(TSX: SCL.SV.A, SCL.MV.B)
TORONTO, May 9 /CNW/ -
<<
Financial Summary
(In thousands of Canadian dollars Three Months Ended Mar. 31
except per share amounts) 2006 2005
-------------------------------------------------------------------------
Operating Results
Revenue $ 257,730 $ 242,859
EBITDA (note 1) 47,555 40,883
Operating income from continuing operations 37,452 29,326
Income from continuing operations 24,755 18,688
Income (loss) from discontinued operations (35) (930)
Net income 24,720 17,758
Net income (loss) per share (Class A and B) -
Basic
Continuing operations 0.33 0.25
Discontinued operations 0.00 (0.01)
Total 0.33 0.24
Net income (loss) per share (Class A and B) -
Diluted
Continuing operations 0.33 0.25
Discontinued operations 0.00 (0.01)
Total 0.33 0.24
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Cash Flow
Cash provided by operating activities 48,938 11,449
Additions to property, plant and equipment 6,526 5,212
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Financial Position
Working capital 294,775 158,837
Total assets 931,590 808,645
Shareholders' equity per share
(Class A and B) $ 7.61 $ 6.10
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Note 1: EBITDA is a non-GAAP measure calculated by adding back to income
from continuing operations, interest, taxes and depreciation/
amortization. EBITDA does not have a standardized meaning prescribed by
GAAP and is not necessarily comparable to similar measures prescribed by
other companies. EBITDA is used by many analysts in the oil and gas
industry as one of several important analytical tools.
Consolidated revenue for the quarter totaled $257.7 million, 6% higher
than in the first quarter of last year and 88% of the record level achieved in
the fourth quarter of 2005. The impact on revenue in the quarter of the
completion, as planned, of two major North Sea pipecoating projects at Bredero
Shaw's pipecoating plants in Norway and Scotland was only partially offset by
increased activity at the division's other pipecoating plants including the
new facility in Kabil, Indonesia. Activity levels at the other divisions
within the Pipeline and Pipe Services segment remained firm. Stronger demand
in the Industrial and Petrochemical segment was evident with both DSG-Canusa
and ShawFlex contributing to the 24% increase in revenue over the prior
quarter and a 12% increase over the first quarter of last year.
Consolidated income from continuing operations in the quarter of
$24.8 million improved 32% over the same period last year and 14% over the
prior quarter, reflecting the impact of continuing profitability improvement
initiatives at Bredero Shaw and favorable product mix in the quarter. Net
income for the quarter totaled $24.7 million ($0.33 per share) compared to
$20.6 million ($0.28 per share) in the fourth quarter of 2005, and
$17.8 million ($0.24 per share) in the first quarter of 2005.
While the Company's backlog, as anticipated, declined slightly in the
quarter to $333 million due to the completion of the major North Sea
pipecoating projects in Norway and Scotland, business activity is expected to
remain strong through the second quarter with significant pipecoating project
work in the Far East region scheduled to commence in the second quarter. The
current outlook indicates softness in the latter half of the year,
particularly in large diameter pipecoating with the completion in the first
half of the year of several large projects, before the impact of the new cycle
of large diameter projects expected to begin in 2007. In particular, the North
Sea plants, with the completion of the two major North Sea pipecoating
projects in the first quarter, are expected to be quiet for the balance of the
year.
The Company is actively pursuing a number of growth initiatives. On
March 3, 2006, the Company announced an agreement to provide pipecoating
services at Oregon Steel Mills' pipe mill in Portland, Oregon. This
arrangement will position the Company to participate more fully in the
significant increase in large diameter pipeline construction in North America
which is expected during the next few years. Site preparation has begun with
the coating equipment being relocated from the Mobile, Alabama facility. In
addition, on April 20, 2006, the Company announced that it had entered into an
agreement to acquire all of the outstanding common stock of Garneau Inc., a
Canadian pipecoating company, by way of a court approved plan of arrangement.
Completion of the acquisition is subject to approval by Garneau's shareholders
at a shareholders' meeting to be held on May 30, 2006.
MANAGEMENT DISCUSSION AND ANALYSIS
The following is management's interim discussion and analysis of
operations and financial position and should be read in conjunction with the
Consolidated Financial Statements and Management's Discussion and Analysis
included in the Company's 2005 Annual Report.
Revenue and Income from Operations
ShawCor classifies its revenue and income from operations in two industry
segments: Pipeline and Pipe Services, and Petrochemical and Industrial.
