,333 $ 41,818
-------------------------------------------
OMSCO income (loss) from
operations 6,008 738 14,642 (483)
Gain on sale 75,109 - 75,109 -
-------------------------------------------
Income from discontinued
operation before income
tax expense 81,117 738 89,751 (483)
Income tax expense 23,503 265 26,688 (181)
-------------------------------------------
Net income (loss) from
discontinued operation 57,614 473 63,063 (302)
-------------------------------------------------------------------------
Cash flow from (used in)
operating activities 5,739 (266) 5,124 105
Cash flow from (used in)
investing activities 135,600 (108) 135,600 (194)
Cash flow from (used in)
investing activities - 763 (615) 47
-------------------------------------------
Net cash provided by (used
in) discontinued operations 141,339 389 140,109 (42)
-------------------------------------------------------------------------
The following table summarized the assets and liabilities of OMSCO as at
December 31, 2004 and September 30, 2004, which are included in the
consolidated balance sheet:
Dec. 31 Sep. 30
In thousand of Canadian dollars 2004 2004
-------------------------------------------------------------------------
Current assets $ 30,019 $ 25,775
Property, plant and equipment, net 19,068 20,928
Current liabilities 7,596 7,536
-------------------------------------------------------------------------
11. Segmented information
As a result of the sale of the OMSCO division, the Company has realigned
its segmented reporting into two industry segments: Pipeline and Pipe
Services and Petrochemical and Industrial. The former segment includes
the operations of Bredero Shaw, Shaw Pipeline Services, Canusa-CPS and
Guardian while the later segment includes ShawFlex and DSG-Canusa. All
comparative figures have been reclassified to reflect this new structure.
Three Months Ended Nine Months Ended
(in thousands of Sept 30 Sept 30
Canadian dollars) 2005 2004 2005 2004
-------------------------------------------------------------------------
Revenue
Pipeline and Pipe
Services $ 210,806 $ 159,780 $ 641,736 $ 458,211
Petrochemical and
Industrial 29,920 30,729 93,268 96,906
Intersegment
Eliminations (348) (384) (1,102) (1,225)
----------- ----------- ----------- -----------
$ 240,378 $ 190,125 $ 733,902 $ 552,892
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Income (loss) from
operations
Pipeline and Pipe
Services $ 21,330 $ (6,759) $ 59,705 $ (1,559)
Petrochemical and
Industrial 3,022 4,134 10,372 12,677
Financial and Corporate (4,163) (3,580) (12,206) (7,145)
----------- ----------- ----------- -----------
$ 20,189 $ (6,205) $ 57,871 $ 3,973
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Goodwill
Pipeline and Pipe
Services $ 152,534 $ 165,253
Petrochemical and
Industrial 16,672 18,545
----------- -----------
$ 169,206 $ 183,798
----------- -----------
----------- -----------
Total assets
Pipeline and Pipe
Services $ 909,874 $ 731,717
Petrochemical and
Industrial 73,667 80,498
Financial and
Corporate 940,553 581,534
Elimination (1,016,532) (540,714)
----------- -----------
$ 907,562 $ 853,035
----------- -----------
----------- -----------
12. Employee future benefits
The Company's cost under both defined benefit and defined contribution
arrangements for the three months and nine months ended September 30,
2005 is $2.7 million and $6.7 million, respectively (September 30, 2004 -
$2.2 million and $6.6 million, respectively).
13. Closure of Mobile, Alabama facility
On November 2, 2004, the Company announced its decision to close the
Mobile, Alabama pipe-coating facility. The closure is on schedule and
plant operations are winding down as projects under contract are
completed. Production at the plant has been largely completed and load-
out of remaining coated pipe is expected to be completed in the fourth
quarter of the year. In addition to overhead costs associated with the
completion of the remaining contracts, fixed costs of approximately
U.S.$2.0 million per annum will continue to be incurred until the site is
vacated. The Mobile facility is a component of the Pipeline and Pipe
Services market segment.
The following table summarizes the financial results of the Mobile
facility for the past eleven quarters:
-------------------------------------------------------------------------
(In thousands of
Canadian dollars) First Second Third Fourth Full Year
-------------------------------------------------------------------------
Revenue
2005 $ 15,319 $ 4,938 $ 1,211 $ - $ -
2004 12,384 12,717 17,688 21,174 63,963
2003 29,870 18,558 13,931 16,852 79,211
-------------------------------------------------------------------------
Loss from operations
2005 (3,175) (1,428) (1,220) - -
2004 (6,226) (12,894) (14,932) (43,336) (77,388)
2003 (2,100) (8,196) (5,582) (4,626) (20,504)
-------------------------------------------------------------------------
Asset impairment
charges
2005 - - - - -
2004 - - - (50,390) (50,390)
2003 - - - - -
-------------------------------------------------------------------------
Loss from operations
after asset
impairment charges
2005 (3,175) (1,428) (1,220) - -
2004 (6,226) (12,894) (14,932) (93,726) (127,778)
2003 (2,100) (8,196) (5,582) (4,626) (20,504)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
14. Income taxes
Net income taxes paid during the three months and nine months ended
September 30, 2005 totaled $11.4 million and $18.0 million, respectively
(September 30, 2004 - $1.6 million and $5.0 million, respectively). Taxes
on income from continuing operations includes a reduction in income taxes
expense of $18.4 million from the utilization of prior years' tax losses
not previously recognized in the accounts
15. Comparative figures
Comparative figures have been reclassified where necessary to correspond
with the current period's presentation.
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