ShawCor Ltd. Announces Second Quarter 2008 Results



    (TSX: SCL.A, SCL.B)

    TORONTO, Aug. 6 /CNW/ -

    
    Financial Summary


    (In thousands of
     Canadian dollars                 Three Months             Six Months
     except per share                 Ended June 30           Ended June 30
     amounts)                       2008        2007        2008        2007
    -------------------------------------------------------------------------
    Operating Results
    Revenue                    $ 295,118   $ 276,440   $ 588,475   $ 497,769
    EBITDA (note 1)               46,475      57,050     101,066      95,457
    Operating income from
     continuing operations        33,449      47,036      74,668      75,008
    Income from continuing
     operations                   22,207      30,267      49,338      53,575
    Income (loss) from
     discontinued operations      10,553         (48)     10,484        (103)
    Net income                    32,760      30,219      59,822      53,472

    Net income (loss) per share
     (Class A and B) - Basic
      Continuing operations         0.31        0.41        0.69        0.73
      Discontinued operations       0.15        0.00        0.15        0.00
      Total                         0.46        0.41        0.84        0.73

    Net income (loss) per
     share (Class A and B) -
     Diluted
      Continuing operations         0.31        0.41        0.69        0.72
      Discontinued operations       0.15        0.00        0.15        0.00
      Total                         0.46        0.41        0.84        0.72
    -------------------------------------------------------------------------
    Cash Flow
    Cash from operating
     activities                   74,334      24,254      64,819      54,107
    Additions to property,
     plant and equipment          26,653      23,868      38,914      39,361
    -------------------------------------------------------------------------
    Financial Position
    Working capital                                      171,860     284,231
    Total assets                                       1,146,410     921,442
    Shareholders' equity per
     share (Class A and B)
     (note 2)                                          $    9.09   $    8.08
    -------------------------------------------------------------------------
    Note 1: 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. 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                   22,207      30,267      49,338      53,575
    Add (deduct):
      Income taxes                10,191      18,261      24,621      24,977
      Interest (income) expense      895      (1,229)        982      (2,828)
      Amortization of property,
       plant and equipment        13,182       9,751      26,125      19,733
    -------------------------------------------------------------------------
    EBITDA                        46,475      57,050     101,066      95,457
    -------------------------------------------------------------------------
    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.
    

    Consolidated revenue from continuing operations for the second quarter of
2008 totaled $295.1 million, 6.8% higher than the second quarter of 2007 and
marginally higher than the first quarter of the current year, with the year
over year growth reflecting increased activity at the Company's Pipeline and
Pipe Services segment businesses, partially offset by lower revenue in the
Petrochemical and Industrial segment. The growth in consolidated revenue was
achieved despite the adverse impact of the stronger Canadian dollar in the
quarter. Compared with the second quarter of 2007, the 8.0% strengthening of
the Canadian dollar against the U.S. dollar reduced reported revenue by
$12.9 million. Consolidated income from continuing operations for the quarter
totaled $22.2 million ($0.31 per share, diluted) compared to $27.1 million
($0.38 per share, diluted) last quarter and $30.3 million ($0.41 per share,
diluted) in the second quarter of 2007, with the reduction in income from
prior quarters attributable to decreased operating margins in both business
segments.
    A settlement of US$43.5 million was reached in the quarter with the
plaintiff in the Dirt Inc. lawsuit related to the closed Mobile, Alabama
facility. This settlement is to be shared between the Company and Halliburton
Energy Services Inc. and is significantly less than the previously announced
jury award of $108 million. The apportionment of the settlement between the
Company and Halliburton is still to be determined. As a result of the
settlement, the Company reduced its reserves related to this matter by
$10.6 million ($0.15 per share, diluted), net of income taxes.
    Net income in the quarter totaled $32.8 million ($0.46 per diluted
share), compared to $27.1 million ($0.38 per diluted share) last quarter and
$30.2 million ($0.41 per share, diluted) in the second quarter of last year.
    On a year to date basis, consolidated revenue from continuing operations
totaled $588.5 million, 18.2% higher than in the first half of 2007, while
income from continuing operations totaled $49.3 million ($0.69 per share,
diluted) compared to $53.6 million ($0.72 per share, diluted) for the same
period of 2007. Net income for the first six months of 2008 totaled
$59.8 million ($0.84 per share, diluted) compared to $53.5 million ($0.72 per
share, diluted) in the corresponding period of last year.
    During the quarter, the Company completed the sale of its investment in
Bredero Shaw Nigeria Ltd. (BSNL) for net proceeds of $5.6 million and
accordingly recorded a gain on the transaction of $1.1 million. The Company
will continue to operate the facility on behalf of the purchaser under the
terms of a technical services agreement.
    On June 27, 2008, the Company completed the purchase of the outstanding
shares of Flexpipe Systems Inc. ("Flexpipe") for $133.7 million, including
assumed debt. Flexpipe manufactures and sells a proprietary, flexible,
non-metallic, corrosion-resistant pipeline product marketed primarily to oil
and natural gas producers in Canada and the United States. This product is
used by oil and gas producers in applications that benefit from the product's
ease and speed of installation and its pressure and corrosion resistance
capabilities. Flexpipe is based in Calgary, Alberta and has sales offices and
service depots in Saskatchewan, Colorado and Texas. The acquisition of
Flexpipe has provided ShawCor with an attractive new product line to address a
growing opportunity that is emerging within the global pipeline industry.
    The Company's backlog of $475.6 million at June 30, 2008 increased 15%
during the second quarter and includes several large pipe coating contracts
that were announced during the second quarter, reflecting strong international
large diameter and offshore project activity. The strong backlog and
continuing high level of quotations and bids underpins the Company's
continuing positive outlook. The revenue growth experienced in the first half
of the year is expected to continue for the balance of the year and into 2009,
primarily driven by buoyant pipeline-related activity. The reported backlog at
June 30, 2008 does not include contracted orders of the recently acquired
Flexpipe Systems business. The acquisition of Flexpipe Systems adds an
important new technology and range of products to the Company's portfolio and
is expected to provide a strong source of revenue growth for the Company.

    MANAGEMENT'S DISCUSSION AND ANALYSIS

    The following is management's interim discussion and analysis of
operations and financial position and should be read in conjunction with the
Consolidated Financial Statements and Management's Discussion and Analysis
included in the Company's 2007 Annual Report.

    Revenue, Income from Operations and Net Income

    Consolidated Results

    Current Quarter versus Q2 2007
    Consolidated revenue from continuing operations for the second quarter of
2008 totaled $295.1 million, 6.8% higher than the $276.4 million recorded in
the second quarter of 2007, despite the impact of the stronger Canadian dollar
during the period. The Canadian dollar strengthened against the U.S. dollar by
approximately 8.0% on average, during the second quarter of 2008 compared with
the second quarter of last year, which adversely impacted revenue, operating
income from continuing operations and net income by approximately
$12.9 million, $2.4 million and $1.4 million, respectively. Offsetting the
effect of the stronger Canadian dollar on reported revenue was the impact of
higher material costs which have been passed through to customers.
    Operating income from continuing operations totaled $33.4 million (11.3%
of revenue from continuing operations) in the quarter, compared to
$47.0 million (17.0% of revenue from continuing operations) in the second
quarter of last year. The lower operating margin (operating income from
continuing operations divided by revenue from continuing operations) in the
quarter, compared to the prior year, reflects the impact of higher
manufacturing fixed costs and depreciation associated with the ramp up of
production at the new plants in Camrose, Alberta and Ras Al Khaimah, U.A.E.
Also negatively impacting operating margins were costs incurred in
commissioning the Pluto project at the Company's pipe coating plant in
Orkanger, Norway, together with operating cost increases in the Middle East
and the Far East due to government mandated fuel price increases in the
quarter and generally rising inflation rates.
    Income from discontinued operations totaled $10.6 million in the quarter
($0.15 per share, diluted) and reflected a reduction in reserves related to
the Dirt Inc. lawsuit, net of income taxes. A settlement of US$43.5 million
was reached in the quarter with the plaintiff in the lawsuit, which is to be
shared between the Company and Halliburton Energy Services Inc. and is
significantly less than the previously announced jury award of $108 million.
    Net income in the quarter totaled $32.8 million ($0.46 per share,
diluted) compared to $30.2 million ($0.41 per share, diluted) in the second
quarter of 2007, with the improvement in earnings per share reflecting the
impact of the lawsuit settlement partially offset by the lower income from
continuing operations in the quarter.