Consolidated revenue from continuing operations for the quarter totaled
$257.7 million, 12% lower than last quarter but 6% higher than in the first
quarter of last year. Net income for the quarter was $24.7 million or
$0.33 per share compared to $20.6 million ($0.28 per share) last quarter and
$17.8 million ($0.24 per share) in the first quarter of 2005. Income from
continuing operations in the quarter was $24.8 million compared to
$21.8 million last quarter and $18.7 million in the first quarter of 2005, 14%
and 32% increases respectively.
In the Pipeline and Pipe Services segment, revenue in the quarter totaled
$223.1 million, $40.8 million lower than in the prior quarter but 5% higher
than in the first quarter of 2005. Income from continuing operations for the
segment totaled $37.3 million in the quarter, 24% higher than in the
corresponding quarter of last year and 7% higher than in the fourth quarter of
2005, despite the lower revenue. At Bredero Shaw, the successful completion,
on plan, of the coating on the Langeled project, the longest underwater
pipeline in the world, resulted in the winding-down of activity at the
Company's pipecoating plants in Norway and Scotland and resulted in decreased
revenue compared to the prior quarter; however, this was partially offset by
increased activity at the division's other plants including the recently
completed new Indonesian facility. In West Africa, the West African Gas
Pipeline project in Ghana was completed on schedule. Nigerian operations
continue to be a challenge. Operations management changes have been made and
the strategy and operating procedures being followed in Nigeria are under
review. Improving operational efficiencies at other Bredero Shaw operations
together with favorable product mix positively impacted the division's
operating margins (income from continuing operations as a percentage of
revenue) in the quarter, which improved 0.7 percentage points over the prior
quarter and 2.0 percentage points over the first quarter of last year.
Profitability levels at Canusa-CPS, Shaw Pipeline Service and Guardian
recovered from fourth quarter seasonal lows and improved over first quarter
2005 levels as demand for these divisions' products and services remained
strong. Overall, first quarter 2006 operating margins for the Pipeline and
Pipe Services segment reached 16.7%, an improvement from 14.2% in the first
quarter of 2005.
In the Petrochemical and Industrial segment, revenue in the quarter of
$35.0 million increased 24% over the level in the prior quarter and 12% over
revenue in the first quarter of last year. Business activity continued to
strengthen at ShawFlex where revenue increased 24% over last quarter and 43%
over the first quarter of 2005. While approximately one third of the increase
reflects the higher raw material copper prices, two thirds of the increases
are volume-related. Business conditions also improved at DSG-Canusa as revenue
for the quarter was in line with the first quarter of last year and increased
24% over levels in the prior quarter. Income from operations for the segment
totaled $4.6 million in the quarter compared to $1.5 million last quarter and
$3.8 million in the first quarter of last year with the improvement mainly the
result of the increased revenue.
More than 80% of the Company's revenues and expenses are transacted in
currencies other than Canadian dollars. In the first quarter of 2006, the U.S.
dollar was on average 4% lower than in the fourth quarter of 2005, compared to
the Canadian dollar, while the U.K. pound and Euro were each 8% lower, in
terms of Canadian dollars. Overall, the impact of the strengthening of the
Canadian dollar during the quarter reduced first quarter 2006 revenue by
$2.7 million and net income by $267 thousand over the prior quarter.
Finance
Financial and corporate costs consist of corporate office costs not
charged to the operating divisions and other non-operating items including
foreign exchange gains and losses on cash balances. Financial and corporate
costs for the quarter, before net foreign exchange gains of $550 thousand,
totaled $5.0 million compared to $4.7 million in the prior quarter, before net
foreign exchange gains of $6 thousand. Net interest income totaled
$114 thousand in the quarter, compared to $300 thousand in the prior quarter
and net interest expense of $1.0 million in the first quarter of 2005. The
improvement over the first quarter of last year reflects the improved cash
position of the Company resulting from the divestiture of the OMSCO division
in the third quarter of 2005 and the strong fourth quarter, 2005 and first
quarter, 2006 operating performance.
Income tax expense was $12.8 million in the quarter compared to
$11.2 million in the prior quarter and $9.8 million in the first quarter of
last year. The effective tax rate (income taxes as a percentage of income from
continuing operations before income taxes and non-controlling interest) of 34%
in the quarter was in line with the effective tax rates recorded in the prior
quarter and the first quarter of last year of 35%.
Cash Flow
Cash flow generated from operating activities in the quarter totaled
$48.9 million compared to $11.4 million in the first quarter of 2005 and an
outflow of $13.2 million in the fourth quarter of last year, with the
improvements due to increased profitability and decreased working capital
investment.
Capital expenditures in the quarter totaled $6.5 million compared to
$5.5 million last quarter and $5.2 million in the first quarter of last year.
