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ShawCor Ltd. Announces Fourth Quarter And Full Year 2009 Results

March 3, 2010

(TSX: SCL.A, SCL.B)

TORONTO, March 3 /PRNewswire-FirstCall/ -

    Financial Summary

    (in thousands of Canadian
     dollars except per               Fourth Quarter               Full Year
     share amounts)                 2009        2008        2009        2008
                                            Restated                Restated
                                             (note 1)                (note 1)
    -------------------------------------------------------------------------
    Operating Results
    Revenue                   $  260,911  $  433,853  $1,183,978  $1,379,577

    EBITDA (note 2)               53,730      98,591     253,799     262,158
    Operating income from
     continuing operations        38,591      75,588     192,175     196,011
    Income from continuing
     operations                   31,553      56,014     131,106     134,722
    Income (loss) from
     discontinued operations         (27)        609         344      11,011
    Net income                    31,526      56,623     131,450     145,733

    Net income per share
     (Class A and B) - Basic
      Continuing operations         0.44        0.79        1.86        1.90
      Discontinued operations          -        0.01           -        0.16
      Total                         0.44        0.80        1.86        2.06

    Net income per share
     (Class A and B) - Diluted
      Continuing operations         0.43        0.78        1.85        1.88
      Discontinued operations          -        0.01           -        0.15
      Total                         0.43        0.79        1.85        2.03
    -------------------------------------------------------------------------
    Cash Flow
    Cash provided by
     continuing operating
     activities               $  130,737  $   75,924  $  287,132  $  154,361
    Additions to property,
     plant and equipment           8,432      27,800      34,358      89,799
    -------------------------------------------------------------------------
    Financial Position
    Working capital                                   $  307,567  $  229,169
    Total assets                                       1,185,977   1,227,289
    Shareholders' equity per
     share (Class A and B)
     (note 3)                                         $    11.21  $    10.40
    -------------------------------------------------------------------------
    Note 1: Prior year figures have been restated as a result of the adoption
    of recent accounting policy changes and reclassified to conform to
    current year presentation.

    Note 2: EBITDA is a non-GAAP measure calculated by adding back to income
    from continuing operations, the sum of interest (income)/expense, taxes
    and depreciation/amortization of property, plant and equipment and
    intangible assets. EBITDA does not have a standardized meaning prescribed
    by GAAP and is not necessarily comparable to similar measures prescribed
    by other companies. EBITDA is used by many analysts in the oil and gas
    industry as one of several important analytical tools. The following is
    the calculation of EBITDA for the periods presented above:

    Income from continuing
     operations               $   31,553  $   56,014  $  131,106  $  134,722
    Add (deduct):
      Income taxes                 6,276      17,484      56,397      55,878
      Interest expense - net         762       2,154       4,672       5,659
      Amortization of property,
       plant and equipment        14,044      22,090      57,244      63,997
      Amortization of
       intangible assets           1,095         849       4,380       1,902
    -------------------------------------------------------------------------
    EBITDA                    $   53,730  $   98,591  $  253,799  $  262,158
    -------------------------------------------------------------------------
    Note 3: Shareholders' equity per share is a non-GAAP measure calculated
    by dividing shareholders' equity by the number of Class A and Class B
    shares outstanding at the date of the balance sheet.

ShawCor Ltd. (“ShawCor” or the “Company”) is a growth-oriented, global energy services company specializing in technology-based products and services for the Pipeline and Pipe Services and the Petrochemical and Industrial markets. The Company operates seven divisions with over seventy manufacturing, sales and service facilities located around the world.

                  FOURTH QUARTER AND FULL YEAR 2009 RESULTS

Revenue, Income from Operations and Net Income

ShawCor classifies its revenue and income from operations into two industry segments: Pipeline and Pipe Services, and Petrochemical and Industrial. Discussion of the consolidated operating results and operating results for each of these segments follows:

    Consolidated Results

    -------------------------------------------------------------------------
    Three months ended
    (in thousands of                December 31,  September 30,  December 31,
     Canadian dollars)                  2009           2009          2008
                                                                 Restated (a)
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Revenue from continuing
     operations                       $260,911       $302,812       $433,853
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Operating income from continuing
     operations                        $38,591        $49,972        $75,588
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Operating margin                     14.8%          16.5%          17.4%
    -------------------------------------------------------------------------
    (a) Restated as a result of the adoption of recent accounting policy
        changes

Foreign Exchange Impact

The following table sets forth the impact on revenues, operating income from continuing operations and net income compared with the comparable prior year period as a result of foreign exchange fluctuations on the translation of foreign currency operations for the following periods:

                                                                 Three Months
                                                    Year Ended       Ended
                                                   ------------  ------------
                                                   December 31,  December 31,
                                                          2009          2009
                                                   ------------  ------------

    Revenue                                        $    34,568   $   (27,167)
    Operating income from continuing
     operations                                    $    14,173   $    (6,703)
    Net income                                     $    10,213   $    (5,940)

The following table sets forth the significant currencies in which the Company operates and the foreign year-to-date average exchange rates for these currencies versus Canadian dollars, for the following periods:

                                                             Three Months
                                      Year Ended                Ended
                                     December 31,            December 31,
                                  ------------------      ------------------
                                   2009        2008        2009        2008
                                 --------    --------    --------    --------

    U.S. Dollar                   1.1450      1.0686      1.0544      1.2483
    Euro                          1.5958      1.5639      1.5569      1.6370
    British Pounds                1.7763      1.9632      1.7154      1.9038

Fourth Quarter 2009 versus Fourth Quarter 2008

Consolidated revenue decreased by $172.9 million or 40.0% in the fourth quarter of 2009 compared to the fourth quarter of 2008. The decrease was due primarily to a decline in revenue of $166.0 million in the Pipeline and Pipe Services segment as a result of lower levels of drilling activity which impacted North American volumes for small diameter pipe coating and flexible composite pipe. Also contributing to the Pipeline and Pipe Services revenue decline was a reduction in pipe coating project activity in the Europe, Middle East, Africa and Russia (“EMAR”) region and the unfavourable impact of foreign exchange fluctuations.