    Current Quarter versus Q1 2008
    Consolidated revenue from continuing operations in the second quarter was
marginally higher than the level achieved last quarter as slightly higher
revenue in the Pipeline and Pipe Services segment was partially offset by a
small decline in the Petrochemical and Industrial segment.
    Operating income from continuing operations in the second quarter was
81.1% of the $41.2 million recorded last quarter and was adversely impacted by
lower operating margins at Bredero Shaw and in the Petrochemical and
Industrial segment.
    Net income in the quarter increased $5.7 million ($0.08 per share,
diluted) from $27.1 million ($0.38 per share, diluted) in the previous
quarter.

    Year-To-Date 2008 vs. 2007
    Consolidated revenue from continuing operations for the six months ended
June 30, 2008 totaled $588.5 million, 18.2% higher than $497.8 million
recorded in the corresponding period of last year, while operating income from
continuing operations totaled $74.7 million (12.7% of revenue from continuing
operations) compared to $75.0 million (15.1% of revenue from continuing
operations) in the first six months of 2007. On a year-to-date basis, net
income totaled $59.8 million ($0.84 per share, diluted) compared to
$53.5 million ($0.72 per share, diluted) in the first half of 2007.
    ShawCor classifies its revenue and income from operations in two industry
segments: Pipeline and Pipe Services, and Petrochemical and Industrial.
Discussion of the operating results of each of these segments follows:

    
    Pipeline and Pipe Services

    -------------------------------------------------------------------------
    Three months ended
    (In thousands of
     Canadian dollars)              June 30 2008  Mar. 31 2008  June 30 2007
    -------------------------------------------------------------------------
    Revenue from continuing
     operations                         $258,984      $255,794      $238,964
    -------------------------------------------------------------------------
    Income from continuing
     operations                          $34,420       $38,508       $46,378
    -------------------------------------------------------------------------
    Operating margin                       13.3%         15.1%         19.4%
    -------------------------------------------------------------------------
    

    Current Quarter versus Q2 2007
    In the Pipeline and Pipe Services segment, revenue from continuing
operations in the second quarter of 2008 totaled $259.0 million, 8.4% higher
than in the second quarter of last year, and reflected growth at Bredero Shaw,
Canusa-CPS and Shaw Pipeline Services. At Bredero Shaw, revenue from
continuing operations increased 2.2% over the second quarter of last year with
growth achieved mainly in the Far East and Middle East regions, partially
offset by softness in the North American and Europe/Africa regions. In North
America, revenue in the quarter was adversely impacted by a short term
reduction in large-diameter pipe coating activity while in the Europe/Africa
region, revenue reflected lower pipe coating activity as the Thermotite
facility in Orkanger, Norway prepared for the Pluto project. In the segment's
other business units, revenue increased at Shaw Pipeline Services, Guardian
and Canusa-CPS as these divisions experienced buoyant business activity during
the quarter.
    Operating income from continuing operations for the segment was
$34.4 million (13.3% of revenue from continuing operations) in the quarter
compared to $46.4 million (19.4% of revenue from continuing operations) in the
second quarter of last year, with the decrease in operating margins (operating
income from continuing operations divided by revenue from continuing
operations) reflecting the impact of higher manufacturing fixed costs and
depreciation associated with the ramp up of production at the new plants in
Camrose, Alberta and Ras Al Khaimah, U.A.E. Also negatively impacting
operating margins were costs incurred in commissioning the Pluto project at
the Company's pipe coating plant in Orkanger, Norway, together with operating
cost increases in the Middle East, the Far East due to government mandated
fuel price increases in the quarter and generally rising inflation rates.

    Current Quarter versus Q1 2008
    Revenue for the segment in the second quarter was 1.2% higher than in the
prior quarter as increases at Bredero Shaw and Guardian were partially offset
by a small decrease at Canusa-CPS. The increase at Bredero Shaw reflected the
ramp-up of production at the division's new pipe coating plant in Ras Al
Khaimah, and a strengthening of pipe coating volumes at the plants in Kuantan,
Malaysia and Kabil, Indonesia, partially offset by lower volumes in North
America and Europe.
    Operating income from continuing operations in the quarter was 89.4% of
the level achieved in the prior quarter with the segment's operating margin
decreasing by 1.9 percentage points. This decrease was attributable to costs
incurred in commissioning the Pluto project and manufacturing cost inflation
increases experienced at facilities in the Middle East and Far East.

    Year-to-Date 2008 vs. Year-to-Date 2007
    Revenue for the six months ended June 30, 2008 for the Pipeline and Pipe
Services segment totaled $514.8 million, 22.2% higher than the revenue
recorded during the same period of 2007. Operating income from continuing
operations for the segment for the first six months of the year totaled
$72.9 million (14.2% of revenue from continuing operations) compared to
$70.9 million (16.8% of revenue from continuing operations) during the
corresponding period of last year.

    Petrochemical and Industrial

    
    -------------------------------------------------------------------------
    Three months ended
    (In thousands of
    Canadian dollars)               June 30 2008  Mar. 31 2008  June 30 2007
    -------------------------------------------------------------------------
    Revenue from continuing
     operations                          $36,585       $38,137       $38,179
    -------------------------------------------------------------------------
    Income from continuing
     operations                           $5,316        $6,075        $6,500
    -------------------------------------------------------------------------
    Operating margin                       14.5%         15.9%         17.0%
    -------------------------------------------------------------------------
    

    Current Quarter versus Q2 2007
    In the Petrochemical and Industrial segment, revenue in the quarter
totaled $36.6 million and was 4.2% lower than in the second quarter of last
year, reflecting the impact of the stronger Canadian dollar on the translation
of DSG-Canusa's significant U.S dollar based revenue combined with a slowdown
in the industrial and energy markets served by ShawFlex. Operating income in
the second quarter of 2008 of $5.3 million (14.5% of revenue from continuing
operations) compares to $6.5 million (17.0% of revenue from continuing
operations) in the second quarter of 2007 with the decrease in operating
margin reflecting the impact of the stronger Canadian dollar on DSG-Canusa's
results together with the impact of volume reductions on capacity utilization
at ShawFlex.

    Current Quarter versus Q1 2008
    Revenue for the segment in the second quarter was 95.9% of the level
achieved last quarter and reflected the impact of slower business activity at
ShawFlex partially offset by growth at DSG-Canusa. Operating income from
continuing operations in the quarter was 87.5% of the level achieved in the
first quarter of 2008 and reflected the impact of lower revenue and lower
operating margins stemming primarily from higher raw material prices and lower
factory through put.

    Year-to-Date 2008 vs. Year-to-Date 2007
    Revenue for the Petrochemical and Industrial segment for the six months
ended June 30, 2008 totaled $74.7 million compared to $77.7 million in the
same period of last year, while operating income from continuing operations
for the first six months of the year totaled $11.4 million (15.2% of revenue
from continuing operations) compared to $13.5 million (17.4% of revenue from
continuing operations) in 2007.

    Financial and Corporate

    Financial and corporate costs consist of corporate office costs not
charged to the operating divisions and other non-operating items including
foreign exchange gains and losses on cash balances. Financial and corporate
costs for the quarter, before a net foreign exchange loss of $1.1 million,
totaled $5.2 million compared to $4.1 million in the second quarter of last
year, before a net foreign exchange loss of $1.8 million, with the increase in
corporate costs mainly the result of increased professional and other fees
connected to acquisition activity. Financial and corporate costs in the second
quarter, excluding foreign exchange losses, were $1.3 million lower than in
the prior quarter. On a year-to-date basis, financial and corporate costs
totaled $11.7 million, excluding foreign exchange gains of $2.1 million,
compared to $8.3 million in the same period of 2007, excluding foreign
exchange losses of $1.0 million. Year to date financial and corporate costs
include a $1.5 million writedown on the Company's investment in Garneau Inc.
that was recorded in the first quarter.

    Interest Income

    Net interest expense totaled $895 thousand in the quarter, compared to
interest income of $1.2 million in the second quarter of 2007 and interest
expense of $87 thousand last quarter, and reflected the impact of lower cash
balances in the quarter, together with lower rates of interest earned on cash
and cash equivalents in the U.S and Canada.

    Income Taxes

    Income tax expense related to continuing operations in the quarter was
$10.2 million, an effective rate (income tax expense divided by income before
income taxes and non-controlling interest) of 31.3% compared to $18.3 million
(effective rate of 37.8%) in the second quarter of last year and $14.4 million
(effective rate of 35.1%) in the first quarter of 2008. The effective tax rate
in the quarter was slightly lower than the Company's Canadian statutory tax
rate of 34.1% having been favourably impacted by earnings of certain
subsidiaries located in lower tax rate jurisdictions. The effective tax rate
in the second quarter of 2007 and in the first quarter of 2008 were adversely
impacted by tax losses at certain subsidiaries for which tax benefits had not
been recognized. Additionally, the effective tax rate in the first quarter of
2008 was adversely impacted by the write down of the Company's investment in
Garneau Inc. for which no tax benefit was recorded.