Major capital additions in the quarter included site development in Brazil in
preparation for the PDEG project as well capacity expansion at ShawFlex and
Canusa-CPS.
Cash flow used in financing activities totaled $1.6 million in the
quarter consisted of repayment of bank indebtedness of $1.7 million and
proceeds from the issuance of shares under the stock option program of
$100 thousand. Cash generated from financing activities totaled $7.1 million
in the first quarter of 2005, reflecting an increase in bank indebtedness.
Liquidity and Capitalization
At March 31, 2006, the Company recorded a working capital ratio of
2.22 to 1 compared to 2.05 to 1 at December 31, 2005. Operating working
capital, excluding cash and cash equivalents, decreased $14.5 million in the
quarter to $51.0 million with the decrease mainly resulting from reduced
customer receivables at the end of the quarter. As a result, cash and cash
equivalents increased $43.5 million in the quarter to $243.8 million.
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 March 31, 2006, the Company had notional amounts of $89.3 million of
forward contracts outstanding (December 31, 2005 - $104.5 million) with a fair
value of negative $1.9 million (December 31, 2005 - positive $1.9 million).
These amounts are used to express the volume of transactions and are not
recognized in the consolidated financial statements.
Critical Accounting Estimates
The preparation of the consolidated financial statements in conformity
with Canadian Generally Accepted Accounting Principles ("GAAP") requires
management to make estimates and assumptions that affect the amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the period. These estimates and assumptions are made with
management's best judgment given the information available at the time,
however, actual results could differ from the estimates. Critical estimates
used in preparing the consolidated financial statements were materially
unchanged during the quarter.
Risks and Uncertainties
Operating in an international environment, servicing predominantly the
oil and gas industry, ShawCor faces a number of business risks and
uncertainties that could materially adversely affect the Company's
projections, business, results of operations and financial condition. There
were no material changes in the nature or magnitude of such business risks
during the quarter. The 2005 annual report to shareholders includes a more
detailed discussion of these risks and uncertainties.
Contractual Obligations
There were no material changes to the Company's contractual obligation
during the quarter, other than those that would be expected in the ordinary
course of business.
Summary of Quarterly Results
The following is selected financial information for the nine most
recently completed quarters:
(In thousands of
Canadian dollars
except per share
amounts) First Second Third Fourth Full Year
-------------------------------------------------------------------------
Revenue
2006 $ 257,730 $ $ $ $
2005 242,859 230,410 239,165 291,685 1,004,119
2004 163,352 174,311 172,440 227,681 737,784
Operating income
from continuing
operations
2006 37,452
2005 29,326 12,499 21,869 31,719 95,413
2004 15,499 12,758 10,690 28,231 67,178
Income from
continuing
operations
2006 24,755
2005 18,688 7,516 34,806 21,780 82,790
2004 11,268 8,128 7,434 12,297 39,127
Income (loss) from
discontinued
operations
2006 (35)
2005 (930) 2,224 55,946 (1,190) 56,050
2004 (7,683) (11,617) (16,092) (90,396) (125,788)
Net income (loss)
2006 24,720
2005 17,758 9,740 90,752 20,590 138,840
2004 3,585 (3,489) (8,658) (78,099) (86,661)
Operating income
from continuing
operations per
share (Classes
A and B)
Basic and Diluted
2006 0.51
2005 0.39 0.17 0.29 0.42 1.27
2004 0.21 0.17 0.14 0.38 0.90
Income from
continuing
operations per
share (Classes
A and B)
Basic and Diluted
2006 0.33
2005 0.25 0.10 0.45 0.30 1.10
2004 0.15 0.11 0.10 0.16 0.52
Income (loss) from
discontinued
operations per
share (Classes
A and B)
Basic and Diluted
2006 (0.00)
2005 (0.01) 0.03 0.75 (0.02) 0.75
2004 (0.10) (0.16) (0.21) (1.21) (1.68)
Net income (loss)
per share (Classes
A and B)
Basic and Diluted
2006 0.33
2005 0.24 0.13 1.20 0.28 1.85
2004 0.05 (0.05) (0.11) (1.05) (1.16)
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The following are key factors affecting the comparability of quarterly
financial results.
The Company's operations are subject to a degree of seasonality
particularly in the Pipeline and Pipe Services market segment. The Western
Canadian operations of Bredero Shaw and Guardian tend to be stronger in the
first and fourth quarters of the year reflecting the winter pipe lay and
drilling operations of their customers. The following are additional key
factors impacting the comparability of the quarterly information disclosed
above:
The majority of the Company's revenue is transacted in currencies other
than Canadian dollars, with a majority transacted in U.S. dollars. Changes in
the rates of exchange between the Canadian dollar and other currencies could
have a significant effect on the amounts of these revenues when they are
translated into Canadian dollars.