During the fourth quarter of 2009, the effect of foreign exchange fluctuations on the translation of foreign currency operations had an unfavourable impact on revenue, operating income from continuing operations and net income of approximately $27.2 million, $6.7 million and $5.9 million, respectively, compared to the fourth quarter of 2008.

Operating income from continuing operations decreased by $37.0 million or 49.0% in the fourth quarter of 2009 compared to the fourth quarter of 2008. The decrease was primarily due to the decline in revenue across both of the Company’s operating segments as discussed above and the impact of the lower revenue on facility utilization and overhead absorption.

Net income decreased to $31.5 million in 2009 compared to $56.6 million 2008, a decrease of $25.1 million or 44.3%. The decrease was primarily due to the decrease in operating income explained above.

Fourth Quarter 2009 versus Third Quarter 2009

Consolidated revenue decreased by $41.9 million or 13.8% in the fourth quarter of 2009 compared to the third quarter of 2009. The decrease was due to declines in both the Pipeline and Pipe Services and the Petrochemical and Industrial segments of $37.5 million and $4.4 million, respectively. The decrease in Pipeline and Pipe Services was primarily due to the completion in the third quarter of several significant pipe coating projects for Trinidad and the U.S. Gulf of Mexico. Partially offsetting this decline was an increase in activity in the Company’s facilities in Malaysia, Scotland and Norway relating to the Gumusut, Skarv, and various offshore concrete coating projects. The decrease in Petrochemical and Industrial was primarily due to large project sales in the third quarter of 2009 and continuing weakness in the segment’s automotive and industrial markets.

During the fourth quarter of 2009, the effect of foreign exchange fluctuations on the translation of foreign currency operations had an unfavourable impact on revenue, operating income from continuing operations and net income of approximately $3.9 million, $633 thousand and $624 thousand, respectively, compared to the third quarter of 2009.

Operating income from continuing operations and net income in the fourth quarter of 2009 decreased $11.4 million or 22.8% and $2.2 million or 6.6%, respectively, compared to the third quarter of 2009, primarily due to the decrease in consolidated revenue.

Full Year 2009 versus Full Year 2008

Consolidated revenue decreased to $1.18 billion in 2009, a decrease of $195.6 million or 14.2%. The decrease was due to lower revenues in both of the Company’s operating segments, partially offset by the favorable impact of foreign exchange fluctuations as discussed below.

During 2009, the effect of foreign exchange fluctuations on the translation of foreign currency operations had a favourable impact on revenue, operating income from continuing operations and net income of approximately $34.6 million, $14.2 million and $10.2 million, respectively, compared to 2008.

Operating income from continuing operations decreased by $3.8 million in 2009 compared to 2008, while operating margin increased by 2.0 percentage points. The decrease in operating income was primarily due to the reduction in revenue explained above and the movement in foreign exchange losses (gains). The 2 percentage point improvement in operating income margin resulted from the Company’s initiatives to improve operating efficiencies.

Net income decreased to $131.4 million in 2009 compared to $145.7 million in 2008, a decrease of $14.3 million or 9.8%. The decrease was primarily due to the decrease in operating income explained above, and the change in income from discontinued operations relating to the lawsuit settlement recorded in 2008.

The Company’s backlog as at December 31, 2009 was $410.5 million compared to $239.9 million as at September 30, 2009, an increase of $170.6 million or 71.1%, indicating a gradual improvement in market outlook. The two largest projects included in the backlog, the PNG project and Epic project, are scheduled for production in the second half of 2010 with the result that the Company expects that both revenue and operating income should strengthen as the year progresses.

    Pipeline and Pipe Services

                                                Three Months Ended
                                  -------------------------------------------
    (in thousands of               December 31,  September 30,   December 31,
     Canadian dollars)                 2009           2009          2008(a)
                                  -------------  -------------  -------------

    Revenue
      North America               $     85,357   $    109,688   $    183,408
      Latin America                     29,208         81,723         33,679
      EMAR                              49,829         29,777        111,329
      Asia Pacific                      71,364         52,074         73,352
                                  -------------  -------------  -------------
    Total revenue                 $    235,758   $    273,262   $    401,768
                                  -------------  -------------  -------------
                                  -------------  -------------  -------------

    Operating income from
     continuing operations        $     43,847   $     53,433   $     75,841

    Operating margin                     18.6%          19.6%          18.9%
    -------------------------
    (a) Restated as a result of the adoption of recent accounting policy
        changes.

Fourth Quarter 2009 versus Fourth Quarter 2008

In the Pipeline and Pipe Services segment, revenue in the fourth quarter of 2009 totaled $235.8 million and was $166.0 million or 41.3% lower than in the fourth quarter of 2008, primarily due to declines in the North America and EMAR regions of $98.1 million and $61.5 million, respectively.

The decrease in North America resulted from the significant decline in oil and gas drilling activity as a result of the global economic recession. Reduced drilling and well completions in Canada and the United States (“U.S.”) negatively impacted volumes in several of the Company’s key product markets including small diameter pipe coating, joint protection sleeves, spoolable composite pipe and drill pipe services.

The decrease in EMAR was primarily due to lower pipe coating volumes in Europe and the Middle East due to reduced project activity in the North Sea and the fourth quarter 2008 completion of two large projects in Ras Al Khaimah.