    Cash Flow

    Cash flow generated by continuing operating activities in the quarter
totaled $74.3 million, compared to $24.3 million in the second quarter of 2007
and cash used of $9.5 million last quarter, and included the impact of a $31.4
million reduction in working capital, due to lower accounts receivable
balances and higher accounts payable, partially offset by higher inventories
incurred to support increasing business activity.

    Cash flow used in continuing investing activities in the quarter totaled
$153.7 million, compared to $14.3 million last quarter and $20.1 million in
the second quarter of 2007, and was comprised of cash paid to purchase the
outstanding shares of Flexpipe Systems Inc. in the amount of $121.9 million,
$2.5 million paid to acquire 20% of the outstanding shares of PT Bredero Shaw
Indonesia, one of the Company's non-wholly owned subsidiaries, capital
expenditures of $26.7 million and investment in deferred project costs of
$8.3 million, partially offset by proceeds received on the disposal of one of
the Company's Nigerian subsidiaries of $5.6 million. Major capital additions
in the quarter included capacity expansions programs at the Regina
Saskatchewan, Camrose Alberta, and Pearland Texas pipe coating plants.
    Cash flow generated by continuing financing activities in the quarter
totaled $59.4 million, compared to cash used of $16.2 million last quarter and
$70.6 million in the second quarter of 2007, and consisted of an increase to
bank indebtedness of $63.0 million related to the acquisition of Flexpipe and
cash received on the issuance of shares on exercise of stock options of
$976 thousand, partially offset by dividends paid to shareholders of $4.5
million.

    Other Comprehensive Income

    Other comprehensive income in the quarter totaled $2.3 million,
representing unrealized foreign currency translation gains on translation of
the financial statements of foreign subsidiaries, net of hedging activities,
reflecting the slight weakening of the Canadian dollar versus the U.S. dollar
in the second quarter.

    Liquidity and Capitalization

    At June 30, 2008, the Company recorded a working capital ratio (the ratio
of current assets to current liabilities) of 1.44 to 1 compared to 1.98 to 1
at December 31, 2007. Operating working capital, excluding cash, cash
equivalents, bank indebtedness, the current portion of long-term debt and
working capital of discontinued operations, decreased $1.7 million during the
quarter to $173.2 million, as a result of lower accounts receivable balances
and higher accounts payable, partially offset by increased inventories, and
the assumption of $22.7 million in operating working capital on the

    Change in Accounting Policies

    The following are changes in the Company's accounting policies which came
into effect in the first quarter of 2008:

    a) General Standards of Financial Statements Presentation

    Effective, January 1, 2008, the Company adopted changes to the Canadian
Institute of Chartered Accountants' ("CICA") Handbook Section 1400, General
Standards of Financial Statement Presentation. Amendments to this Handbook
section require management to evaluate, as at each balance sheet date, the
Company's ability to continue as a going concern. When management concludes
that the company can no longer operate as a going concern, this fact, along
with information relevant to that assessment, is required to be disclosed in
the financial statements. When financial statements are not prepared on a
going concern basis, this fact is to be disclosed along with a description of
the basis of preparation.

    b) Capital Disclosures

    Effective January 1, 2008, the Company adopted CICA Handbook Section
1535, Capital Disclosures. This new Handbook section establishes standards for
disclosing information about an entity's capital and how it is managed and
includes the requirement for disclosure of information about an entity's
objectives, policies and processes for managing capital. The disclosures
related to this new handbook section are included in note 17.

    c) Financial Instruments

    Effective January 1, 2008, the Company adopted the following CICA
Handbook Sections: 3862, Financial Instruments - Disclosure; and 3863,
Financial Instruments - Presentation, which outline the disclosure
requirements related to the Company's financial instruments. The adoption of
the standards did not have any impact on the classification and valuation of
the Company's financial instruments. The new disclosures required by these
Handbook sections are included in note 16.

    d) Inventories

    On January 1, 2008, the Company adopted CICA Handbook Section 3031,
Inventories. As required, this new accounting standard has been adopted
retroactively with an adjustment to retained earnings. Prior year figures have
not been restated. The following adjustments were made to the Company's
balance sheet as a result of adopting this new accounting standard:

    
    -------------------------------------------------------------------------
     (in thousands of Canadian dollars)                      January 1, 2008
    -------------------------------------------------------------------------
    Increase in assets:
      Inventories                                                    $ 2,624
                                                            -----------------
    Total increase in assets                                         $ 2,624
                                                            -----------------
                                                            -----------------
    Increase in shareholders' equity:
      Retained earnings                                                2,624
                                                            -----------------
    Total increase to shareholders' equity                             2,624
                                                            -----------------
    Total increase to liabilities and shareholders' equity           $ 2,624
                                                            -----------------
                                                            -----------------
    

    The following is a description of the accounting policy adopted by the
Company as a result of implementing this accounting change:
    Inventories are valued at the lower of cost or net realizable value. Cost
is determined on a first-in, first-out basis except in certain project based
pipe coating businesses where the average cost basis is employed, and includes
direct materials, direct labour and variable and fixed manufacturing
overheads. Net realizable value for finished goods and work-in-process is the
amount which would be realized on the sale, less the cost of transport, and
for raw materials and supplies is replacement cost. Ownership of inbound
inventories is recognized at the time title passes to the Company, which
coincides with the invoicing and release of such inventories by suppliers.

    Financial Instruments

    The following table sets out the notional amounts outstanding under
foreign exchange contracts, the average contractual exchange rates and the
settlement of these contracts as at June 30, 2008:

    
    -------------------------------------------------------------------------
    (in thousands)                                             June 30, 2008
    -------------------------------------------------------------------------
    Canadian dollars sold for Great Britain Pounds
    -------------------------------------------------------------------------
      Less than one year                                             CAD$410
    -------------------------------------------------------------------------
      Weighted average rate                                           2.0027
    -------------------------------------------------------------------------
    U.S. dollars sold for Canadian dollars
    -------------------------------------------------------------------------
      Less than one year                                           US$12,000
    -------------------------------------------------------------------------
      Weighted average rate                                           1.0093
    -------------------------------------------------------------------------
    Euros sold for U.S. dollars
    -------------------------------------------------------------------------
      Less than one year                                          Euro 4,150
    -------------------------------------------------------------------------
      Weighted average rate                                           1.4985
    -------------------------------------------------------------------------
      One year to two years                                       Euro 2,150
    -------------------------------------------------------------------------
      Weighted average rate                                           1.4490
    -------------------------------------------------------------------------
      Two years to three years                                    Euro 2,200
    -------------------------------------------------------------------------
      Weighted average rate                                           1.4465
    -------------------------------------------------------------------------
    U.S. dollars sold for Norwegian Kroners
    -------------------------------------------------------------------------
      Less than one year                                            US$9,543
    -------------------------------------------------------------------------
      Weighted average rate                                           5.3273
    -------------------------------------------------------------------------
    U.S. dollars sold for Malaysian Ringgit
    -------------------------------------------------------------------------
      Less than one year                                            US$3,800
    -------------------------------------------------------------------------
      Weighted average rate                                           3.2785
    -------------------------------------------------------------------------
    

    At June 30, 2008, the Company had notional amounts of $39.3 million of
forward contracts outstanding (March 30, 2008 - $44.2 million) with the fair
value of the Company's net obligation from all foreign exchange forward
contracts totaling $1.5 million (March 31, 2008 - $297 thousand, net benefit).

    Critical Accounting Estimates

    The preparation of the consolidated financial statements in conformity
with Canadian Generally Accepted Accounting Principles ("GAAP") requires
management to make estimates and assumptions that affect the amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the period. These estimates and assumptions are made with
management's best judgment given the information available at the time;
however, actual results could differ from the estimates. Critical estimates
used in preparing the consolidated financial statements were materially
unchanged during the quarter, as compared to those disclosed in the Company's
last annual Management's Discussion and Analysis contained in the Company's
2007 Annual Report.

    Risks and Uncertainties

    Operating in an international environment, servicing predominantly the
oil and gas industry, ShawCor faces a number of business risks and
uncertainties that could materially adversely affect the Company's
projections, businesses, results of operations and financial condition. There
were no material changes in the nature or magnitude of such business risks
during the quarter. A more complete outline of the risks and uncertainties
facing the Company are included in the annual Management's Discussion and
Analysis contained in the Company's 2007 Annual Report.

    Contractual Obligations

    There were no material changes to the Company's contractual obligations
during the quarter, other than those that would be expected in the ordinary
course of business.

