ShawCor Ltd. News

ShawCor Ltd. announces fourth quarter and full year 2007 results

TORONTO, Feb. 19 PRNewswire-FirstCall - Financial Summary (In thousands of Canadian Three Months Ended Year Ended dollars except per share Dec. 31 Dec. 31 amounts) 2007 2006 2007 2006 ————————————————————————————————————- Operating Results Revenue $ 285,438 $ 276,315 $1,048,099 $1,059,619 EBITDA (note 1) 50,731 54,891 202,808 187,828 Operating income from continuing operations 39,492 41,791 160,001 138,780 Income from continuing operations 34,053 26,722 117,819 92,924 Income (loss) from discontinued operations (30,300) (69) (30,462) (289) Net income (loss) 3,753 26,653 87,357 92,635 Net income (loss) per share (Class A and B) - Basic Continuing operations 0.48 0.36 1.62 1.25 Discontinued operations (0.42) 0.00 (0.42) 0.00 Total 0.06 0.36 1.20 1.25 Net income (loss) per share (Class A and B) - Diluted Continuing operations 0.46 0.36 1.60 1.25 Discontinued operations (0.41) 0.00 (0.41) 0.00 Total 0.05 0.36 1.19 1.25 ————————————————————————————————————- Cash Flow Cash from continuing operating activities 8,710 38,752 97,513 189,877 Purchases of property, plant and equipment 28,551 15,579 91,855 58,170 ————————————————————————————————————- Financial Position Working capital 255,625 341,375 Total assets 960,326 948,565 Shareholders' equity per share (Class A and B) $ 8.13 $ 8.51 ————————————————————————————————————- Note 1: EBITDA is a non-GAAP measure calculated by adding back to income from continuing operations, the sum of reported interest (income)/expense, taxes and depreciation/amortization, excluding the impact of non-wholly owned subsidiaries. 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. Note 2: 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. Note 3: During the fourth quarter of 2006, ShawCor Ltd. adopted the proportionate consolidation method of accounting for its 30% investment in the Arabian Pipecoating Company Limited (\"APCO\"). The Company previously accounted for this investment using the equity method. This change in accounting policy has been applied retroactively and as a result, revenue, operating expenses and certain balance sheet accounts for previous periods have been restated. Refer to note 2 of the 2006 annual consolidated financial statements. Fourth Quarter 2007 Results Revenue ———- Consolidated Results ————————————————————————————————————- Three months ended Dec. 31 Sept. 30 Dec. 31 (in thousands of Canadian dollars) 2007 2007 2006 ————————————————————————————————————- ————————————————————————————————————- Pipeline and Pipe Services Segment 254,316 227,779 243,951 ————————————————————————————————————- ————————————————————————————————————- Petrochemical and Industrial Segment 28,450 37,517 32,795 ————————————————————————————————————- ————————————————————————————————————- Intersegment eliminations 2,672 (404) (431) ————————————————————————————————————- ————————————————————————————————————- Consolidated 285,438 264,892 276,315 ————————————————————————————————————-

Current Quarter vs. Q4 2006

Consolidated revenue from continuing operations in the fourth quarter of the year totaled $285.4 million compared to $276.3 million in the fourth quarter of last year, with the increase achieved despite the adverse impact of the stronger Canadian dollar on the translation of foreign currency based revenue in the period. The Canadian dollar was approximately 15% stronger on average, in terms of the U.S. dollar, in the fourth quarter of 2007 compared with the fourth quarter of 2006, while it was 9% stronger in terms of the U.K. pound and 3% stronger in terms of the Euro. The Company's fourth quarter 2007 revenue would have been higher than reported by approximately $28 million, had exchange rates been the same as in the fourth quarter of 2006. On a full year basis, consolidated revenue totaled $1.049 billion compared to $1.060 billion in 2006.

Current Quarter vs. Q3 2007

Consolidated revenue in the fourth quarter was 8% higher than in the third quarter of the year as increased revenue in the Pipeline and Pipe Services segment was partially offset by lower revenue generated by the Petrochemical and Industrial segment.

Pipeline and Pipe Services Segment

Current Quarter vs. Q4 2006

Revenue in the quarter for the Pipeline and Pipe Services segment totaled $254.3 million, 104% of the level achieved in the fourth quarter of last year, despite the impact of the stronger Canadian dollar in the period. Revenue at Bredero Shaw in the period was largely the same as in the fourth quarter of 2006, in terms of Canadian dollars; however, revenue was 14% higher in terms of U.S. dollars, the division's functional currency. In the North American region, revenue increased 30% over the fourth quarter of last year, in U.S. dollar terms, driven by significantly higher pipe coating volumes at the division's large-diameter plants in Canada and the United States which more than offset the decline in small diameter volumes associated with lower Western Canadian drilling activity. In the Far East region, U.S. dollar revenue increased 62% from levels in the fourth quarter of 2006 reflecting increased pipe coating volumes at all of the region's plants. Revenue in the Middle East region declined from levels in the corresponding quarter of last year reflecting the impact of the temporary idling of the plant in Ras Al Khaimah, U.A.E. during a planned upgrade and capacity expansion program.