Operating income from continuing operations decreased by $32.0 million or 42.2% in the fourth quarter of 2009 compared to the fourth quarter of 2008. The decrease was primarily due to the decline in revenue in North America and EMAR as discussed above.

Fourth Quarter 2009 versus Third Quarter 2009

In the Pipeline and Pipe Services segment, revenue in the fourth quarter of 2009 was 13.7% lower than in the third quarter of 2009 primarily due to declines in Latin America and North America of $52.5 million and $24.3 million, respectively, partially offset by increases in EMAR and Asia Pacific of $20.0 million and $19.3 million, respectively.

Revenue in Latin America decreased as a result of the completion of the Trinidad NEO and Tobago Pipeline projects in the third quarter of 2009.

The decline in North America was primarily due to a reduction in the land-based pipeline inspection market on lower pipeline construction activity coupled with the third quarter 2009 completion of several pipe coating projects in the U.S. Gulf of Mexico.

The increase in EMAR and Asia Pacific was primarily due to an increase in activity in the Company’s facilities in Malaysia, Scotland and Norway relating to the Gumusut, Skarv and various offshore concrete coating projects.

Operating income from continuing operations decreased by $9.6 million or 17.9% in the fourth quarter of 2009 compared to the third quarter of 2009. The decrease was primarily due to the decline in revenue as discussed above. Overall operating income margins decreased from 19.6% in the third quarter of 2009 to 18.6% in the fourth quarter of 2009 as lower revenue significantly impacted utilization and fixed cost overhead absorption.

Full Year 2009 versus Full Year 2008

Revenue in 2009 was $1.07 billion, a decrease of $167.0 million or 13.5% compared to 2008. The decrease was due to lower revenues in EMAR and North America of $155.5 million and $152.5 million, respectively, partially offset by an increase in Latin America and Asia Pacific of $115.2 million and $25.8 million, respectively.

The decrease in North America resulted from the significant decline in oil and gas drilling activity as a result of the global economic recession. Reduced drilling and well completions in Canada and the U.S. negatively impacted volumes in several of the Company’s key product markets including small diameter pipe coating, joint protection sleeves, spoolable composite pipe and drill pipe services.

The decrease in EMAR was mainly due to lower pipe coating volumes in Europe and the Middle East. The record activity levels for insulation coating at the Company’s facility in Orkanger, Norway in 2008 were not repeated in 2009 due to reduced project activity in the North Sea and the 2008 completion of the Pluto project. Elsewhere in the region, concrete coating volumes for offshore pipelines also declined on reduced project activity in the North Sea and offshore Middle East.

The increase in Latin America was due to the $81 million Trinidad North East Offshore and Tobago Pipeline projects in 2009 and strong growth in Mexico on increased pipeline investment by Pemex, the national oil company of Mexico.

The increase in Asia Pacific was primarily due to a higher level of pipe coating activity at the region’s plants in Indonesia and Malaysia as a result of continuing growth in oil and gas demand within Asia coupled with growth in investment by energy producing companies to develop new oil and gas resources in the region.

Operating income from continuing operations in 2009 was $212.8 million compared to $195.0 in 2008, an increase of $17.8 million or 9.1%, while operating margin improved by 4.1 percentage points. The increase was primarily due to the favourable effect of foreign exchange fluctuations, the Company’s strengthened competitive position and improved operating efficiencies.

    Petrochemical and Industrial

                                                Three Months Ended
                                  -------------------------------------------
    (in thousands of               December 31,  September 30,   December 31,
     Canadian dollars)                 2009           2009           2008
                                  -------------  -------------  -------------

    Revenue
      North America               $     12,775   $     17,931   $     20,249
      EMAR                              12,378         11,619         11,836
                                  -------------  -------------  -------------
    Total revenue                 $     25,153   $     29,550   $     32,085
                                  -------------  -------------  -------------
                                  -------------  -------------  -------------

    Operating income from
     continuing operations        $        436   $      2,092   $      2,528

    Operating margin                      1.7%           7.1%           7.9%

Fourth Quarter 2009 versus Fourth Quarter 2008

In the Petrochemical and Industrial segment, revenue in the fourth quarter of 2009 totaled $25.2 million compared to $32.1 million in the fourth quarter of 2008, a decrease of $6.9 million or 21.6%. The decrease was primarily due to a decline in North America of $7.5 million, partially offset by an increase in EMAR of $542 thousand.

Revenue in North America decreased primarily due to a weaker market for wire and cable associated with decline in industrial capital investment in the fourth quarter of 2009 compared with the fourth quarter of 2008.

Operating income from continuing operations decreased by $2.1 million or 82.8% in the fourth quarter of 2009 compared to the fourth quarter of 2008. The decrease was primarily due to the decline in revenue in North America as discussed above and one-time costs of approximately $1.5 million related to the restructuring of operations in EMAR including the closure of a facility in Poland.

Fourth Quarter 2009 versus Third Quarter 2009

In the Petrochemical and Industrial segment, revenue in the fourth quarter of 2009 was 14.9% lower than in the third quarter of 2009 primarily due to a decrease in North America of $5.2 million.

The decrease in North America was mainly due to large project sales in the third quarter of 2009 not repeated to the same extent in the fourth quarter of 2009 and continuing weakness in the segments automotive and industrial markets.

Operating income from continuing operations decreased by $1.7 million or 79.2% in the fourth quarter of 2009 compared to the third quarter of 2009. The decrease was primarily due to a decline in revenue as discussed above. Overall operating income margins decreased from 7.1% in the third quarter of 2009 to 1.7% in the fourth quarter of 2009 as lower revenue significantly impacted utilization and fixed cost overhead absorption.

Full Year 2009 versus Full Year 2008

Revenue was $111.1 million in 2009, a decrease of $28.6 million or 20.4% compared to 2008. The decrease was primarily due to lower revenues in North America and EMAR of $15.1 million and $13.5 million, respectively.