    Summary of Quarterly Results

    The following is a summary of selected financial information for the ten
most recently completed quarters:

    
    (In thousands of
     Canadian dollars
     except per share
     amounts)           First      Second     Third      Fourth    Full Year
    -------------------------------------------------------------------------
    Revenue (Restated
     - see note below)
      2008           $ 293,357  $ 295,118  $       -  $       -  $         -
      2007             221,329    276,440    264,892    285,438    1,048,099
      2006             262,547    269,433    251,324    276,315    1,059,619

    Operating income
     from continuing
     operations
     (Restated -
     see note below)
      2008              41,219     33,449          -          -            -
      2007              27,972     47,036     45,500     39,493      160,001
      2006              37,478     35,835     23,677     41,790      138,780

    Income from
     continuing
     operations
      2008              27,131     22,207          -          -            -
      2007              23,308     30,267     30,191     34,053      117,819
      2006              24,755     24,898     16,549     26,722       92,924

    Income (loss)
     from discontinued
     operations
      2008                 (69)    10,553          -          -            -
      2007                 (55)       (48)       (59)   (30,300)     (30,462)
      2006                 (35)      (192)         7        (69)        (289)

    Net income
      2008              27,062     32,760          -          -            -
      2007              23,253     30,219     30,132      3,753       87,357
      2006              24,720     24,706     16,556     26,653       92,635

    Operating income
     from continuing
     operations per
     share (Classes
     A and B)
    Basic
      2008                0.58       0.47          -          -            -
      2007                0.38       0.64       0.63       0.55         2.21
      2006                0.51       0.48       0.32       0.56         1.87

    Diluted
      2008                0.57       0.47          -          -            -
      2007                0.37       0.63       0.63       0.54         2.18
      2006                0.51       0.48       0.32       0.56         1.87

    Income from
     continuing
     operations per
     share (Classes
     A and B)
    Basic
      2008                0.38       0.31          -          -            -
      2007                0.31       0.41       0.42       0.48         1.62
      2006                0.33       0.34       0.22       0.36         1.25

    Diluted
      2008                0.38       0.31          -          -            -
      2007                0.31       0.41       0.42       0.47         1.60
      2006                0.33       0.34       0.22       0.36         1.25

    Income (loss)
     from discontinued
     operations per
     share (Classes
     A and B)
    Basic
      2008                0.00       0.15          -          -            -
      2007                0.00       0.00       0.00      (0.42)       (0.42)
      2006                0.00       0.00       0.00       0.00         0.00

    Diluted
      2008                0.00       0.15          -          -            -
      2007                0.00       0.00       0.00      (0.42)       (0.41)
      2006                0.00       0.00       0.00       0.00         0.00

    Net income
     per share
    (Classes A and B)
    Basic
      2008               0.38       0.46           -          -            -
      2007               0.31       0.41        0.42       0.06         1.20
      2006               0.33       0.34        0.22       0.36         1.25

    Diluted
      2008               0.38       0.46           -          -            -
      2007               0.31       0.41        0.42       0.05         1.19
      2006               0.33       0.34        0.22       0.36         1.25

    Note:  Quarterly revenue and operating income from continuing operations
           figures have been restated to reflect the change in accounting
           treatment for the Company's investment in the Arabian Pipecoating
           Company Limited adopted in the fourth quarter of 2006. Please
           refer to note 2 to the 2006 annual Consolidated Financial
           Statements.
    

    The following are key factors affecting the comparability of quarterly
financial results.
    The Company's operations in the Pipeline and Pipe Services segment,
representing more than 80% of the Company's consolidated revenue, are largely
project-based. The nature and timing of projects can result in variability in
the Company's quarterly revenue and profitability. In addition, certain of the
Company's operations are subject to a degree of seasonality particularly in
the Pipeline and Pipe Services market segment. The following are additional
key factors impacting the comparability of the quarterly information disclosed
above:

    
        The majority of the Company's revenue is transacted in currencies
        other than Canadian dollars, with a majority transacted in U.S.
        dollars. Changes in the rates of exchange between the Canadian dollar
        and other currencies could have a significant effect on the amount of
        this revenue when it is translated into Canadian dollars.

        On November 3, 2004, the Company announced the closure of its Mobile,
        Alabama facility. Operations at the facility ceased in the fourth
        quarter of 2005 and discontinued operations accounting treatment was
        adopted in that quarter with prior quarters restated on a comparable
        basis.
    

    Outstanding Share Capital

    As at July 28, 2008, the Company had 57,922,183 Class A Subordinate
Voting Shares ("Class A") outstanding and 13,077,909 Class B Multiple Voting
Shares ("Class B") outstanding. Each Class B share is convertible into a Class
A share at the option of the holder. In addition, as at July 31, 2008, the
Company had stock options outstanding to purchase up to 2,510,200 Class A
shares.

    Management's Health, Safety and Environmental Commitment

    The Company is committed to providing a safe and healthy workplace and
ensuring that all business activities are conducted in a manner that protects
the environment. This commitment includes designing and operating its plants
and individual processes in compliance with applicable government requirements
regulating the discharge of substances into the environment or otherwise
relating to the protection of the environment. The Company's program for
health, safety and environmental management is further described in the
Company's Annual Information Form under Health, Safety, and Environmental
Policy.

    Outlook

    The Company's backlog increased 15% during the second quarter to
$475.6 million at June 30, 2008. Several large pipe coating contracts were
announced during the quarter including the $35 million Gumusut-Kakap deepwater
project, the $30 million Vega project and the $50 million Alberta Clipper
project. In addition, the Company announced in the quarter the $20 million
Baydaratskaya Bay project in Russia to be performed for Gazprom, the world's
largest natural gas producer.
    The Company's outlook for the balance of the year continues to be
positive with year over year growth, excluding the impact of the Flexpipe
acquisition, in the range of 12% to 15%. Pipeline-related activity continues
to be buoyant in each of the Company's global regions, underpinned by the
strong backlog and a large number of project opportunities that are at the bid
stage, with the result that revenue growth is expected to continue into next
year and beyond. Success in winning and executing these activities will be
crucial to achieving the Company's growth targets. The acquisition of Flexpipe
Systems adds an important new technology and range of products to the
Company's portfolio and is expected to provide a strong source of growth.

    Forward Looking Information

    This document includes certain statements that reflect management's
expectations and objectives for ShawCor's future performance, opportunities
and growth which constitute forward-looking information under applicable
securities laws. Such statements, except to the extent that they contain
historical facts, are forward-looking and accordingly involve estimates,
assumptions, judgments and uncertainties. These statements may be identified
by the use of forward-looking terminology such as "may," "will," "should",
"anticipate," "expect", "believe", "predict", "estimate," "continue,"
"intend," "plan," and variations of these words or other similar expressions.
These statements are based on assumptions, estimates and analysis made by
ShawCor in light of its experience and perception of trends, current
conditions and expected developments as well as other factors believed to be
reasonable and relevant in the circumstances. Although ShawCor believes that
the expectations reflected in these forward-looking statements are based on
reasonable assumptions in light of currently available information, ShawCor
can give no assurance that such expectations will be achieved.
    Forward-looking statements involve known and unknown risks and
uncertainties that could cause actual results to differ materially from those
predicted, expressed or implied by the forward-looking statements. Significant
risks facing ShawCor include, but are not limited to: changes in global
economic activity and changes in energy supply and demand which impact on the
level of drilling activity and pipeline construction; political, economic and
other risks arising from ShawCor's international operations; compliance with
environmental, trade and other laws; liability claims; fluctuations in foreign
exchange rates; fluctuations in prices of raw materials, as well as other
risks and uncertainties.
    Other information relating to the Company, including its Annual
Information Form, is available on SEDAR at www.sedar.com.
    ShawCor will be hosting a Shareholder and Analyst conference call and
webcast on August 7, 2008 at 10:00 am ET to discuss the Company's second
quarter 2008 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         Six Months Ended
                                   June 30                   June 30
                          ---------------------------------------------------
                              2008         2007         2008         2007
                          ------------ ------------ ------------ ------------

    Revenue               $   295,118  $   276,440  $   588,475  $   497,769
    Cost of goods sold        195,024      161,516      382,678      292,580
                          ------------ ------------ ------------ ------------
    Gross profit              100,094      114,924      205,797      205,189