On November 3, 2004, the Company announced the closure of its Mobile,
Alabama facility. This event had a significant impact on the financial results
for the fourth quarter of 2004. Operations at the facility ceased in the
fourth quarter of 2005 and discontinued operations accounting treatment was
adopted in that quarter with prior quarters restated on a comparable basis.
On September 30, 2005, the Company completed the sale of its OMSCO drill
pipe manufacturing division. The division has been accounted for as a
discontinued operation.
Proposed Transaction
On April 20, 2006, the Company announced that it had entered into an
agreement to acquire all of the outstanding common shares of Garneau Inc by
way of a court approved plan of arrangement. Under the terms of the
arrangement, shareholders of Garneau (other than ShawCor and certain members
of the Garneau family) will receive a cash payment of $2.20 per share of
Garneau. Members of the Garneau family will exchange their common shares of
Garneau Inc. for non-voting preferred shares of Garneau Inc. which preferred
shares will be redeemable after 3 years and retractable after 2 years at a
price to be based on future profitability of certain ShawCor pipecoating
operations, subject to a minimum of $2.20 per share, and bear fixed cumulative
dividends of 5% per annum. As part of the plan of arrangement, Garneau Inc.
will sell its equipment manufacturing division to Garneau Industries Ltd., a
corporation controlled by Glen Garneau, for a purchase price of $3.0 million.
Including outstanding stock options, there are 12.5 million common shares of
Garneau Inc. outstanding, of which 3.6 million are owned by the Garneau family
and 2.2 million by ShawCor.
Completion of this purchase plan is subject to the approval of the
Garneau shareholders, at a meeting to be held on May 30, 2006. Subject to
receipt of all approvals, including approval by the Court of Queen's Bench of
Alberta, the transaction is expected to be completed prior to June 30, 2006.
Outstanding Share Capital
As at April 30, 2006, the Company had 61,040,917 Class A Subordinate
Voting Shares ("Class A") outstanding and 13,081,972 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 April 30, 2006,
the Company had stock options outstanding to purchase up to 2,926,102 Class A
shares.
Outlook
The Company's consolidated order backlog, representing customer orders
expected to be completed within one year, totaled $333 million at March 31,
2006 compared to $357 million at the beginning of the quarter.
The reduction in large diameter coating activity in the last half of the
year will result in full year revenues being slightly lower than in 2005, the
result of the completion of several large projects in the North Sea in the
first quarter, as well as the stronger Canadian dollar against the U.S. and
major European currencies. The reduction in North Sea activity will be
partially offset by increases, initially in the Middle and Far East due in
part to the KOC project announced in February and the recently awarded large
diameter Waupisoo pipecoating contract in Western Canada. While pipecoating
bid activity in both the Americas and Far East regions is high, there is
uncertainty around the exact timing of much of the projected work. Several of
the larger projects currently under discussion will not begin coating before
2007 or 2008. Profitability levels are expected to be maintained in 2006,
despite somewhat lower revenues, as improved operational execution leads to
improved profitability ratios. Current bid activity levels suggest further
growth in 2007 and beyond.
The Company is continuing to explore growth opportunities and announced
several initiatives during the quarter including some international large
pipecoating contracts as well as an agreement to provide pipecoating services
to Oregon Steel Mills at their pipe mill in Portland, Oregon and the opening
of a new pipecoating facility in Brazil. In addition, on April 20, 2006, the
Company announced that it had entered into an arrangement to acquire all of
the outstanding common stock of Garneau Inc., a Canadian pipecoating company,
subject to shareholder approval. The Company continues to enjoy a strong
balance sheet and is well positioned to capitalize on opportunities as and
when they arise.
This document includes certain statements that reflect management's
expectations and objectives for ShawCor's future performance, opportunities
and growth. 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,"
"estimate," "continue," "intend," "plan," and variations of these words or
other similar expressions. 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 risk and uncertainty that could cause
actual results to differ materially from those projected. Significant risks
facing ShawCor include, but are not limited to: market risk, availability and
prices of raw materials, political risk, environmental risk, and risk of
product liability claims. Please refer to the Company's 2005 Annual
Information Form for more information. Other information relating to the
Company, including its Annual Information Form is available on SEDAR at
www.sedar.com.