In the segment's other divisions, revenue at Shaw Pipeline Services was 28% higher than in the fourth quarter of 2006, while revenue at Guardian and Canusa-CPS decreased with revenue at Canusa-CPS adversely impacted by the stronger Canadian dollar and both divisions affected by the aforementioned impact of lower Western Canadian drilling activity. On a full year basis, revenue for the Pipeline and Pipe Services segment totaled $903.4 million compared to $922.3 million in 2006.

Current Quarter vs. Q3 2007

Revenue in the Pipeline and Pipe Services segment in the fourth quarter increased 12% over the prior quarter as revenue growth at Bredero Shaw and Shaw Pipeline Services was partially offset by declines at Canusa-CPS and Guardian. At Bredero Shaw, revenue growth resulted from increased large-diameter pipe coating activity in Canada and the United States, increased business activity at the division's Thermotite pipe coating plant in Orkanger, Norway, and commencement of the Balearic pipe coating project at a project plant mobilized in Alicante, Spain.

Revenue at Shaw Pipeline Services increased 23% over the prior quarter as a result of increased ultrasonic girth weld inspection activity and strong USA land pipeline construction. Revenue at Canusa-CPS and Guardian both decreased from third quarter levels with Canusa-CPS particularly impacted by the strengthening of the Canadian dollar.

Petrochemical and Industrial Segment

Current Quarter vs. Q4 2006

Revenue in the quarter for the Petrochemical and Industrial segment decreased 13% from the level achieved in the fourth quarter of 2006 with reductions experienced at both DSG-Canusa and ShawFlex. At DSG-Canusa, business levels in the U.S. were in line with the fourth quarter of last year while at the division's European operations, sales volumes increased modestly; however, the stronger Canadian dollar in the fourth quarter of 2007, compared to the fourth quarter of last year, resulted in lower reported revenue for the division in Canadian dollar terms. At ShawFlex, revenue in the quarter was adversely impacted by temporarily reduced demand for the division's products for Western Canadian oil sands development projects, the result of the tight labour market and increasing costs in that region. On a full year basis, revenue for the segment for 2007 was $143.7 million, 103% of the level achieved in the previous year.

Current Quarter vs. Q3 2007

Revenue in the fourth quarter for the segment decreased by 24% from the level achieved in the third quarter of the year. At DSG-Canusa, revenue in the quarter decreased 9% from the level in the prior quarter in line with the historical seasonal trend while revenue at ShawFlex was significantly lower as the result of the temporary slow-down in Western Canadian oil sands development projects discussed above.

Operating Income From Continuing Operations —————————————————————- Consolidated Results ————————————————————————————————————- Three months ended Dec. 31 Sept. 30 Dec. 31 (in thousands of Canadian dollars) 2007 2007 2006 ————————————————————————————————————- ————————————————————————————————————- Revenue from continuing operations 285,438 264,892 276,315 ————————————————————————————————————- ————————————————————————————————————- Operating income from continuing operations 39,492 45,500 41,791 ————————————————————————————————————- ————————————————————————————————————- Operating margin 13.8% 17.2% 15.1% ————————————————————————————————————-

Current Quarter vs. Q4 2006

Consolidated income from continuing operations before interest, income taxes and non-controlling interest totaled $39.5 million (13.8% of consolidated revenue from continuing operations) in the fourth quarter of 2007 compared to $41.8 million (15.1% of consolidated revenue from continuing operations) in the fourth quarter of 2006, with the decrease reflecting the adverse impact on operating margins of the stronger Canadian dollar compared to the fourth quarter of last year. Certain of the Company's Canadian-based operations have large U.S. dollar-based revenue streams but incur the majority of their production and operating costs in Canadian dollars. As a result, a strengthening of the Canadian dollar reduces the Canadian dollar value of those U.S. dollar revenue streams, which in turn has the impact of reducing the operating margins of those divisions. The stronger Canadian dollar had an adverse impact on operating income from continuing operations of approximately $8 million in the quarter, when compared to the fourth quarter of last year, and a 3 percentage point adverse effect on operating margins. On a full year basis, consolidated income from continuing operations before interest, income taxes and non-controlling interest totaled $160.0 million, 15% higher than the level achieved in 2006.

Current Quarter vs. Q3 2007

Consolidated income from continuing operations before interest, income taxes and non-controlling interest in the quarter was 87% of the level achieved in the prior quarter due mainly to lower operating margins at Bredero Shaw, the impact of the strengthening in the quarter of the Canadian dollar on the operating margins of non-Bredero Shaw divisions and increased corporate and financial costs in the quarter.