    Selling, general and
     administrative
     expenses (notes 2,
     3 and 4)                  51,740       56,418      101,603      107,209
    Amortization of
     property, plant and
     equipment                 13,182        9,751       26,125       19,733
    Research and
     development expense        1,723        1,719        3,401        3,239
                          ------------ ------------ ------------ ------------
    Operating income from
     continuing operations     33,449       47,036       74,668       75,008
    Interest income
     (expense) (note 5)          (895)       1,229         (982)       2,828
                          ------------ ------------ ------------ ------------
    Income before income
     taxes and non-
     controlling interest      32,554       48,265       73,686       77,836
    Income taxes               10,191       18,261       24,621       24,977
                          ------------ ------------ ------------ ------------
    Income before non-
     controlling interest      22,363       30,004       49,065       52,859
    Non-controlling
     interest                    (156)         263          273          716
                          ------------ ------------ ------------ ------------
    Income from continuing
     operations                22,207       30,267       49,338       53,575
    Loss from discontinued
     operations (note 6)       10,553          (48)      10,484         (103)
                          ------------ ------------ ------------ ------------
    Net income            $    32,760  $    30,219  $    59,822  $    53,472
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------
    Earnings per share,
     Class A and B -
     Basic (note 20)
      Continuing
       operations         $      0.31  $      0.41  $      0.69  $      0.73
      Discontinued
       operations                0.15            -         0.15            -
                          ------------ ------------ ------------ ------------
      Total               $      0.46  $      0.41  $      0.84  $      0.73
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------
    Earnings per share
     Class A and B -
     Diluted (note 20)
      Continuing
       operations         $      0.31  $      0.41  $      0.69  $      0.72
      Discontinued
       operations                0.15            -         0.15            -
                          ------------ ------------ ------------ ------------
      Total               $      0.46  $      0.41  $      0.84  $      0.72
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------

    -------------------------------------------------------------------------

    SEGMENTED INFORMATION

                             Three Months Ended         Six Months Ended
                                   June 30                   June 30
                          ---------------------------------------------------
                              2008         2007         2008         2007
                          ------------ ------------ ------------ ------------
    Revenue
      Pipeline and Pipe
       Services           $   258,984  $   238,964  $   514,778  $   421,332
      Petrochemical and
       Industrial              36,585       38,179       74,722       77,698
      Intersegment
       Eliminations              (451)        (703)      (1,025)      (1,261)
                          ------------ ------------ ------------ ------------
                          $   295,118  $   276,440  $   588,475  $   497,769
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------
    Income (loss) from
     operations
      Pipeline and Pipe
       Services           $    34,420  $    46,378  $    72,928  $    70,914
      Petrochemical and
       Industrial               5,316        6,500       11,391       13,483
      Financial and
       Corporate               (6,287)      (5,842)      (9,651)      (9,389)
                          ------------ ------------ ------------ ------------
                          $    33,449  $    47,036  $    74,668  $    75,008
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------



    SHAWCOR LTD.
    INTERIM FINANCIAL INFORMATION (Unaudited)
    (in thousands of Canadian dollars)

    CONSOLIDATED STATEMENTS OF CASH FLOW

                             Three Months Ended         Six Months Ended
                                   June 30                   June 30
                          ---------------------------------------------------
                              2008         2007         2008         2007
                          ------------ ------------ ------------ ------------

    Operating activities:
      Income from con-
       tinuing operations $    22,207  $    30,267  $    49,338  $    53,575
      Items not requiring
       an outlay of cash:
        Amortization of
         property, plant
         and equipment         13,182        9,751       26,125       19,733
        Amortization of
         deferred project
         costs                  2,986        3,277        6,708        8,953
        Asset retirement
         obligation expense       666        1,043        1,732        1,238
        Stock-based
         compensation
         (note 2)                 806          697        1,693        1,372
        Future income taxes     3,469          792         (265)         635
        Gain on disposal of
         property, plant
         and equipment            112         (121)         103         (203)
        Impairment of
         available-for-sale
         financial asset
         (note 9)                   -            -        1,498            -
        Non-controlling
         interest in
         earnings of
         subsidiaries             156         (263)        (273)        (716)
        Gain on disposal
         of subsidiary
         (note 21)             (1,063)           -       (1,063)           -
      Settlement of asset
       retirement
       obligations               (415)      (1,424)      (1,374)      (2,597)
      Change in employee
       future benefits            866          927        1,632        1,762
      Change in non-cash
       working capital         31,362      (20,692)     (21,035)     (29,645)
                          ------------ ------------ ------------ ------------
    Cash provided by
     continuing operating
     activities                74,334       24,254       64,819       54,107
                          ------------ ------------ ------------ ------------

    Investing activities:
      Purchases of
       property, plant
       and equipment          (26,653)     (23,868)     (38,914)     (39,361)
      Proceeds on disposal
       of property, plant
       and equipment                -          101           32          202
      Increase in deferred
       project costs           (8,294)       3,995      (10,348)      (2,579)
      Acquisition of
       subsidiaries
       (note 21)             (124,376)           -     (124,376)           -
      Proceeds on disposal
       of subsidiaries
       (note 21)                5,635            -        5,635            -
      Investment in shares          -         (301)           -         (301)
                          ------------ ------------ ------------ ------------
    Cash used in
     continuing investing
     activities              (153,688)     (20,073)    (167,971)     (42,039)
                          ------------ ------------ ------------ ------------

    Financing activities:
      Increase (decrease)
       in bank indebtedness    62,961       (2,700)      62,970       (3,667)
      Issue of shares             976        2,359        1,435        3,684
      Purchase of shares
       for cancellation             -      (66,104)     (12,642)     (76,762)
      Dividends paid to
       shareholders            (4,533)      (4,171)      (8,548)      (8,359)
                          ------------ ------------ ------------ ------------
    Cash provided by
     (used in) continuing
     financing activities      59,404      (70,616)      43,215      (85,104)
                          ------------ ------------ ------------ ------------

    Foreign exchange on
     foreign cash and
     cash equivalents          (1,225)     (11,921)       4,493      (11,766)
                          ------------ ------------ ------------ ------------

    Net cash used in
     continuing operations    (21,175)     (78,356)     (55,444)     (84,802)

    Net cash provided by
     (used in) discontinued
     operations (note 6)        2,676       (1,267)       3,936       (1,946)

    Cash and cash
     equivalents at
     beginning of period      142,008      302,197      175,017      309,322
                          ------------ ------------ ------------ ------------

    Cash and cash
     equivalents at end
     of period            $   123,509  $   222,574  $   123,509  $   222,574
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------

    Supplemental
     information:
      Cash interest paid  $     1,374        1,462  $     2,563  $     3,496
      Cash income taxes
       paid               $     3,747       11,509  $    12,048  $    35,705



    SHAWCOR LTD.
    INTERIM FINANCIAL INFORMATION (Unaudited)
    (in thousands of Canadian dollars)

    CONSOLIDATED BALANCE SHEETS

                                                      June 30    December 31
                                                        2008         2007
                                                    ------------ ------------
    Assets
    Current assets
      Cash and cash equivalents (note 7)            $   123,509  $   175,017
      Accounts receivable                               247,793      203,547
      Taxes receivable                                    8,418        3,169
      Inventories                                       155,030      102,486
      Prepaid expenses                                   10,466       11,362
      Derivative financial instruments                      485        1,508
      Current future income taxes                         5,638        2,770
      Current assets of discontinued operation
       (note 6)                                           9,785       16,305
                                                    ------------ ------------
                                                        561,124      516,164
    Property, plant and equipment, net                  280,293      242,783
    Goodwill                                            209,408      159,480
    Intangible assets (note 8)                           60,258        1,558
    Future income taxes                                  20,264       24,463
    Other assets (note 9)                                15,063       15,878
                                                    ------------ ------------
                                                    $ 1,146,410  $   960,326
                                                    ------------ ------------
                                                    ------------ ------------

    Liabilities
    Current liabilities
      Bank indebtedness (note 10)                   $    68,077  $       107
      Accounts payable and accrued liabilities          148,382      153,116
      Taxes payable                                      50,718       32,030
      Derivative financial instruments                      519            -
      Deferred revenues                                  55,001       24,021
      Current portion of long-term debt                  28,369            -
      Current liabilities of discontinued operation
       (note 6)                                          38,198       51,265
                                                    ------------ ------------
                                                        389,264      260,539
    Long-term debt                                       53,292       72,726
    Future income taxes                                  40,290       33,006
    Derivative financial instruments                        343            -
    Other non-current liabilities (note 11)              17,475       10,740
                                                    ------------ ------------
                                                        500,664      377,011
                                                    ------------ ------------

    Non-controlling interest in subsidiaries                404        3,283
                                                    ------------ ------------

    Shareholders' Equity
    Capital stock (note 12)                             203,778      203,252
    Contributed surplus (note 13)                        12,924       11,729
    Retained earnings                                   529,211      486,548
    Accumulated other comprehensive loss (note 14)     (100,571)    (121,497)
                                                    ------------ ------------
                                                        645,342      580,032
                                                    ------------ ------------
                                                    $ 1,146,410  $   960,326
                                                    ------------ ------------
                                                    ------------ ------------



    SHAWCOR LTD.
    INTERIM FINANCIAL INFORMATION (Unaudited)
    (in thousands of Canadian dollars)

    CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

                             Three Months Ended         Six Months Ended
                                   June 30                   June 30
                          ---------------------------------------------------
                              2008         2007         2008         2007
                          ------------ ------------ ------------ ------------

    Balance at beginning
     of period            $   500,984  $   507,715  $   486,548  $   498,001
    Transitional
     adjustment (note 1)            -            -        2,624            -
                          ------------ ------------ ------------ ------------
    Adjusted balance at
     beginning of year        500,984      507,715      489,172      498,001
    Net income                 32,760       30,219       59,822       53,472
                          ------------ ------------ ------------ ------------
                              533,744      537,934      548,994      551,473

    Excess of purchase
     price paid over
     stated value of
     shares (note 12)               -      (58,813)     (11,235)     (68,164)
    Dividends declared         (4,533)      (4,171)      (8,548)      (8,359)
                          ------------ ------------ ------------ ------------
    Balance at end of
     period               $   529,211  $   474,950  $   529,211  $   474,950
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------



    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                             Three Months Ended         Six Months Ended
                                   June 30                   June 30
                          ---------------------------------------------------
                              2008         2007         2008         2007
                          ------------ ------------ ------------ ------------

    Net income            $    32,760  $    30,219  $    59,822  $    53,472
    Other comprehensive
     income (loss), net
     of income taxes:
      Unrealized gain
       (loss) on translating
       financial statements
       of self-sustaining
       foreign operations       1,197      (28,133)      23,300      (29,225)
      Gain (loss) on hedges
       of unrealized foreign
       currency translation     1,060        6,893       (2,218)       7,275
      Income tax expense            -       (1,237)           -       (1,237)
                          ------------ ------------ ------------ ------------
    Unrealized foreign
     currency translation
     gain (loss), net of
     hedging activities         2,257      (22,477)      21,082      (23,187)
                          ------------ ------------ ------------ ------------
      Unrealized loss on
       available-for-sale
       financial assets
       arising during
       the period                   -         (643)        (911)      (1,283)
      Unrealized loss on
       available-for-sale
       financial assets
       transferred to net
       income in the
       current period               -            -        1,498            -
      Income tax expense
       transferred to net
       income in the period         -          218          253          436
                          ------------ ------------ ------------ ------------
    Change in unrealized
     loss on available-
     for-sale financial
     assets                         -         (425)         840         (847)
                          ------------ ------------ ------------ ------------
      Gain on derivatives
       designated as cash
       flow hedges                  -        2,028            -        2,145
      Income tax expense            -         (688)           -         (728)
      Loss (gain) on
       derivatives
       designated as cash
       flow hedges in prior
       periods transferred
       to net income in
       the current period           -         (104)      (1,508)          34
      Income tax expenses
       (benefits)
       transferred to net
       income in the
       current period               -          35          512          (12)
                          ------------ ------------ ------------ ------------
    Change in gain (loss)
     on derivatives
     designated as cash
     flow hedges                    -       1,271         (996)       1,439
                          ------------ ------------ ------------ ------------

    Other comprehensive
     income (loss)              2,257      (21,631)      20,926      (22,595)
                          ------------ ------------ ------------ ------------

    Comprehensive income  $    35,017  $     8,588  $    80,748  $    30,877
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------



    ShawCor Ltd.

    Notes to the Consolidated Financial Statements (Unaudited)

    1.  Accounting policies

    The accompanying unaudited interim consolidated financial statements of
    ShawCor Ltd. (the "Company") have been prepared in accordance with
    Canadian generally accepted accounting principles ("GAAP") for the
    preparation of interim financial statements. They do not include all of
    the information and disclosures required by GAAP for annual consolidated
    financial statements. Except as noted below, these unaudited interim
    consolidated financial statements have been prepared in accordance with
    accounting policies outlined in the Company's audited consolidated
    financial statements for the year ended December 31, 2007. Accordingly,
    these interim consolidated financial statements should be read in
    conjunction with the Company's annual consolidated financial statements.

    a) Intangible Assets

    Intangible assets, including intellectual property, are recorded at their
    allocated cost at the date of acquisition of the related subsidiary.
    Amortization is provided for intangible assets with definite lives,
    including intellectual property, on a straight-line basis over their
    estimated useful lives of up to 25 years.

    b) General Standards of Financial Statements Presentation

    Effective January 1, 2008, the Company adopted changes to the Canadian
    Institute of Chartered Accountants' ("CICA") Handbook Section 1400,
    General Standards of Financial Statement Presentation. Amendments to this
    Handbook section require management to evaluate, as at each balance sheet
    date, the Company's ability to continue as a going concern. If management
    concludes that the Company can no longer operate as a going concern, that
    fact, along with information relevant to that assessment, is required to
    be disclosed in the financial statements. When financial statements are
    not prepared on a going concern basis, this fact is to be disclosed along
    with a description of the basis of preparation. This change had no impact
    on the Company's unaudited interim consolidated financial statements.

    c) Capital Disclosures

    Effective January 1, 2008, the Company adopted CICA Handbook Section
    1535, Capital Disclosures. This Handbook section establishes standards
    for disclosing information about the Company's capital and how it is
    managed and includes the requirement for disclosure of information about
    the Company's objectives, policies and processes for managing capital.
    The disclosures related to this handbook section are included in note 17.

    d) Financial Instruments

    Effective January 1, 2008, the Company adopted the following CICA
    Handbook Sections: 3862, Financial Instruments - Disclosure; and 3863,
    Financial Instruments - Presentation, the former of which outlines the
    disclosure requirements related to the Company's financial instruments.
    The adoption of the standards did not have any impact on the
    classification and valuation of the Company's financial instruments. The
    disclosures required by these Handbook sections are included in note 16.

    e) Inventories

    On January 1, 2008, the Company adopted CICA Handbook Section 3031,
    Inventories. As required, this accounting standard has been adopted
    prospectively with an adjustment to retained earnings. Prior year figures
    have not been restated. The following adjustments were made to the
    Company's balance sheet as a result of adopting this accounting standard:

    -------------------------------------------------------------------------
    (in thousands of Canadian dollars)                       January 1, 2008
    -------------------------------------------------------------------------
    Increase in assets:
      Inventories..............................................  $     2,624
                                                                 ------------
    Total increase in assets...................................  $     2,624
                                                                 ------------
                                                                 ------------

    Increase in shareholders' equity:
      Retained earnings........................................        2,624
                                                                 ------------
    Total increase to shareholders' equity.....................        2,624
                                                                 ------------
    Total increase to liabilities and shareholders' equity.....  $     2,624
                                                                 ------------
                                                                 ------------


    The following is a description of the accounting policy adopted by the
    Company as a result of implementing this accounting change:

    Inventories are valued at the lower of cost or net realizable value. Cost
    is determined on a first-in, first-out basis, except in certain project
    based pipe coating businesses where the average cost basis is employed,
    and includes direct materials, direct labour and variable and fixed
    manufacturing overheads. Net realizable value for finished goods and
    work-in-process is the amount which would be realized on the sale, less
    the cost of transport, and for raw materials and supplies is replacement
    cost. Ownership of inbound inventories is recognized at the time title
    passes to the Company, which coincides with the invoicing and release of
    such inventories by suppliers.

    2.  Stock-based compensation

    The Board of Directors approved the granting of 30,000 stock options on
    May 26, 2008 and 398,600 on February 22, 2008 under the 2001 Employee
    Plan. The total fair value of the stock options granted during six months
    ended June 30, 2008 was $4.1 million and the weighted average fair value
    of the options was $10.54 (2007 - $8.15), calculated using the Black-
    Scholes pricing model with the following assumptions:

    -------------------------------------------------------------------------
                                                       2008          2007
    -------------------------------------------------------------------------
    Expected life of options......................  6.25 years    6.25 years
    -------------------------------------------------------------------------
    Expected stock price volatility...............      29.63%        29.02%
    -------------------------------------------------------------------------
    Expected dividend yield.......................       0.75%         0.92%
    -------------------------------------------------------------------------
    Risk-free interest rate.......................       3.20%         4.04%
    -------------------------------------------------------------------------

    The fair value of options granted under the 2001 Employee plan will be
    amortized to compensation expense over the 5 year vesting period of
    options. The compensation cost from the continuing amortization of
    granted stock options for the three months and six months ended June 30,
    2008, included in selling, general and administrative expenses, is $806
    thousand and $1.7 million, respectively (June 30, 2007 - $697 thousand
    and $1.7 million, respectively).

    3.  Foreign exchange gains and losses

    Included in selling, general and administrative expenses for the three
    months and six months ended June 30, 2008 are foreign exchange losses of
    $1.1 million and gains of $2.1 million, respectively, (June 30, 2007 -
    losses of $1.0 million and $1.8 million, respectively).