The Company reminds shareholders that its trading symbols will change
effective Friday, May 12, 2006 in line with the Toronto Stock Exchange's
discontinuance of the symbol extension program. ShawCor's current symbols of
SCL.SV.A for Class A Subordinate Voting Shares and SCL.MV.B for Class B
Multiple Voting Shares will be changed to SCL.A for the Class A shares and
SCL.B for the Class B shares.
ShawCor will be hosting a Shareholder and Analyst Conference Call and
Webcast on Wednesday, May 10, 2006 at 10:00 AM EDT, which will discuss the
company's first quarter 2006 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
Three Months Ended
March 31
--------------------------
2006 2005
Restated -
Note 7
--------------------------
Revenue $ 257,730 $ 242,859
------------ ------------
Operating expenses (notes 2, 3 and 4) 210,003 200,900
Amortization 10,122 11,335
Research and development 1,449 1,754
------------ ------------
221,574 213,989
------------ ------------
Share of earnings in associated company 1,296 456
------------ ------------
Operating income from continuing operations 37,452 29,326
Interest expense (income) (note 5) (114) 1,048
------------ ------------
Income before income taxes and non-controlling
interest 37,566 28,278
Income taxes (note 6) 12,792 9,812
------------ ------------
Income before non-controlling interest 24,774 18,466
Non-controlling interest (19) 222
------------ ------------
Income from continuing operations 24,755 18,688
Income (loss) from discontinued operations net
of tax (note 7) (35) (930)
------------ ------------
Net income $ 24,720 $ 17,758
------------ ------------
------------ ------------
Earnings (loss) per shares Class A and B -
Basic and Diluted
Continuing operations $ 0.33 $ 0.25
Discontinued operations (0.00) (0.01)
------------ ------------
Total $ 0.33 $ 0.24
------------ ------------
------------ ------------
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SEGMENTED INFORMATION Three Months Ended
March 31
--------------------------
2006 2005
Restated -
Note 7
--------------------------
Revenue
Pipeline and Pipe Services $ 223,108 $ 212,105
Petrochemical and Industrial 35,026 31,180
Eliminations (404) (426)
------------ ------------
$ 257,730 $ 242,859
------------ ------------
------------ ------------
Income (loss) from operations
Pipeline and Pipe Services $ 37,261 $ 30,076
Petrochemical and Industrial 4,636 3,811
Financial and Corporate (4,445) (4,561)
------------ ------------
$ 37,452 $ 29,326
------------ ------------
------------ ------------
SHAWCOR LTD.
INTERIM FINANCIAL INFORMATION (Unaudited)
(in thousands of Canadian dollars)
CONSOLIDATED STATEMENTS OF CASH FLOW
Three Months Ended
March 31
--------------------------
2006 2005
Restated -
Note 7
--------------------------
Operating activities:
Income from continuing operations $ 24,755 $ 18,688
Items not requiring an outlay of cash:
Amortization 10,122 11,335
Future income taxes (606) 4,868
Non-controlling interest in earnings of
subsidiaries 19 (222)
Share of earnings of associated company (1,296) (456)
Change in non-cash working capital and
other 15,944 (22,764)
------------ ------------
Cash provided by continuing operating
activities 48,938 11,449
------------ ------------
Investing activities:
Purchases of property, plant and equipment (6,526) (5,212)
Proceeds on disposal property, plant and
equipment 41 16
------------ ------------
Cash used in continuing investing activities (6,485) (5,196)
------------ ------------
Financing activities:
Increase (decrease) in bank indebtedness
(note 9) (1,715) 7,043
Issue of shares 100 71
------------ ------------
Cash provided by (used in) continuing
financing activities (1,615) 7,114
------------ ------------
Foreign exchange on foreign cash and cash
equivalents 1,864 (278)
------------ ------------
Net cash provided by continuing operations 42,702 13,089
Net cash provided by (used in) discontinued
operations (note 7) 810 (24,711)
Cash and cash equivalents at beginning of
period 200,304 76,497
------------ ------------
Cash and cash equivalents at end of period $ 243,816 $ 64,875
------------ ------------
------------ ------------
SHAWCOR LTD.
INTERIM FINANCIAL INFORMATION (Unaudited)
(in thousands of Canadian dollars)
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Three Months Ended
March 31
--------------------------
2006 2005
------------ ------------
Balance at beginning of period $ 421,547 $ 300,815
Net income for the period 24,720 17,758
------------ ------------
446,267 318,573
------------ ------------
Balance at end of period $ 446,267 $ 318,573
------------ ------------
------------ ------------
SHAWCOR LTD.