The decrease in North America resulted from a significant decrease in 2009 in the number of industrial building permits issued in Canada with a resulting impact on the demand for wire and cable, lower wire and cable prices as a result of reductions in the price of copper in 2009 compared to 2008, and the impact of the global economic recession in 2009, particularly on demand for heat shrink tube products in the industrial and automotive industries. The decrease in EMAR was primarily due to a decline in demand in the automotive and electrical markets in Europe as a result of the global economic recession in 2009 and tighter capital markets.

Operating income from continuing operations in 2009 was $5.1 million compared to $19.1 million in 2008, a decrease of $14.0 million or 73.5%, while operating margin decreased by 9.1 percentage points. The decrease was primarily due to the lower revenues discussed above, the impact of lower business activity on factory utilization and one-time costs of approximately $3.0 million related to the restructuring of operations in EMAR including the closure of a facility in Poland.

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.

Fourth Quarter 2009 versus Fourth Quarter 2008

Financial and corporate costs for the fourth quarter of 2009, before net foreign exchange losses of $1.3 million, totaled $4.4 million a decrease of $4.3 million from the $8.7 million in the fourth quarter of 2008, before net foreign exchange gains of $5.9 million. The decrease was primarily due to lower professional fees and lower management incentive compensation costs reflecting lower profits of the Company in 2009 compared to 2008 and the impact of a $1.3 million write-down of the Company’s investment in Garneau Inc. in the fourth quarter of 2008, which was not repeated in the fourth quarter of 2009.

Fourth Quarter 2009 versus Third Quarter 2009

Financial and corporate costs increased by $1.2 million in the fourth quarter of 2009 compared to the third quarter of 2009, primarily as a result of a lower allocation of corporate R&D expense to operating divisions due to increased corporate R&D activity.

Full Year 2009 versus Full Year of 2008

Financial and corporate expense, before foreign exchange gains and losses, decreased by $4.4 million or 16.6% in 2009 compared to 2008. The decrease was primarily due to the reversal of a provision related to resolved workers compensation claims, lower professional fees in 2009 compared to 2008, a higher allocation of corporate costs to R&D expense reported in the Pipeline and Pipe Services segment due to increased R&D activity and lower management incentive compensation costs reflecting the lower profits of the Company in 2009 compared to 2008.

Interest Expense – net

Fourth Quarter 2009 versus Fourth Quarter 2008

Interest expense-net was $762 thousand in the fourth quarter of 2009 compared to $2.2 million in the fourth quarter of 2008, a decrease of $1.4 million or 64.6%. The decrease was primarily due to lower interest expense on bank indebtedness and long-term debt in 2009 compared to 2008 mainly as a result of the repayment of Senior Notes in the second quarter of 2009.

Fourth Quarter 2009 versus Third Quarter 2009

Interest expense-net was $762 thousand in the fourth quarter of 2009 compared to $675 thousand in the third quarter of 2009, a marginal increase of $87 thousand, due to lower interest rates on invested cash balances.

Full Year 2009 versus Full Year 2008

Interest expense – net decreased by $987 thousand in 2009 compared to 2008. The decrease was primarily due to lower interest expense on bank indebtedness and long-term debt. The decrease in interest expense on bank indebtedness was mainly due to lower debt levels in 2009 compared to 2008. The decrease in interest expense on long-term debt was due to lower debt levels in 2009 compared to 2008 as a result of the repayment of Senior Notes made in the second quarter of 2009.

Income Taxes

Income tax expense relating to continuing operations in the fourth quarter of 2009 totaled $6.3 million (16.6% of income from continuing operations before non-controlling interest and income taxes) compared to $17.5 million (23.8% of income from continuing operations before non-controlling interest and income taxes) in the fourth quarter of 2008 and $15.6 million (31.7% of income from continuing operations before non-controlling interest and income taxes) in the third quarter of 2009. The effective tax rate for the fourth quarter of 2009 was considerably lower than the Company’s expected tax rate of 31.0%, mainly as a result of a larger proportion of the Company’s income having been generated in lower-tax foreign jurisdictions, primarily in the Asia Pacific region and a $1.5 million benefit from the utilization of tax losses not previously recognized.

The Company recorded income tax expense of $56.4 million (30.1% of income from continuing operations before income taxes and non-controlling interest) in 2009, compared to tax expense of $55.9 million (29.4% of income from continuing operations before income taxes and non-controlling interest). The effective tax rate in 2009 was largely in line with the rate in the prior year and was lower than the Company’s expected effective tax rate of 31.0%. The reduction from the expected rate resulted primarily from income generated in lower-taxed foreign jurisdictions.

Cash Flow

Cash provided by continuing operating activities

Cash provided by continuing operating activities in the fourth quarter of 2009 totaled $130.7 million, compared to $75.9 million in the fourth quarter of 2008 and $59.6 million in the third quarter of 2009 with the changes reflecting the changes in income from continuing operations as well as the movement in net working capital. During the quarter, the change in non-cash working capital and foreign exchange was a decrease of $96.0 million, with reduced accounts receivable, inventory and increased deferred revenue, partially offset by lower accounts payable.

On a full year basis, cash provided by continuing operating activities totaled $287.1 million, an increase of $132.8 million or 86.0% versus 2008, primarily due to the movement in non-cash working capital and foreign exchange of $170.4 million, partially offset by a decrease in the movement of non-cash items. Non-cash working capital benefited from reduced accounts receivable and inventories and higher deferred revenues, partially offset by lower accounts payable. Non-cash items decreased mainly due to changes in future income taxes combined with a decrease in amortization of property, plant and equipment and impairment charges recorded in 2008 for asset retirement obligations and available-for-sale financial assets.