    4.  Employee future benefits

    The Company's cost under both defined benefit and defined contribution
    arrangements included in selling, general and administrative expenses for
    the three months and six months ended June 30, 2008 is $2.4 million and
    $4.8 million (June 30, 2007 - $2.5 million and $4.9 million).

    5.  Interest income (expense)

                             Three Months Ended         Six Months Ended
    (in thousands of               June 30                   June 30
     Canadian dollars)        2008         2007         2008         2007
    -------------------------------------------------------------------------

    Interest on short-
     term deposits        $       610  $     2,625  $     2,062  $     5,808
    Interest on bank
     indebtedness                (315)        (108)        (671)        (305)
    Interest on long-
     term debt                 (1,190)      (1,288)      (2,373)      (2,675)
                         ----------------------------------------------------
                          $      (895) $     1,229  $      (982) $     2,828
                         ----------------------------------------------------
                         ----------------------------------------------------

    6.  Discontinued operations

    On November 2, 2004, the Company announced its decision to close the
    Mobile, Alabama pipe coating facility (the "Mobile Facility") and by
    December 31, 2005, operations at the Mobile Facility had ceased. The
    Company adopted discontinued operation accounting treatment for the
    Mobile Facility in 2005. The Mobile Facility was part of the Pipeline and
    Pipe Services market segment.

    On July 17, 2008, the Company announced that it had reached a settlement
    of the Alabama lawsuit brought by Dirt, Inc. against Bredero Price
    Company, Bredero Shaw LLC, ShawCor Ltd. and Halliburton Energy Services,
    Inc., which resulted in the previously announced verdict of
    US$100 million in compensatory damages and punitive damages of
    US$2 million against each defendant plus interest. The matter was
    settled, at a mediation ordered by the Alabama Supreme Court as part of
    the appeal proceedings, for a total of US$43.5 million against all
    parties. The Company and its co-shareholder of Bredero Price Company are
    now discussing apportionment of the settlement amount. As a result of
    this settlement, the Company has reduced its reserves related to this
    lawsuit to $36.0 million, less anticipated income tax recoveries of
    $12.6 million, with the result that income from discontinued operations
    was recorded in the three months ended June 30, 2008 in amount of
    $10.6 million, net of an income tax recovery of $6.6 million.

    The following table summarizes the financial results and cash flows from
    discontinued operations for the three months and six months ended
    June 30, 2008 and 2007 and the assets and liabilities of the discontinued
    operations as at those dates:

                             Three Months Ended         Six Months Ended
    (in thousands of               June 30                   June 30
     Canadian dollars)        2008         2007         2008         2007
    -------------------------------------------------------------------------

    Revenue               $         -  $         -  $         -  $         -
                         ----------------------------------------------------

    Income (loss) from
     operations                17,156          (48)      17,087         (103)
    Interest expenses               -                         -            -
                         ----------------------------------------------------
    Income (loss) from
     discontinued
     operations before
     income taxes              17,156          (48)      17,087         (103)
    Income tax expense          6,603            -        6,603            -
                         ----------------------------------------------------
    Income (loss) from
     discontinued
     operations           $    10,553  $       (48) $    10,484  $      (103)
                         ----------------------------------------------------
                         ----------------------------------------------------

    Cash flow provided by
     (used in) operating
     activities           $     2,676  $    (1,267) $     3,936  $    (1,946)

    Current assets                                  $     9,785  $         2
    Property, plant and
     equipment, net                                           -            -
    Current liabilities                             $    38,198  $     5,792


    7.  Cash and cash equivalents

                                                      June 30      Dec. 31
    (in thousands of Canadian dollars)                  2008         2007
    -------------------------------------------------------------------------

    Cash                                            $    87,996  $   122,655
    Cash equivalents                                     35,513       52,362
                                                   --------------------------
                                                    $   123,509  $   175,017
                                                   --------------------------
                                                   --------------------------


    8.  Intangible assets

                                                      June 30      Dec. 31
    (in thousands of Canadian dollars)                  2008         2007
    -------------------------------------------------------------------------

    Intellectual property with limited life,
     net of accumulated amortization of nil
     (2007 - nil)                                   $    57,927  $       827
    Intangible assets with limited life net of
     accumulated amortization of nil (2007 - nil)           400          400
    Intangible assets with indefinite life                1,931          331
                                                   --------------------------
                                                    $    60,258  $     1,558
                                                   --------------------------
                                                   --------------------------

    Intellectual property represents the costs of certain technology and
    know-how obtained in acquisitions. Intangible assets include trademarks,
    brand names and customer relationships obtained in acquisitions.

    9.  Other assets

                                                      June 30      Dec. 31
    (in thousands of Canadian dollars)                  2008         2007
    -------------------------------------------------------------------------

    Long-term investments                           $     1,690  $     2,589
    Deferred project costs                                8,966        8,492
    Accrued employee future benefit asset                 4,407        4,797
                                                   --------------------------
                                                    $    15,063  $    15,878
                                                   --------------------------
                                                   --------------------------

    Other assets include a long-term investment in Garneau Inc. ("Garneau"),
    a Canadian-based, publicly traded pipe coating company. The Company has
    reviewed the 2007 financial performance of Garneau, as outlined in its
    public filings, and the protracted decline in its share price and has
    concluded that the decrease in fair value, based on quoted market prices,
    of the investment from original cost is other than temporary. The Company
    has recorded a charge to selling, general and administrative expenses, in
    the financial and corporate segment, during the three months ended
    March 31, 2008 of $1.5 million.

    10. Bank indebtedness

    On June 24, 2008, the Company negotiated a $65.8 million increase in its
    operating credit lines, in support of the Company's acquisition of
    Flexpipe Systems Inc. ("Flexpipe") on June 27, 2008. In addition,
    Flexpipe has a line of credit of $15.0 million. At June 30, 2008, the
    Company had total operating credit lines of $257.8 million (December 31,
    2007 - $172.0 million), of which $122.8 million has been drawn for
    various standby letters of credit for performance, bid and surety bonds
    (December 31, 2007 - $107.0 million) and bank indebtedness of
    $68.7 million (December 31, 2007 - nil), to yield unutilized credit
    facilities of $66.3 million (December 31, 2007 - $64.7 million),
    excluding the Company's proportionate share of the bank indebtedness of
    its joint venture, Arabian Pipecoating Company Limited.

    As part of the acquisition of Flexpipe, the Company acquired Flexpipe's
    long-term debt in the amount of $6.6 million. This debt bears interest at
    bank prime plus 0.75% and is repayable in monthly installments of
    $229 thousand. Principal repayments of this debt are estimated to be:

    (in thousands of Canadian dollars)                               Total
    -------------------------------------------------------------------------
    2008                                                         $     1,996
    2009                                                               2,743
    2010                                                               1,829
    -------------------------------------------------------------------------
                                                                       6,568
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    11. Other non-current liabilities

                                                      June 30      Dec. 31
    (in thousands of Canadian dollars)                  2008         2007
    -------------------------------------------------------------------------

    Non-current asset retirement obligations        $    13,471  $     7,977
    Accrued employee future benefit obligations           4,004        2,763
                                                   --------------------------
                                                    $    17,475  $    10,740
                                                   --------------------------
                                                   --------------------------

    12. Capital stock

                                                      June 30      Dec. 31
    (in thousands of Canadian dollars)                  2008         2007
    -------------------------------------------------------------------------
    Number of shares: Class A
    Balance, beginning of the period                 58,234,570   60,914,175
    Issued - stock options                               92,380      320,295
    Conversions Class B to Class A                          233            -
    Purchase - normal course issuer bid                (405,000)  (2,999,900)
    Balance, end of the period                       57,922,183   58,234,570
    Number of shares: Class B                        13,077,909   13,078,142
                                                   --------------------------
    Total number of shares                           71,000,092   71,312,712
                                                   --------------------------
                                                   --------------------------

    Stated value:
    Balance, beginning of the period                $   202,248  $   205,848
    Issued - stock options                                1,435        4,955
    Conversions Class B to Class A                            -            -
    Purchase - normal course issuer bid                  (1,407)     (10,194)
    Compensation cost on exercised options                  498        1,639
                                                   --------------------------
    Balance, end of the period                          202,774      202,248
                                                   --------------------------
    Stated value: Class B                                 1,004        1,004
                                                   --------------------------
    Total stated value                              $   203,778  $   203,252
                                                   --------------------------
                                                   --------------------------

    During the six months ended June 30, 2008, the Company repurchased and
    cancelled 405,000 Class A Subordinated Voting Shares ("Class A shares")
    (June 30, 2007 - 2,540,100) under the terms of a Normal Course Issuer Bid
    ("NCIB"). The excess of cost over stated capital of the acquired shares,
    which for the six months ended June 30, 2008 totaled $11.2 million
    (June 30, 2007 - $68.2 million), was charged to retained earnings. The
    repurchase of shares was made on the open market at prevailing market
    prices for a total of $12.6 million.