INTERIM FINANCIAL INFORMATION (Unaudited)
(in thousands of Canadian dollars)
CONSOLIDATED BALANCE SHEETS
Mar. 31 Dec. 31 Mar. 31
2006 2005 2005
Restated -
Note 7
----------- ----------- -----------
Assets
Current assets
Cash and cash equivalents $ 243,816 $ 200,304 $ 64,875
Accounts receivable 191,726 213,416 154,244
Inventories 79,941 81,012 71,416
Taxes receivable 8,261 5,711 5,028
Prepaid expenses 12,241 14,393 9,115
Current assets of discontinued
operations (note 7) - 799 74,601
----------- ----------- -----------
535,985 515,635 379,279
Property, plant and equipment, net 174,935 177,317 179,713
Goodwill 168,821 167,172 175,408
Investment in associated company 6,384 5,061 4,694
Other assets (note 8) 37,624 42,524 35,558
Non-current assets of discontinued
operations (note 7) 7,841 7,974 33,993
----------- ----------- -----------
$ 931,590 $ 915,683 $ 808,645
----------- ----------- -----------
----------- ----------- -----------
Liabilities
Current liabilities
Bank indebtedness (note 9) $ - $ 1,715 $ 11,539
Accounts payable and accrued
liabilities 143,529 167,473 128,894
Deferred revenues 31,981 23,975 3,793
Taxes payable 53,571 46,203 40,465
Current liabilities of discontinued
operations (note 7) 12,129 12,250 3,751
----------- ----------- -----------
241,210 251,616 220,442
Long-term debt 87,510 87,210 90,683
Other non-current liabilities (note 10) 38,947 41,619 40,140
----------- ----------- -----------
367,667 380,445 351,265
----------- ----------- -----------
Shareholders' Equity
Capital stock (note 11) 204,914 204,720 207,576
Contributed surplus (note 12) 9,719 9,231 7,196
Retained earnings 446,267 421,547 318,573
Cumulative translation account (96,977) (100,260) (75,965)
----------- ----------- -----------
563,923 535,238 457,380
----------- ----------- -----------
$ 931,590 $ 915,683 $ 808,645
----------- ----------- -----------
----------- ----------- -----------
ShawCor Ltd.
Notes to the Consolidated Financial Statements (Unaudited)
1. Accounting policies
The accompanying unaudited interim consolidated financial statements of
ShawCor Ltd. (the "Company") have been prepared in accordance with
Canadian generally accepted accounting principles ("GAAP") for the
preparation of interim financial statements. They do not include all of
the information and disclosures required by GAAP for annual consolidated
financial statements. These unaudited interim financial statements have
been prepared in accordance with accounting policies outlined in the
Company's audited financial statements for the year ended December 31,
2005. Accordingly, these interim financial statements should be read in
conjunction with the Company's annual consolidated financial statements.
2. Stock-based compensation
On Feb 28, 2006, the Board of Directors approved the granting of 368,200
stock options under the 2001 Employee Plan and 47,500 stock options under
the 2001 Director Plan. The average fair value of the stock options,
calculated using the Black-Scholes pricing model, was $2.2 million. 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 fair value of options granted under the 2001 Employee
Plan will be amortized to compensation expense over the 5 year vesting
period of the options. The assumptions used in calculating the fair value
of the options are as follows: expected life of options from 3.25 years
to 8.25 years, expected stock price volatility ranges from 25.4% to
31.9%, expected dividend yield 0.53%, and risk free interest rate ranging
from 4.04% to 4.10% over the life of the options. The compensation cost
for the three months ended March 31, 2006 included in operating expenses
is $582 thousand (March 31, 2005 - $601 thousand).
3. Foreign exchange gains and losses
Included in operating expenses for the three months ended March 31, 2006
are foreign exchange gains totaling $550 thousand (March 31, 2005 - $576
thousand losses).
4. Employee future benefits
The Company's cost under both defined benefit and defined contribution
arrangements included in operating expenses for the three months ended
March 31, 2006 is $2.4 million (March 31, 2005 - $2.0 million).
5. Interest expense (income)
Three Months Ended
Mar. 31
(in thousands of Canadian dollars) 2006 2005
-------------------------------------------------------------------------
Interest income on short-term deposits $ (1,743) $ (486)
Interest on bank indebtedness 234 147
Interest on long-term debt 1,395 1,387
--------------------------
$ (114) $ 1,048
--------------------------
--------------------------
Net interest received during the three months ended March 31, 2006
totaled $425 thousand (March 31, 2005 - $984 thousand paid).
6. Income taxes
Net income taxes paid during the three months ended March 31, 2006
totaled $4.4 million (March 31, 2005 - $5.5 million).