Cash used in continuing investing activities

Cash used in continuing investing activities in the fourth quarter of 2009 totaled $7.7 million, compared to $5.6 million in the third quarter of 2009 and $29.1 million in the fourth quarter of 2008, and was comprised of capital expenditures on property, plant and equipment of $8.4 million partially offset by proceeds on disposal of property, plant and equipment of $562 thousand.

On a full year basis, cash used in continuing investing activities totaled $37.7 million, a decrease of $172.1 million or 82.0% versus 2008, as a result of a decrease in capital expenditures and the 2008 acquisition of Flexpipe.

Cash used in continuing financing activities

Cash used in continuing financing activities in the fourth quarter of 2009 totaled $4.6 million, compared to $4.7 million in the third quarter of 2009 and $49.5 million in the fourth quarter of 2008, and mainly consisted of dividends paid to shareholders of $4.9 million.

On a full year basis, cash used in continuing financing activities increased by $48.9 or 159.2% in 2009 compared to 2008, primarily due to the repayment on the Senior Notes in the second quarter of 2009, a decrease in bank indebtedness and the $18.0 million special dividend paid during the year.

Other Comprehensive Loss

Other comprehensive loss in the quarter totaled $6.3 million and was comprised primarily of an unrealized foreign currency loss on translation of self-sustaining foreign operations as a result of the strengthening of the Canadian dollar during the period, net of hedging activities.

Liquidity and Capitalization

At December 31, 2009, the Company recorded a working capital ratio (the ratio of current assets to current liabilities) of 2.1 to 1 compared to 1.65 to 1 at December 31, 2008. Operating working capital, excluding cash and cash equivalents, bank indebtedness, the current portion of long-term debt, current future taxes and working capital of discontinued operations, decreased $84.2 million during the quarter to $79.6 million, reflecting lower accounts receivables and inventory levels and an increase in deferred revenue.

Outlook

The primary driver of demand for the Company’s products and services in the Pipeline and Pipe Services segment is the level of energy industry investment in pipeline infrastructure for hydrocarbon development and transportation around the globe. This investment, in turn, is driven by global levels of economic activity and the resulting growth in hydrocarbon demand, the need to replace the supply of hydrocarbons as a result of resource depletion and the financial position of the major energy companies. The relationship between global hydrocarbon demand and supply and the level of energy industry investment in infrastructure tends to be cyclical.

In 2009, the global economic recession resulted in reduced energy demand and tighter capital markets. Total world liquid fuel consumption decreased by 1.9% in 2009 compared to 2008, the first year over year decline in 25 years. Lower energy demand and reduced capital available for investment resulted in pipeline project delays and cancellations in Europe, and the Middle East and a 42% decline in well completions in North America, with a resulting impact on small diameter pipe coating orders. However as a result of strong project activity in Asia Pacific and the Trinidad project, coupled with the implementation of various cost savings initiatives, the Company was able to continue to produce strong financial results.

A gradual improvement in market outlook is indicated by the Company’s order backlog, representing customer orders expected to be completed within one year that totaled $410.5 million at December 31, 2009, an improvement from $239.9 million at the end of the third quarter of 2009. The two largest projects included in the backlog, the PNG project and Epic project, are scheduled for production in the second half of 2010 with the result that the Company expects that both revenue and operating income should strengthen as the year progresses.

While global economic activity appears to have stabilized, overall market demand for ShawCor’s products and services is not likely to return to pre-recession levels until after 2010, an expectation reinforced by the fact that the order backlog, while improved, remains 10% below the level of $456 million at the beginning of 2009.

The Petrochemical and Industrial segment’s markets should show some improvement from 2009 with the Company’s new facility in China providing access to the growing market for automotive and electrical products in China as well as a low cost source for product that can be exported to North America and Western Europe. In the Pipeline and Pipe Services segment, market activity is expected to vary significantly from region to region as noted below:

North America

The number of drilling rigs active in North America did improve during the second half of 2009 but active rig counts remain 27% below the peak levels of 2007. If current drilling levels continue in 2010 then ShawCor expects that the Company’s businesses that are related to well completions, primarily small diameter pipe coating, flexible composite pipe, and pipe joint protection, will see a modest improvement in volumes over 2009 levels. ShawCor businesses that are related to transmission pipeline construction, primarily large diameter pipe coating, will continue to be driven by project activity. In this area the volume expectations are largely consistent with the prior year.

Latin America and Caribbean

In 2009 revenue was supported by the US$81.3 million Trinidad North East Offshore and Tobago Pipeline projects which are now complete. The decline in revenue from the completion of these projects may be partially offset by expected increases in activity in South America.

EMAR

Project activity in EMAR was greatly affected by the economic recession in 2009 with a number of projects delayed or cancelled. Thus the potential exists for a modest upturn in project activity in the second half of 2010 if customer investment decisions lead to new project commencement. Of strategic importance is the Company’s new pipe coating venture in Russia that will start operations in 2010 and provide concrete weight pipe coatings for offshore pipelines in the Russian Arctic. This joint venture will contribute modest revenues in 2010 but could provide growth opportunities in the longer term as Northern Russian gas and oil fields are developed.

Asia Pacific

In contrast to other global regions, the level of project activity in Asia Pacific is expected to increase significantly commencing in the second half of 2010. The Company has been awarded two large pipe coating contracts that will start production in mid-2010, the US$185.0 million PNG LNG project and the US$42.0 million Epic Energy QSN3 project in Eastern Australia. Other markets in South East Asia, where the Company has maintained a significant market share are also expected to be strong in 2010. Beyond 2010, the Company expects that increasing energy demand in the region will necessitate increasing investment in pipeline infrastructure as new sources of oil and gas are developed and connected to growing markets in India, China and South East Asia. There are a large number of potential LNG projects being evaluated to develop natural gas resources from offshore fields in the North West of Australia, from coal seam resources in Eastern Australia, and from other gas fields in the region, that are expected to sustain a high level of demand for new pipeline infrastructure over an extended timeframe.