Pipeline and Pipe Services Segment ————————————————————————————————————- Three months ended Dec. 31 Sept. 30 Dec. 31 (in thousands of Canadian dollars) 2007 2007 2006 ————————————————————————————————————- ————————————————————————————————————- Revenue from continuing operations 254,316 227,779 243,951 ————————————————————————————————————- ————————————————————————————————————- Operating income from continuing operations 40,280 42,738 40,816 ————————————————————————————————————- ————————————————————————————————————- Operating margin 15.8% 18.8% 16.7% ————————————————————————————————————-

Current Quarter vs. Q4 2006

In the Pipeline and Pipe Services segment, operating income from continuing operations in the quarter of $40.3 million (15.8% of revenue from continuing operations) was in line with the level achieved in the fourth quarter of 2006, while operating margins decreased 0.9 percentage points. In Bredero Shaw, both operating income and operating margins were improved over the prior year, reflecting margin expansion in North America due to increased production throughput particularly in the region's large diameter plants, and reduced losses in Nigeria and the North Sea region. The operating margin improvements at Bredero Shaw were offset by lower operating margins at Canusa-CPS due in large part to the stronger Canadian dollar in the quarter compared to in the fourth quarter of 2006. On a full year basis, operating income from continuing operations for the segment totaled $153.9 million (17.0% of revenue) compared to $138.5 million (15.0% of revenue) in 2006.

Current Quarter vs. Q3 2007

Operating income from continuing operations for the segment in the quarter decreased 6% from the third quarter of the year while operating margins decreased 3.0 percentage points. Operating income from continuing operations and operating margins at Bredero Shaw decreased from the prior quarter as a result of the shut-down of the plant at Ras Al Khamiah, U.A.E. during a scheduled plant upgrade and capacity expansion program, and by start up costs associated with the Hasdrubal pipe coating project at the division's project-specific plant established in Gabes, Tunisia, partially offset by improvements in Canada and the United States stemming from increased factory throughput in the quarter.

At Guardian, operating income from continuing operations and operating margins increased from the prior quarter due to reduced fixed costs, while at Shaw Pipeline Services, operating income increased in line with the increased revenue while operating margins declined due to a greater proportion of lower margin radiographic inspection work in the quarter's revenue. Operating income from continuing operations decreased at Canusa-CPS from levels in the prior quarter as did operating margins, largely reflecting the negative impact of the stronger Canadian dollar on the division's operating margins.

Petrochemical and Industrial Segment ————————————————————————————————————- Three months ended Dec. 31 Sept. 30 Dec. 31 (in thousands of Canadian dollars) 2007 2007 2006 ————————————————————————————————————- ————————————————————————————————————- Revenue from continuing operations 28,450 37,517 32,795 ————————————————————————————————————- ————————————————————————————————————- Operating income from continuing operations 3,065 6,274 5,589 ————————————————————————————————————- ————————————————————————————————————- Operating margin 10.8% 16.7% 17.0% ————————————————————————————————————-

Current Quarter vs. Q4 2006

In the Petrochemical and Industrial segment, operating income from continuing operations in the quarter of $3.1 million (10.8% of revenue from continuing operations) decreased $2.5 million from the level achieved in the fourth quarter of last year while operating margins decreased 6.2 percentage points. The decreases resulted from the lower revenue at DSG-Canusa and ShawFlex in the quarter and well as from the impact of the stronger Canadian dollar on the operating margins of DSG-Canusa's North American operations. On a full year basis, operating income for the segment totated $22.8 million (15.9% of revenue) compared to $19.2 million (13.8% of revenue) in 2006.

Current Quarter vs. Q3 2007

Operating income for the segment in the quarter was 49% of the level in the prior quarter while operating margins decreased 5.9 percentage points. Operating income performance in the quarter reflected the lower level of revenue in the quarter as well as the adverse effect on the operating margins of DSG-Canusa's North American operations of the stronger Canadian dollar in the period.

Financial and Corporate

Current Quarter vs. Q4 2006

Financial and corporate costs in the quarter consisted of unallocated corporate expenses of $3.9 million, net of foreign exchange gains of $47 thousand on the translation of foreign cash and working capital balances, compared to $4.6 million, including foreign exchange losses of $1.0 million, in the fourth quarter of last year, with the increase in corporate expenses reflecting higher management compensation expenses in line with the Company's improved consolidated financial results. On a full year basis, financial and corporate costs totaled $16.8 million, net of foreign exchange gains of $475 thousand, compared to $18.9 million in 2006, net of foreign exchange gains of $970 thousand.

Current Quarter vs. Q3 2007

Financial and corporate costs in the quarter, excluding foreign exchange gains and losses, decreased $322 thousand over the level in the third quarter of the year, mainly as a result of lower levels of corporate spending in the quarter. Foreign exchange gains in the quarter, stemming from foreign currency cash balances and working capital, totaled $47 thousand compared to $1.5 million in the third quarter of the year.

Non-Operating Income and Expenses ————————————————- Interest Income

Consolidated net interest income totaled $743 thousand in the fourth quarter compared to $811 thousand last quarter and $1.4 million in the fourth quarter of last year, with the decrease reflecting lower average cash balances in the quarter and the impact of the stronger Canadian dollar on the translation of interest expense related to the Company's U.S. dollar-denominated Senior Notes. Net interest income for the full year totaled $4.4 million compared to $2.8 million in 2006.