7. Discontinued operations
On September 30, 2005, the Company concluded the sale of its OMSCO drill
pipe manufacturing division ("OMSCO") and accordingly adopted
discontinued operations accounting treatment for the division in the
third quarter of 2005. On November 2, 2004, the Company announced its
decision to close the Mobile, Alabama pipecoating facility and operations
at the facility ceased in the fourth quarter of 2005. The Company adopted
discontinued operations accounting treatment for the Mobile facility in
the fourth quarter of 2005.
The following table summarizes the financial results and cash flows from
discontinued operations for the three months ended March 31, 2006 and
2005 and the assets and liabilities of the discontinued operations as at
those dates:
Three Months Ended Three Months Ended
March 31, 2006 March 31, 2005
----------------------- ------------------------------
(in thousands of Mobile Mobile
Canadian dollars) OMSCO Facility Total OMSCO Facility Total
------------------------------------------ ------------------------------
Revenue $ - $ 18 $ 18 $ 25,919 $ 15,319 $ 41,238
----------------------- ------------------------------
Income (loss) from
operations - (35) (35) 3,496 (3,174) 322
Interest expenses - - - 20 - 20
----------------------- ------------------------------
Income (loss) from
discontinued
operations before
income taxes - (35) (35) 3,476 (3,174) 302
Income tax expense - - - 1,232 - 1,232
----------------------- ------------------------------
Net income (loss)
from discontinued
operations $ - $ (35) $ (35) $ 2,244 $ (3,174) $ (930)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash flow from (used
in) operating
activities - 810 810 (28,905) 4,222 (24,683)
Cash flow from
(used in) investing
activities - - - (28) - (28)
Cash flow from
(used in) financing
activities - - - - - -
------------------------------------------------------
Net cash provided
by (used in)
discontinued
operations $ - $ 810 810 $ (28,933) $ 4,222 $ (24,711)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Current assets - - - 46,756 27,845 74,601
Property, plant and
equipment, net - 7,841 7,841 18,438 15,555 33,993
Current liabilities 12,129 12,129 13,239 22,512 35,751
-------------------------------------------------------------------------
-------------------------------------------------------------------------
8. Other assets
Mar. 31, Dec. 31, Mar. 31,
(in thousands of Canadian dollars) 2006 2005 2005
-------------------------------------------------------------------------
Long-term investment $ 2,875 $ 2,875 $ 2,875
Deferred financing costs 1,869 2,031 2,517
Deferred project costs 6,540 8,637 6,129
Accrued employee future benefit asset 4,245 4,384 3,736
Future income taxes 22,095 24,597 20,301
----------------------------------
Total $ 37,624 $ 42,524 $ 35,558
----------------------------------
----------------------------------
Other assets include a long-term investment in Garneau Inc., a Canadian-
based, publicly traded pipecoating company with a market value of
$4.9 million at March 31, 2006.
9. Bank indebtedness
As at March 31, 2006, the Company had operating lines of credit of
US$215 million, less $93.2 million for various types of standby letters
of credit for performance and bid bonds (March 31, 2005 - $63.7 million)
and bank indebtedness of nil (March 31, 2005 - $11.4 million).
10. Other non-current liabilities
Mar. 31, Dec. 31, Mar. 31,
(in thousands of Canadian dollars) 2006 2005 2005
-------------------------------------------------------------------------
Non-current asset retirement
obligations $ 2,278 $ 2,249 $ 4,277
Accrued employee future benefit
obligations 2,075 1,953 1,841
Future income taxes 31,467 34,575 30,917
Non-controlling interest in
subsidiaries 3,127 2,842 3,105
----------------------------------
Total $ 38,947 $ 41,619 $ 40,140
----------------------------------
----------------------------------
11. Capital stock
Mar. 31, Dec. 31, Mar. 31,
(in thousands except share information) 2006 2005 2005
-------------------------------------------------------------------------
Number of shares: Class A
Balance, beginning of the period 61,006,045 61,224,968 61,224,968
Issued - stock options 28,571 206,727 121,240
Conversion Class B to Class A 6,043 657,950 15,800
Purchased and cancelled under Normal
Course Issuer Bid - (1,083,600)
-----------------------------------
Balance, end of the period 61,040,659 61,006,045 61,362,008
-----------------------------------
Number of shares: Class B 13,081,972 13,088,015 13,730,165
-----------------------------------
Total number of shares Class A and
Class B 74,122,631 74,094,060 75,092,173
-----------------------------------
-----------------------------------
Stated Value: Class A
Balance, beginning of the period $ 203,716 $ 205,849 $ 205,849
Issued - stock options 194 1,459 672
Conversion Class B to Class A - 51 1
Purchased and cancelled under Normal
Course Issuer Bid - (3,643) -
-----------------------------------
Balance, end of the period $ 203,910 $ 203,716 $ 206,522
-----------------------------------
Stated Value: Class B 1,004 1,004 1,054
-----------------------------------
Total stated value Class A and
Class B $ 204,914 $ 204,720 $ 207,576
-----------------------------------
-----------------------------------
12. Contributed surplus
Three Months Ended
Mar. 31
(in thousands of Canadian dollars) 2006 2005
-------------------------------------------------------------------------
Balance, beginning of period $ 9,231 $ 7,196
Stock compensation expense 582 601
Fair value of stock options exercised (94) (601)
--------------------------
Balance, end of period $ 9,719 $ 7,196
--------------------------
--------------------------
13. Derivative Financial instruments
Foreign exchange options and forward exchange contracts are used to hedge
foreign exchange exposures related to commercial activities. They are not
used by the Company for speculative purposes. At March 31, 2006, the
Company had notional amounts of $89.3 million of forward contracts
outstanding (December 31, 2005 - $104.5 million). These amounts are used
to express the volume of transactions and are not recognized in the
consolidated financial statements. These financial instruments are
contracted with major, chartered banks; as a result, credit and liquidity
risks related to these instruments are considered to be low.