During 2009, the Company’s financial position continued to strengthen with the result that it has the financial capacity to fund significant growth opportunities through geographic expansion into emerging markets, new product introductions, and through the acquisition of companies that complement current business activities and/or that provide new product and service offerings within the Company’s core pipeline focus. Execution of these growth initiatives should provide the potential for continued growth for the Company in the years ahead.

Forward Looking Information

This document includes certain statements that reflect management’s expectations and objectives for the Company’s future performance, opportunities and growth, which statements constitute forward-looking information under applicable securities laws. Such statements, other than statements of historical fact, are predictive in nature or depend on future events or conditions. Forward-looking information involves 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. Specifically, this document includes forward-looking information in respect of, among other things, the impact of global economic activity on the demand for the Company’s products as well as the prices of commodities used by the Company, the impact of changing energy demand, supply and prices, the impact of changes in competitive conditions in the markets in which the Company participates, the impact of changing laws for environmental compliance on the Company’s capital and operating costs, the Company’s relationships with its employees, the continued establishment of international operations, the effect of continued development in emerging economies, as well as the Company’s plans as they relate to research and development activities and the maintenance of its current dividend policies.

Forward-looking information involves known and unknown risks and uncertainties that could cause actual results to differ materially from those predicted by the forward-looking information. We caution readers not to place undue reliance on forward-looking information as a number of factors could cause actual events, results and prospects to differ materially from those expressed in or implied by the forward looking information. Significant risks facing the Company 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; exposure to product and other liability claims; compliance with environmental, trade and other laws; political, economic and other risks arising from the Company’s international operations; fluctuations in foreign exchange rates, as well as other risks and uncertainties, as more fully described herein under the heading “Risks and uncertainties”.

These statements of forward-looking information are based on assumptions, estimates and analysis made by management 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. These assumptions include assumptions in respect of the potential for improvement in demand for the Company’s products and services as a result of continued global economic recovery, the potential for increased investment in global energy infrastructure as a result of stabilization of capital markets, the Company’s ability to execute projects under contract, the continued supply of and stable pricing for commodities used by the Company, and the availability of personnel resources sufficient for the Company to operate its businesses. The Company believes that the expectations reflected in the forward-looking information are based on reasonable assumptions in light of currently available information. However, should one or more risks materialize or should any assumptions prove incorrect, then actual results could vary materially from those expressed or implied in the forward-looking information included in this document and the Company can give no assurance that such expectations will be achieved.

When considering the forward-looking information in making decisions with respect to the Company, readers should carefully consider the foregoing factors and other uncertainties and potential events. ShawCor Ltd. does not assume the obligation to revise or update forward-looking information after the date of this document, or to revise it to reflect the occurrence of future unanticipated events, except as may be required under applicable securities laws.

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 March 4, 2010 at 10:00 am ET to discuss the Company’s fourth quarter and full year 2009 financial results. Please visit our website at www.shawcor.com for future details.

    SHAWCOR LTD.
    UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of Canadian dollars except per share data)

    CONSOLIDATED STATEMENTS OF INCOME

                                Three Months Ended      Twelve Months Ended
                                    December 31,            December 31,
                              ----------------------- -----------------------
                                  2009       2008(a)      2009       2008(a)
                              ----------- ----------- ----------- -----------

    Revenue                   $  260,911  $  433,853  $1,183,978  $1,379,577
    Cost of goods sold           154,183     269,236     695,521     892,937
                              ----------- ----------- ----------- -----------
    Gross profit                 106,728     164,617     488,457     486,640

    Selling, general and
     administrative expenses      48,611      69,194     219,901     224,789
    Amortization of property,
     plant and equipment          14,044      22,090      57,244      63,997
    Amortization of intangible
     assets                        1,095         849       4,380       1,902
    Foreign exchange losses
     (gains)                       1,284      (5,894)      3,790      (8,180)
    Research and development
     expenses                      3,103       2,790      10,967       8,121
                              ----------- ----------- ----------- -----------

    Operating income from
     continuing operations        38,591      75,588     192,175     196,011
    Interest income (expense)
     on short-term deposits          409        (391)        916       1,895
    Interest expense on bank
     indebtedness                   (437)       (353)     (1,780)     (2,518)
    Interest expense on
     long-term debt                 (734)     (1,410)     (3,808)     (5,036)
                              ----------- ----------- ----------- -----------

    Income before income
     taxes and non-controlling
     interest                     37,829      73,434     187,503     190,352
    Income taxes                   6,276      17,484      56,397      55,878
                              ----------- ----------- ----------- -----------

    Income before non-
     controlling interest         31,553      55,950     131,106     134,474
    Non-controlling interest           -          64           -         248
                              ----------- ----------- ----------- -----------

    Income from continuing
     operations                   31,553      56,014     131,106     134,722
    Income (loss) from
     discontinued operations         (27)        609         344      11,011
                              ----------- ----------- ----------- -----------

    Net income                $   31,526  $   56,623  $  131,450  $  145,733
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

    Earnings per share
    Basic
      Continuing operations   $     0.44  $     0.79  $     1.86  $     1.90
      Discontinued operations          -        0.01           -        0.16
                              ----------- ----------- ----------- -----------
      Total                   $     0.44  $     0.80  $     1.86  $     2.06
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