Income Tax Expense

Income tax expense related to continuing operations totaled $6.3 million (15.6% of income from continuing operations before income taxes) compared to $15.9 million (34.4% of income from continuing operations before income taxes) in the prior quarter and $15.7 million (36.4% of income from continuing operations before income taxes) in the fourth quarter of 2006. The income tax rate in the fourth quarter of 2007 was favourably impacted by the utilization of previously unrecognized tax loss carry forwards in certain countries, particularly Nigeria. This benefit reduced the effective tax rate in the fourth quarter by approximately 15 percentage points. Also benefiting the tax rate was the impact on Canadian future tax balances of announced reductions in future income tax rates. Tax expense in the full year 2007 totaled $47.2 million (28.7% of income from continuing operations before income taxes) compared to $46.8 million (33.1% of income from continuing operations before income taxes) in 2006.

Income from Continuing Operations

Consolidated income from continuing operations for the quarter totaled $34.1 million ($0.47 per share, diluted), compared to $30.2 million ($0.42 per share, diluted) in the third quarter and $26.7 million ($0.36 per share, diluted) in the fourth quarter of last year. On a full year basis, consolidated income from continuing operations totaled $117.8 million ($1.60 per share, diluted) compared to $92.9 million ($1.25 per share, diluted) in 2006.

Discontinued Operations ———————————-

Loss from discontinued operations for the quarter totaled $30.3 million ($0.42 per share, diluted) and reflected provisions recorded in the quarter of $46.6 million, less the related income tax benefit of $16.3 million, in response to an adverse verdict in a lawsuit relating to the Company's shuttered facility in Mobile, Alabama. Although the Company intends to appeal, it has provided for its share of the jury verdict. Loss from discontinued operations was $59 thousand ($0.00 per share) last quarter and $69 thousand ($0.00 per share) in the fourth quarter of last year.

Net Income and Earnings Per Share

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Consolidated net income for the fourth quarter of the year was $3.8 million ($0.05 per share, diluted) compared to $30.1 million ($0.42 per share, diluted) in the third quarter and $26.7 million ($0.36 per share, diluted) in the fourth quarter of 2006. Consolidate net income for the full year 2007 totaled $87.4 million ($1.19 per share, diluted) compared to $92.6 million ($1.25 per share, diluted) in 2006.

Cash Flows

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Cash flow generated by continuing operations in the quarter totaled $8.7 million compared to cash flow provided by continuing operations of $38.7 million in the fourth quarter of 2006, and reflected increased levels of working capital investment in support of higher levels of business activity experienced in the quarter and expected to continue in 2008. On a full year basis, cash flow generated by continuing operations totaled $97.5 million in 2007 compared to $189.9 million in 2006.

Cash flow used in continuing investing activities in the quarter totaled $33.2 million, comprised mainly of capital expenditures of $28.6 million and increases in deferred project costs of $4.7 million. Major additions to property, plant and equipment in the quarter included continuing pipe coating capacity expansions at Bredero Shaw's facilities in Camrose, Alberta and Ras Al Khaimah, U.A.E. In the fourth quarter of 2006, cash used in continuing investing activities totaled $14.9 million, mainly reflecting capital expenditures of $15.6 million less the proceeds on disposal of property, plant and equipment of $1.3 million. On a full year basis, cash flow used in continuing investing activities totaled $99.4 million in 2007 compared to $74.0 million in 2006.

Cash flow used in continuing financing activities totaled $17.8 million in the quarter, mainly consisting of $14.0 million paid to repurchase 425,300 Class A shares under the Company's NCIB and dividends paid to shareholders of $4.0 million. In the fourth quarter of 2006, cash flow generated by continuing financing activities totaled $899 thousand, comprised of dividends paid to shareholders of $3.3 million, partially offset by $3.0 million received on an increase in bank indebtedness and $1.2 million received from the issuance of Class A shares on the exercise of stock options. On a full year basis, cash flow used in continuing financing activities totaled $107.7 million in 2007 compared to $14.9 million in 2006.

Overall, cash and cash equivalents decreased $40.8 million during the quarter to $175.0 million, compared with an increase of $39.2 million during the fourth quarter of 2006 to $309.3 million. During the full year 2007, cash and cash equivalents decreased $134.5 million while in the full year 2006, cash and cash equivalents increased $109.0 million.

Outlook

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Demand for the products and services of the Company's largest market segment, the Pipeline and Pipe Services segment, is mainly driven by the level of pipeline infrastructure investment. This investment, in turn, is determined by energy supply and demand, which itself is a function of global economic activity. Demand for the products and services of the Petrochemical and Industrial segment is driven by the general level of economic activity in the regions where the segment operates, primarily North America and Western Europe. The pace of economic growth in North America and Western Europe is expected to slow during 2008 from the high level experienced in 2007; however, it is expected to remain robust in the developing economies, particularly in the large economies of China and India.