The fair values of foreign exchange forward contracts represent an
approximation of the amounts the Company would have paid to or received
from counterparties to unwind its positions at March 31, 2006. The fair
value of the Company's net liability for all foreign exchange forward
contracts at March 31, 2006 not recognized in the consolidated financial
statements was approximately $1.9 million (December 31, 2005 -
$1.9 million net benefit). If these contracts ceased to be effective as
hedges, unrecognized gains or losses pertaining to the portion of the
hedging transactions in excess of projected foreign-denominated cash
flows would be recognized in income at the time this condition was
identified.
14. Segmented information
Three Months Ended
Mar. 31
--------------------------
(in thousands of Canadian dollars) 2006 2005
----------------------------------- ------------ ------------
Revenue
Pipeline and pipe services $ 223,108 $ 212,105
Petrochemical and Industrial 35,026 31,180
Intersegment Eliminations (404) (426)
------------ ------------
$ 257,730 $ 242,859
------------ ------------
------------ ------------
Income (loss) from operations
Pipeline and pipe services $ 37,261 $ 30,076
Petrochemical and Industrial 4,636 3,811
Financial and Corporate (4,445) (4,561)
------------ ------------
$ 37,452 $ 29,326
------------ ------------
------------ ------------
Goodwill
Pipeline and pipe services $ 152,224 $ 156,722
Petrochemical and Industrial 16,597 18,686
------------ ------------
$ 168,821 $ 175,408
------------ ------------
------------ ------------
Total assets
Pipeline and pipe services $ 690,590 $ 996,422
Petrochemical and Industrial 96,622 75,853
Financial and Corporate 1,183,399 789,320
Elimination (1,039,021) (1,052,950)
------------ ------------
$ 931,590 $ 808,645
------------ ------------
------------ ------------
15. Subsequent event
On April 20, 2006, the Company announced that it had entered into an
arrangement whereby the Company would acquire all of the outstanding
common shares of Garneau Inc. The transaction will be effected by means
of a court approved plan of arrangement. Under the terms of the
arrangement, shareholders of Garneau (other than ShawCor and certain
members of the Garneau family) will receive a cash payment of $2.20 per
share of Garneau. Members of the Garneau family will exchange their
common shares of Garneau Inc. for non-voting preferred shares of Garneau
Inc. which preferred shares will be redeemable after 3 years and
retractable after 2 years at a price to be based on future profitability
of certain ShawCor pipecoating operations, subject to a minimum of $2.20
per share, and bear fixed cumulative dividends of 5% per annum. As part
of the plan of arrangement, Garneau Inc. will sell its equipment
manufacturing division to Garneau Industries Ltd., a corporation
controlled by Glen Garneau, for a purchase price of $3.0 million.
Including outstanding stock options, there are 12.5 million common shares
of Garneau Inc. outstanding, of which 3.6 million are owned by the
Garneau family and 2.2 million by ShawCor.
Completion of this purchase plan is subject to the approval of the
Garneau shareholders, at a meeting to be held on May 30, 2006. Subject to
receipt of all approvals, including approval by the Court of Queen's
Bench of Alberta, the transaction is expected to be completed prior to
June 30, 2006.
16. Comparative figures
Comparative figures have been reclassified where necessary to correspond
with the current year's presentation.
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