    Diluted
      Continuing operations   $     0.43  $     0.78  $     1.85  $     1.88
      Discontinued operations          -        0.01           -        0.15
                              ----------- ----------- ----------- -----------
      Total                   $     0.43  $     0.79  $     1.85  $     2.03
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    (a) Prior year figures have been restated as a result of the adoption
        of recent accounting policy changes and reclassified to conform to
        current year presentation.
    -------------------------------------------------------------------------

    SEGMENTED INFORMATION

                                Three Months Ended      Twelve Months Ended
                                    December 31,            December 31,
                              ----------------------- -----------------------
                                  2009       2008(a)      2009       2008(a)
                              ----------- ----------- ----------- -----------
    Revenue
      Pipeline and Pipe
       Services               $  235,758  $  401,768  $1,072,858  $1,239,893
      Petrochemical and
       Industrial                 25,153      32,085     111,120     139,684
                              ----------- ----------- ----------- -----------
                              $  260,911  $  433,853  $1,183,978  $1,379,577
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    Income (loss) from
     operations
      Pipeline and Pipe
       Services               $   43,847  $   75,841  $  212,779  $  194,974
      Petrochemical and
       Industrial                    436       2,528       5,062      19,089
      Financial and Corporate     (5,692)     (2,781)    (25,666)    (18,052)
                              ----------- ----------- ----------- -----------
                              $   38,591  $   75,588  $  192,175  $  196,011
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    (a) Prior year figures have been restated as a result of the adoption
        of recent accounting policy changes and reclassified to conform to
        current year presentation.

    SHAWCOR LTD.
    UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of Canadian dollars)

    CONSOLIDATED STATEMENTS OF CASH FLOWS

                                Three Months Ended      Twelve Months Ended
                                    December 31,            December 31,
                              ----------------------- -----------------------
                                  2009       2008(a)      2009       2008(a)
                              ----------- ----------- ----------- -----------

    Operating activities:
      Income from continuing
       operations             $   31,553  $   56,014  $  131,106  $  134,722
      Items not requiring an
       outlay of cash:
        Amortization of
         property, plant and
         equipment                14,044      22,090      57,244      63,997
        Amortization of
         intangible assets         1,095         849       4,380       1,902
        Amortization of
         transaction costs           111         110         444         440
        Amortization of long-
         term prepaid expenses        92         211       1,173         930
        Asset retirement
         obligation expense       (6,886)     (1,199)     (4,852)        703
        Stock-based compensation     771         830       3,165       3,359
        Future income taxes       (3,482)     11,368      (3,809)     11,777
        Gain on disposal of
         property, plant and
         equipment                     4          46       1,365         404
        Impairment of asset
         retirement obligation
         asset                         -       7,770           -       7,770
        Impairment of
         intangible assets             -         600           -         600
        Impairment of goodwill         -         352           -         352
        Impairment of
         available-for-sale
         financial assets              -       1,318         336       2,816
        Non-controlling
         interest in earnings
         of subsidiaries               -        (248)          -        (248)
        Gain on disposal of
         subsidiary                    -        (680)          -        (864)
      Settlement of asset
       retirement obligations        937        (233)     (1,307)       (891)
      Change in employee
       future benefits            (3,544)     (3,889)       (457)     (1,400)
      Change in non-cash
       working capital and
       foreign exchange           96,042     (19,385)     98,344     (72,008)
                              ----------- ----------- ----------- -----------
    Cash provided by
     continuing operating
     activities                  130,737      75,924     287,132     154,361
                              ----------- ----------- ----------- -----------
    Investing activities:
      Purchases of property,
       plant and equipment        (8,432)    (27,800)    (34,358)    (89,799)
      Proceeds on disposal
       of property, plant
       and equipment                 562          13         606          46
      Acquisition of
       subsidiaries                    -      (1,347)          -    (125,723)
      Increase in long-term
       notes receivable              125           -      (3,943)          -
      Proceeds on disposal
       of subsidiaries                 -          84           -       5,719
                              ----------- ----------- ----------- -----------
    Cash used in continuing
     investing activities         (7,745)    (29,050)    (37,695)   (209,757)
                              ----------- ----------- ----------- -----------
    Financing activities:
      Increase (decrease) in
       bank indebtedness               -     (42,654)    (15,418)     10,311
      Increase(decrease) in
       capital leases               (107)        830        (107)        830
      Repayment of long-term
       debt                            -           -     (28,705)          -
      Issue of shares                378          24       1,679       1,763
      Purchase of shares for
       cancellation                    -      (3,226)          -     (26,022)
      Dividends paid to
       shareholders               (4,852)     (4,512)    (37,057)    (17,597)
                              ----------- ----------- ----------- -----------
    Cash used in continuing
     financing activities         (4,581)    (49,538)    (79,608)    (30,715)
                              ----------- ----------- ----------- -----------
    Foreign exchange on
     foreign cash and cash
     equivalents                  (2,579)     19,752     (10,974)     25,776
                              ----------- ----------- ----------- -----------

    Net cash provided by
     (used in) continuing
     operations                  115,832      17,088     158,855     (60,335)

    Net cash provided by
     (used in) discontinued
     operations                   10,785      (2,048)     12,201     (35,750)

    Cash and cash equivalents
     at beginning of period      123,371      63,892      78,932     175,017
                              ----------- ----------- ----------- -----------

    Cash and cash equivalents
     at end of period         $  249,988  $   78,932  $  249,988  $   78,932
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    (a) Prior year figures have been restated as a result of the adoption
        of recent accounting policy changes and reclassified to conform to
        current year presentation.