Growth in economic activity translates into strong demand for energy. Since energy supply is limited in the medium-term, oil prices are expected to remain strong; however, at levels below those experienced during most of 2007. Strong demand together with limited supply and depletion of existing energy reserves should encourage additional production and infrastructure development. In addition, record profits and cash flows at the major energy producers during the past few years have strengthened their balance sheets and put them in the position to fund major expansion programs. These factors should result in increased pipeline construction and translate into favourable business prospects for the Company over the next several years.

In North America, new pipeline construction activity is currently resulting in high levels of utilization at the Company's large diameter pipe coating facilities. With the North American pipe coating market projected to remain strong and the Company adding capacity in both Canada and the United States, the North American region will be a key source of growth over the next few years. In the Middle East, the Company's facility in Ras Al Khaimah, U.A.E. will start up production in the first quarter 2008 following nine months of downtime to allow for a complete plant refurbishment and capacity expansion. Additionally, strong growth prospects are evident in the Far East with the Company launching the recently awarded Pluto project in mid-2008 and future growth potential expected to result from pipeline infrastructure developments in Malaysia, Indonesia and the northwest shelf of Australia.

In Europe, the recently awarded Gjoa project coupled with bidding activity on North Sea pipe coating projects will enable the Company to remobilize its currently inactive facility in Leith Scotland. It should be noted however that the Company does not now expect to participate in the pipe coating of the Nord Stream pipeline project. The Company has been advised by Nord Stream that it intends to award the pipe coating contract to a competitor and the Company understands that the pricing and contractual terms at which the pipe coating work will be awarded is below the level the Company requires to obtain a satisfactory financial return and ensure timely and adequate execution given the scope and risks associated with meeting Nord Stream's requirement that the project be executed through greenfield facilities in Germany and Finland. Notwithstanding this development, the remobilization of the Leith facility coupled with continued strong growth at the Company's Orkanger Norway deepwater insulation facility and newly launched concrete weight coating plants in Spain and Tunisia offer the prospect for growth in Europe in 2008 and beyond.

As a result of the above factors, ShawCor's consolidated revenue is forecast to increase moderately in 2008 followed by more robust growth in 2009 as the Company benefits from the anticipated pipe coating market growth and realizes the benefit of the capacity expansions now being put in place to accommodate these anticipated projects. Growth is also expected at the businesses of the Industrial and Petrochemical segment as they benefit from the continuing moderate economic growth in Canada and Europe and from increasing Western Canadian oil sands development.

Consolidated order backlog, representing customer orders expected to be completed within one year, totaled $460.1 million at December 31, 2007, compared to $411.2 million at the end of the third quarter, and $367.8 million at the beginning of the year.

The Company continues to enjoy a very strong balance sheet with the financial capacity to fund significant internal and external growth opportunities as they arise. This opportunity to fund expansion together with the strong market fundamentals enjoyed by the Company provides the potential for strong growth for ShawCor in the years ahead.

Forward-Looking Information

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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 February 20, 2008 at 10:00 a.m. ET to discuss the Company's fourth quarter 2007 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 Twelve Months Ended December 31 December 31 ———————————— ———————————— 2007 2006 2007 2006 —————- —————- —————- —————- Revenue $ 285,438 $ 276,315 $1,048,099 $1,059,619 —————- —————- —————- —————- Operating expenses (notes 2, 3 and 4) 233,880 218,822 839,853 863,889 Amortization 11,136 13,892 42,165 50,868 Research and development 930 1,810 6,080 6,082 —————- —————- —————- —————- 245,946 234,524 888,098 920,839 —————- —————- —————- —————- Operating income from continuing operations 39,492 41,791 160,001 138,780 Interest income (note 5) 743 1,440 4,381 2,804 —————- —————- —————- —————- Income before income taxes and non- controlling interests 40,235 43,231 164,382 141,584 Income taxes 6,285 15,717 47,205 46,840 —————- —————- —————- —————- Income before non- controlling interest 33,950 27,514 117,177 94,744 Non-controlling interest 103 (792) 642 (1,820) —————- —————- —————- —————- Income from continuing operations 34,053 26,722 117,819 92,924 Income (loss) from discontinued operations (note 7) (30,300) (69) (30,462) (289) —————- —————- —————- —————- Net income $ 3,753 $ 26,653 $ 87,357 $ 92,635 —————- —————- —————- —————- —————- —————- —————- —————- Earnings per share, Class A and B - Basic (note 19) Continuing operations $ 0.48 $ 0.36 $ 1.62 $ 1.25 Discontinued operations (0.42) - (0.42) - —————- —————- —————- —————- Total $ 0.06 $ 0.36 $ 1.20 $ 1.25 —————- —————- —————- —————- —————- —————- —————- —————- Earnings per share Class A and B - Diluted (note 19) Continuing operations $ 0.46 $ 0.36 $ 1.60 $ 1.25 Discontinued operations (0.41) - (0.41) - —————- —————- —————- —————- Total $ 0.05 $ 0.36 $ 1.19 $ 1.25 —————- —————- —————- —————- —————- —————- —————- —————- ————————————————————————————————————- SEGMENTED INFORMATION Three Months Ended Twelve Months Ended December 31 December 31 ———————————— ———————————— 2007 2006 2007 2006 Restated Restated Revenue (note 1) (note 1) —————- —————- —————- —————- Pipeline and Pipe Services $ 254,316 $ 243,951 $ 903,427 $ 922,328 Petrochemical and Industrial 28,450 32,795 143,665 138,938 Intersegment Eliminations 2,672 (431) 1,007 (1,647) —————- —————- —————- —————- $ 285,438 $ 276,315 $1,048,099 $1,059,619 —————- —————- —————- —————- —————- —————- —————- —————- Income (loss) from operations Pipeline and Pipe Services $ 40,280 $ 40,816 $ 153,932 $ 138,483 Petrochemical and Industrial 3,065 5,589 22,822 19,192 Financial and Corporate (3,853) (4,614) (16,753) (18,895) —————- —————- —————- —————- $ 39,492 $ 41,791 $ 160,001 $ 138,780 —————- —————- —————- —————- —————- —————- —————- —————- SHAWCOR LTD. INTERIM FINANCIAL INFORMATION (Unaudited) (in thousands of Canadian dollars) CONSOLIDATED STATEMENTS OF RETAINED EARNINGS Three Months Ended Twelve Months Ended December 31 December 31 ———————————— ———————————— 2007 2006 2007 2006 —————- —————- —————- —————- Balance at beginning of period $ 499,402 $ 474,616 $ 498,001 $ 421,547 Transitional adjustment (note 1) - - (585) - —————- —————- —————- —————- Adjusted balance at beginning of year 499,402 474,616 497,416 421,547 Net income 3,753 26,653 87,357 92,635 —————- —————- —————- —————- 503,155 501,269 584,773 514,182 Excess of purchase price paid over stated value of shares (note 11) (12,551) - (81,756) (6,356) Dividends paid (4,056) (3,268) (16,469) (9,825) —————- —————- —————- —————- Balance at end of period $ 486,548 $ 498,001 $ 486,548 $ 498,001 —————- —————- —————- —————- —————- —————- —————- —————- CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Three Months Ended Twelve Months Ended December 31 December 31 ———————————— ———————————— 2007 2006 2007 2006 —————- —————- —————- —————- Net income $ 3,753 $ 26,653 $ 87,357 $ 92,635 Other comprehensive income (loss), net of income taxes: Unrealized loss on translating financial statements of self- sustaining foreign operations (1,176) 19,866 (49,954) 14,731 Gain on hedges of unrealized foreign currency translation 1,357 - 13,830 - Income tax expense 2,120 - - - —————- —————- —————- —————- Unrealized foreign currency translation gain, net of hedging activites 2,301 19,866 (36,124) 14,731 —————- —————- —————- —————- Unrealized gain (loss) on available-for-sale financial assets arising during the period 264 - (1,331) - Income tax expense (542) - - - —————- —————- —————- —————- Change in unrealized loss on available- for-sale financial assets (278) - (1,331) - —————- —————- —————- —————- Gain on derivatives designated as cash flow hedges 816 - 4,112 - Income tax expense (277) - (1,398) - Gain on derivatives designated as cash flow hedges in prior periods transferred to net income in the current period (609) - (1,679) - Income tax expenses transferred to net income in the current period 207 - 571 - —————- —————- —————- —————- Change in gain on derivatives designated as cash flow hedges 137 - 1,606 - —————- —————- —————- —————- Other comprehensive gain (loss) 2,160 19,866 (35,849) 14,731 Comprehensive income $ 5,913 $ 46,519 $ 51,508 $ 107,366 —————- —————- —————- —————- —————- —————- —————- —————- SHAWCOR LTD. INTERIM FINANCIAL INFORMATION (Unaudited) (in thousands of Canadian dollars) CONSOLIDATED STATEMENTS OF CASH FLOW Three Months Ended Twelve Months Ended December 31 December 31 ———————————— ———————————— 2007 2006 2007 2006 Restated Restated (note 1) (note 1) —————- —————- —————- —————- Operating activities: Income from continuing operations $ 34,053 $ 26,722 $ 117,819 $ 92,924 Items not requiring an outlay of cash: Amortization 11,136 13,892 42,165 50,868 Asset retirement obligation expense (3) 3,652 1,147 4,947 Stock-based compensation (note 2) 697 659 2,765 2,798 Future income taxes 2,194 1,182 681 (3,498) Gain on disposal of