    SHAWCOR LTD.
    UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of Canadian dollars)

    CONSOLIDATED BALANCE SHEETS

                                                   December 31,  December 31,
                                                       2009          2008(a)
                                                   ------------  ------------

    Assets
    Current assets
      Cash and cash equivalents                    $   249,988   $    78,932
      Accounts receivable                              191,821       307,933
      Taxes receivable                                  14,055         9,261
      Inventories                                      109,379       152,284
      Prepaid expenses                                  14,392        14,635
      Derivative financial instruments                   1,782           523
      Current future income taxes                        4,668         3,322
      Current assets of discontinued operation               -        12,256
                                                   ------------  ------------
                                                       586,085       579,146
    Property, plant and equipment, net                 270,219       307,735
    Goodwill                                           214,449       229,059
    Intangible assets                                   62,784        67,152
    Future income taxes                                 36,249        31,173
    Derivative financial instruments                        39             -
    Other assets                                        16,152        13,024
                                                   ------------  ------------
                                                   $ 1,185,977   $ 1,227,289
                                                   ------------  ------------
                                                   ------------  ------------

    Liabilities
    Current liabilities
      Bank indebtedness                            $         -   $    15,418
      Accounts payable and accrued liabilities         133,275       192,705
      Taxes payable                                     42,971        53,405
      Derivative financial instruments                     510         2,049
      Deferred revenues                                 75,100        54,692
      Current portion of long-term debt                 26,235        30,672
      Current obligations under capital lease              371           581
      Current liabilities of discontinued operation         56           455
                                                   ------------  ------------
                                                       278,518       349,977
    Long-term debt                                      26,052        60,554
    Obligations under capital lease                        492           389
    Future income taxes                                 76,552        73,939
    Other non-current liabilities                       13,941         9,978
                                                   ------------  ------------
                                                       395,555       494,837
                                                   ------------  ------------

    Shareholders' Equity
    Capital stock                                      204,151       202,073
    Contributed surplus                                 17,277        14,512
    Retained earnings                                  695,800       601,407
    Accumulated other comprehensive loss              (126,806)      (85,540)
                                                   ------------  ------------
                                                       790,422       732,452
                                                   ------------  ------------
                                                   $ 1,185,977   $ 1,227,289
                                                   ------------  ------------
                                                   ------------  ------------
    (a) Prior year figures have been restated as a result of the adoption
        of recent accounting policy changes and reclassified to conform to
        current year presentation.

    SHAWCOR LTD.
    UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    (in thousands of Canadian dollars)

    CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

                                Three Months Ended      Twelve Months Ended
                                    December 31,            December 31,
                              ----------------------- -----------------------
                                  2009       2008(a)      2009       2008(a)
                              ----------- ----------- ----------- -----------

    Balance at beginning of
     period                   $  669,126  $  547,145  $  601,407  $  492,903
    Transitional adjustment            -       4,668           -       2,872
                              ----------- ----------- ----------- -----------
    Adjusted balance at
     beginning of period         669,126     551,813     601,407     495,775
    Net income                    31,526      56,623     131,450     145,733
                              ----------- ----------- ----------- -----------
                                 700,652     608,436     732,857     641,508

    Excess of purchase price
     paid over stated value
     of shares                         -      (2,517)          -     (22,504)
    Dividends declared            (4,852)     (4,512)    (37,057)    (17,597)
                              ----------- ----------- ----------- -----------
    Balance at end of period  $  695,800  $  601,407  $  695,800  $  601,407
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    (a) Prior year figures have been restated as a result of the adoption
        of recent accounting policy changes and reclassified to conform to
        current year presentation.

    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                                Three Months Ended      Twelve Months Ended
                                    December 31,            December 31,
                              ----------------------- -----------------------
                                  2009       2008(a)      2009       2008(a)
                              ----------- ----------- ----------- -----------

    Net income                $   31,526  $   56,623  $  131,450  $  145,733
    Other comprehensive
     income (loss), net of
     income taxes:
      Unrealized gain (loss)
       on translating
       financial statements
       of self-sustaining
       foreign operations         (7,775)     38,195     (49,149)     55,627
      Loss on translating
       financial statements of
       self-sustaining foreign
       operations transferred
       to net income in the
       current period                  -           -         678           -
      Gain (loss) on hedges
       of unrealized foreign
       currency translation        1,480     (14,085)      8,428     (18,060)
      Income tax benefit
       (expense)                     (34)      2,401      (1,223)      3,079
                              ----------- ----------- ----------- -----------
    Unrealized foreign
     currency translation
     gain, net of hedging
     activities                   (6,329)     26,511     (41,266)     40,646
                              ----------- ----------- ----------- -----------
      Unrealized loss on
       available-for-sale
       financial assets
       arising during the
       period                          -        (359)       (336)     (2,229)
      Unrealized loss on
       available-for-sale
       financial assets
       transferred to net
       income in the current
       period                          -       1,318         336       2,816
      Income tax expense
       transferred to net
       income in the period            -           -           -         253
                              ----------- ----------- ----------- -----------
    Change in unrealized loss
     on available-for-sale
     financial assets                  -         959           -         840
                              ----------- ----------- ----------- -----------
      Gain on derivatives
       designated as cash
       flow hedges                     -           -           -           -
      Income tax expense               -           -           -           -
      Gain on derivatives
       designated as cash
       flow hedges in prior
       periods transferred
       to net income in the
       current period                  -           -           -      (1,508)
      Income tax expenses
       transferred to net
       income in the current
       period                          -           -           -         512
                              ----------- ----------- ----------- -----------
    Change in loss on
     derivatives designated
     as cash flow hedges               -           -           -        (996)
                              ----------- ----------- ----------- -----------

                                  (6,329)     27,470     (41,266)     40,490
                              ----------- ----------- ----------- -----------

    Comprehensive income      $   25,197  $   84,093  $   90,184  $  186,223
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    (a) Prior year figures have been restated as a result of the adoption
        of recent accounting policy changes and reclassified to conform to
        current year presentation.

SOURCE ShawCor Ltd.


Source: newswire



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