property, plant and equipment 231 (63) (372) (56) Non-controlling interest in earnings of subsidiaries (103) 792 (642) 1,820 Settlement of asset retirement obligations 855 (711) (1,906) (1,276) Change in employee future benefits (2,044) (632) 175 221 Change in non-cash working capital and other (38,306) (6,741) (64,319) 41,129 —————- —————- —————- —————- Cash provided by continuing operating activities 8,710 38,752 97,513 189,877 —————- —————- —————- —————- Investing activities: Purchases of property, plant and equipment (28,551) (15,579) (91,855) (58,170) Proceeds on disposal of property, plant and equipment 27 1,334 732 1,451 Increase in deferred project costs (4,697) (133) (5,150) (8,159) Acquisition of subsidiary - (2,786) - Acquisition of joint venture interest - (544) - (9,099) Investment in shares - - (301) - —————- —————- —————- —————- Cash used in continuing investing activities (33,221) (14,922) (99,360) (73,977) —————- —————- —————- —————- Financing activities: Increase (decrease) in bank indebtedness 31 2,976 (4,275) 1,183 Increase in deferred financing costs - - - (655) Issue of shares 243 1,191 4,955 2,147 Purchase of shares for cancellation (14,026) - (91,949) (7,797) Dividends paid to shareholders (4,056) (3,268) (16,469) (9,825) —————- —————- —————- —————- Cash provided by (used) in continuing financing activities (17,808) 899 (107,738) (14,947) —————- —————- —————- —————- Foreign exchange on foreign cash and cash equivalents (1,182) 9,893 (21,585) 4,167 —————- —————- —————- —————- Net cash provided by (used in) continuing operations (43,501) 34,622 (131,170) 105,120 Net cash provided by (used) in discontinued operations (note 7) 2,707 4,562 (3,135) 3,867 Cash and cash equivalents at beginning of period 215,811 270,138 309,322 200,335 —————- —————- —————- —————- Cash and cash equivalents at end of period $ 175,017 $ 309,322 $ 175,017 $ 309,322 —————- —————- —————- —————- —————- —————- —————- —————- SHAWCOR LTD. INTERIM FINANCIAL INFORMATION (Unaudited) (in thousands of Canadian dollars) CONSOLIDATED BALANCE SHEETS December 31 December 31 2007 2006 —————- —————- Assets Current assets Cash and cash equivalents $ 175,017 $ 309,322 Accounts receivable 203,547 188,865 Taxes receivable 3,169 4,293 Inventories 102,486 79,662 Prepaid expenses 11,362 8,264 Derivative financial instruments 1,508 - Current future income taxes 2,770 - Current assets of discontinued operation (note 7) 16,305 156 —————- —————- 516,164 590,562 Property, plant and equipment, net 242,783 202,078 Goodwill 161,038 175,813 Future income taxes 24,463 25,404 Other assets (note 8) 15,878 14,169 —————- —————- $ 960,326 $1,008,026 —————- —————- —————- —————- Liabilities Current liabilities Bank indebtedness (note 9) $ 107 $ 4,094 Accounts payable and accrued liabilities 153,116 169,387 Taxes payable 32,030 57,010 Deferred revenues 24,021 10,907 Current liabilities of discontinued operation (note 7) 51,265 7,789 —————- —————- 260,539 249,187 Long-term debt 72,726 87,480 Future income taxes 33,006 30,496 Other non-current liabilities (note 10) 10,740 5,923 —————- —————- 377,011 373,086 —————- —————- Non-controlling interest in subsidiaries 3,283 5,013 —————- —————- Shareholders' Equity Capital stock (note 11) 203,252 206,852 Contributed surplus (note 12) 11,729 10,603 Retained earnings 486,548 498,001 Accumulated other comprehensive loss (note 13) (121,497) (85,529) —————- —————- 580,032 629,927 —————- —————- $ 960,326 $1,008,026 —————- —————- —————- —————- ShawCor Ltd. Notes to the Consolidated Financial Statements (Unaudited) 1. Accounting policies On January 1, 2007, the Company adopted the Canadian Institute of Chartered Accountants' ("CICA") Handbook Section 1530, Comprehensive Income; Section 3251, Equity; Section 3855, Financial Instruments - Recognition and Measurement; Section 3861, Financial Instruments - Disclosure and Presentation; and Section 3865, Hedges. As required, these new accounting standards have been adopted prospectively with an adjustment to accumulated other comprehensive income. Prior year figures have not been restated except that the translation impact of self- sustaining foreign operations has been reclassified from cumulative translation account to accumulated other comprehensive income in accordance with the transitional provisions of the accounting standards. The following adjustments were made to the Company's balance sheet as a result of adopting these new accounting standards: ————————————————————————————————————- (in thousands of Canadian dollars) January 1, 2007 ————————————————————————————————————- Decrease in assets: Other assets ........................................... $ (1,345) —————— Total decrease in assets.................................. $ (1,345) —————— —————— Increase (decrease) in liabilities: Derivative financial instruments liability ............. $ 925 Current future income taxes payable .................... (315) Future income taxes .................................... 253 Long-term debt ......................................... (1,504) —————— Total decrease in liabilities ............................ (641) —————— Increase (decrease) in shareholders' equity: Retained earnings ...................................... (585) Accumulated other comprehensive income related to available-for-sale financial assets ................... 492 Accumulated other comprehensive income related to cash flow hedges ........................... (611) —————— Total decrease to shareholders' equity ................... (704) —————— Total decrease to liabilities and shareholders' equity ... $ (1,345) —————— —————— The following is a description of the accounting policies adopted by the Company as a result of implementing these accounting changes: a) Comprehensive Income The Company's comprehensive income is comprised of net income and other comprehensive income, which is made up of unrealized foreign currency gains or losses on the translation of the financial statements of self- sustaining foreign operations, unrealized gains or losses on available- for-sale financial assets and changes in unrealized gains or losses on derivatives designated as effective cash flow hedges. b) Accumulated Other Comprehensive Income Accumulated other comprehensive income is included on the consolidated balance sheet as a separate component of shareholders' equity and includes accumulated unrealized foreign currency gains or losses on the translation of the financial statements of self-sustaining foreign operations, accumulated unrealized gains or losses on available-for-sale financial assets and accumulated unrealized gains or losses on derivatives designated as effective cash flow hedges. c) Financial Instruments Held-for-trading financial assets are financial assets which are acquired for resale prior to maturity. Held-for trading financial assets are reflected in the consolidated balance sheet at fair value with changes in fair value during a period charged to operating expenses. Available-for- sale financial assets are those non-derivative financial assets which are so designated by the Company or that do not fall into another category. Available-for-sale financial assets are carried on the consolidated balance sheet at fair value with gains or losses from changes in fair value in a period included in other comprehensive income. Held-to- maturity financial assets, loans and receivables and other liabilities not held for trading are accounted for at amortized cost with related expenses charged to interest income or interest expense. The following is a summary of the classes of financial instruments included in the Company's consolidated balance sheet as well as their designation by the Company under the new accounting standards: ————————————————————————————————————- Balance sheet item Designation ————————————————————————————————————- Cash Held-for-trading ————————————————————————————————————- Cash equivalents Held-to-maturity ————————————————————————————————————- Accounts receivable Loans and receivables ————————————————————————————————————- Long-term investments Available-for-sale ————————————————————————————————————- Accounts payable and accrued liabilities Other liabilities ————————————————————————————————————- Long-term debt Other liabilities ————————————————————————————————————- Bank indebtedness Other liabilities ————————————————————————————————————- d) Derivative Financial Instruments The Company's policy is to document all relationships between hedging instruments and hedged items, as well as the risk management objectives and strategy for undertaking various hedge transactions. This process includes linking all derivatives to specific assets and liabilities on the consolidated statement of financial position or to the specific firm commitments or forecasted transactions. The Company also assesses, both at the inception of the hedge and on an ongoing basis, whether the derivatives that are used are effective in offsetting changes in fair values or cash flows of hedged items. Derivative financial instruments designated as effective cash flow hedges are reflected in the consolidated balance sheet at fair value with any gains or losses resulting from fair value changes included in other comprehensive income to the extent of hedge effectiveness. Derivatives with positive exposures are classified as assets while those with negative exposures are classified as liabilities. Derivative financial instruments not designated as effective cash flow hedges are carried at fair value in the consolidated balance sheet with gains or losses resulting from changes in fair value in a period charged to operating expenses. e) Transaction Costs Transaction costs related to the acquisition or issue of held-for-trading financial instruments are charged to net income as incurred. Transaction costs related to financial instruments not designated as held-for-trading are included in the financial instrument's initial recognition amount. 2. Stock-based compensation The compensation cost from the continuing amortization of granted stock options for the three months and twelve months ended December 31, 2007, included in operating expenses, is $ 697 thousand and $2.8 million, respectively (December 31, 2006 - $659 thousand and $ 2.8 million, respectively). 3. Foreign exchange gains and losses Included in operating expenses for the three months ended December 31, 2007 are foreign exchange gains totaling $47 thousand, while foreign exchange gains for the twelve months ended December 31, 2007 totaled $475 thousand (December 31, 2006 - losses of $1.0 million and gains of $970 thousand, respectively). These gains arise from foreign currency transactions and from the translation of the financial statements of foreign integrated subsidiaries. 4. Employee future benefits The Company's cost under both defined benefit and defined contribution arrangements included in operating expenses for the three months and twelve months ended December 31, 2007 is $3.3 million and $10.5 million, respectively (December 31, 2006 - $1.4 million and $9.4 million, respectively). 5. Interest income (expense) Three Months Ended Twelve Months Ended (in thousands of Dec. 31 Dec. 31 Canadian dollars) 2007 2006 2007 2006 ————————————————————————————————————- Interest income on short-term deposits $ 2,125 $ 3,253 $ 10,224 $ 9,566 Interest expense on bank indebtedness (176) (483) (707) (1,456) Interest expense on long-term debt (1,206) (1,330) (5,136) (5,306) —————————————————————————- $ 743 $ 1,440 $ 4,381 $ 2,804 —————————————————————————- —————————————————————————- Net interest paid during the three months and twelve months ended December 31, 2007 totaled $743 thousand and $4.7 million, respectively (December 31, 2006 - $553 thousand and $1.9 million received

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