    13. Contributed surplus

                             Three months ended         Six months ended
    (in thousands of        June 30,     June 30,     June 30,     June 30,
     Canadian dollars)        2008         2007         2008         2007

    Balance, beginning
     of period            $    12,415  $    10,830  $    11,729  $    10,603
    Stock compensation
     expense (note 2)             806          697        1,693        1,373
    Fair value of stock
     options exercised           (297)        (704)        (498)      (1,153)
                          ---------------------------------------------------
    Balance, end of
     period               $    12,924  $    10,823  $    12,924  $    10,823
                          ---------------------------------------------------
                          ---------------------------------------------------

    14. Accumulated other comprehensive loss

                                                      June 30      Dec. 31
    (in thousands of Canadian dollars)                  2008         2007
    -------------------------------------------------------------------------

    Unrealized foreign currency translation
     losses, net of hedging activities              $  (100,571) $  (121,653)
    Unrealized loss on available-for-sale
     financial asset                                          -         (840)
    Gain on derivatives designated as cash
     flow hedges                                              -          996
                                                   --------------------------
    Balance, at end of period                       $  (100,571) $  (121,497)
                                                   --------------------------
                                                   --------------------------

    15. Stock option plans

    A summary of the status of the Company's stock option plans and changes
    during the period are presented below:

    -------------------------------------------------------------------------
                              June 30, 2008              Dec. 31, 2007
    -------------------------------------------------------------------------
                                       Weighted                    Weighted
                                        Average                     Average
                          Total        Exercise       Total        Exercise
                          Shares         Price        Shares         Price
    -------------------------------------------------------------------------
    Balance outstanding,
     beginning of year   2,173,980         17.24     2,269,395         15.76
    -------------------------------------------------------------------------
    Granted                428,600         30.03       371,800         25.02
    -------------------------------------------------------------------------
    Exercised              (92,380)        15.52      (320,295)        15.64
    -------------------------------------------------------------------------
    Forfeited                    -             -      (142,000)        17.42
    -------------------------------------------------------------------------
    Expired                      -             -        (4,920)        17.91
    -------------------------------------------------------------------------
    Balance outstanding,
     end of period       2,510,200         19.49     2,173,980         17.24
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                              Options Outstanding        Options Exercisable
    -------------------------------------------------------------------------
                                    Weighted
                                    average
                                   remaining   Weighted              Weighted
                     Outstanding  contractual   average  Exercisable  average
        Range of      at June 30,   life in    exercise  at June 30, exercise
     exercise prices     2008        years       price      2008      price
    -------------------------------------------------------------------------
    $10.00 to $15.00     479,200        4.92     $12.64    448,720    $12.73
    -------------------------------------------------------------------------
    $15.01 to $20.00   1,211,960        5.85     $16.83    817,876    $16.75
    -------------------------------------------------------------------------
    $20.01 to $25.00      40,000        7.01     $20.90     18,400    $21.03
    -------------------------------------------------------------------------
    $25.01 to $30.00     749,040        9.04     $27.62     70,088    $25.02
    -------------------------------------------------------------------------
    $30.01 to $35.00      30,000        9.51     $31.77          -         -
    -------------------------------------------------------------------------
                       2,510,200                         1,355,084
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                              Options Outstanding        Options Exercisable
    -------------------------------------------------------------------------
                                    Weighted
                                    average
                                   remaining   Weighted              Weighted
                     Outstanding  contractual  average  Exercisable   average
        Range of     at December    life in   exercise  at December  exercise
     exercise prices   31, 2007      years      price    31, 2007      price
    -------------------------------------------------------------------------
    $10.00 to $15.00     518,620        5.28     $12.69    387,616    $12.80
    -------------------------------------------------------------------------
    $15.01 to $20.00   1,259,760        6.36     $16.81    645,568    $16.71
    -------------------------------------------------------------------------
    $20.01 to $25.00      40,000        7.51     $20.90     11,200    $21.19
    -------------------------------------------------------------------------
    $25.01 to $30.00     355,600        9.01     $25.02          -         -
    -------------------------------------------------------------------------
                       2,173,980                         1,044,384
    -------------------------------------------------------------------------

    16. Financial instruments and financial risk management

    a) Categories of Financial Assets and Financial Liabilities

    Under Canadian GAAP, financial instruments are classified into one of the
    following categories: held-for-trading, held-to-maturity investments,
    loans and receivables, available-for-sale financial assets, derivatives
    and other financial liabilities. The Company has classified its financial
    instruments as follows:

    -------------------------------------------------------------------------
                                                      June 30      Dec. 31
    (in thousands of Canadian dollars)                  2008         2007
    -------------------------------------------------------------------------
    Financial assets:
    -------------------------------------------------------------------------
      Held for trading, measured at fair value
    -------------------------------------------------------------------------
        Cash                                        $    87,996  $   122,655
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
      Held to maturity, recorded at amortized cost
    -------------------------------------------------------------------------
        Cash equivalents                                 35,513       52,362
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
      Loans and receivables, recorded at amortized cost
    -------------------------------------------------------------------------
        Accounts receivable                             247,793      203,547
    -------------------------------------------------------------------------
        Taxes receivable                                  8,418        3,169
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
      Available for sale, measured at fair value
    -------------------------------------------------------------------------
        Long-term investments                             1,690        2,589
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
      Derivatives, measured at fair value
    -------------------------------------------------------------------------
        Derivative financial instruments                   (377)       1,508
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Financial liabilities:
    -------------------------------------------------------------------------
      Other liabilities, recorded at amortized cost:
    -------------------------------------------------------------------------
        Bank indebtedness                                68,077          107
    -------------------------------------------------------------------------
        Accounts payable and accrued liabilities        148,382      153,116
    -------------------------------------------------------------------------
        Taxes payable                                    50,718       32,030
    -------------------------------------------------------------------------
        Long-term debt                                   81,661       72,726
    -------------------------------------------------------------------------

    The Company has determined the estimated fair values of its financial
    instruments based on appropriate valuation methodologies; however,
    considerable judgment is required to develop these estimates. The fair
    values of the Company's financial instruments are not materially
    different from their carrying values, with the exception of the Company's
    Senior Notes of $75.1 million (December 31, 2007 - $72.7 million). Based
    on current interest rates for debt with similar terms and maturities, the
    fair value of the Senior Notes is estimated to be $75.6 million
    (December 31, 2007 - $74.9 million).

    b) Foreign Exchange Forward Contracts and Other Hedging Arrangements

    The Company utilizes financial instruments to manage the risk associated
    with foreign exchange rates. The Company formally documents all
    relationships between hedging instruments and the hedge items, as well as
    its risk management objective and strategy for undertaking various hedge
    transactions.

    The following table sets out the notional amounts outstanding under
    foreign exchange contracts, the average contractual exchange rates and
    the settlement of these contracts as at June 30, 2008:

    -------------------------------------------------------------------------
    (in thousands)                                             June 30, 2008
    -------------------------------------------------------------------------
    Canadian dollars sold for Great Britain Pounds
    -------------------------------------------------------------------------
      Less than one year                                             CAD$410
    -------------------------------------------------------------------------
      Weighted average rate                                           2.0027
    -------------------------------------------------------------------------
    U.S. dollars sold for Canadian dollars
    -------------------------------------------------------------------------
      Less than one year                                           US$12,000
    -------------------------------------------------------------------------
      Weighted average rate                                           1.0093
    -------------------------------------------------------------------------
    Euros sold for U.S. dollars
    -------------------------------------------------------------------------
      Less than one year                                          Euro 4,150
    -------------------------------------------------------------------------
      Weighted average rate                                           1.4985
    -------------------------------------------------------------------------
      One year to two years                                       Euro 2,150
    -------------------------------------------------------------------------
      Weighted average rate                                           1.4490
    -------------------------------------------------------------------------
      Two years to three years                                    Euro 2,200
    -------------------------------------------------------------------------
      Weighted average rate                                           1.4465
    -------------------------------------------------------------------------
    U.S. dollars sold for Norwegian Kroners
    -------------------------------------------------------------------------
      Less than one year                                            US$9,543
    -------------------------------------------------------------------------
      Weighted average rate                                           5.3273
    -------------------------------------------------------------------------
    U.S. dollars sold for Malaysian Ringgit
    -------------------------------------------------------------------------
      Less than one year                                            US$3,800
    -------------------------------------------------------------------------
      Weighted average rate                                           3.2785
    -------------------------------------------------------------------------

    At June 30, 2008, the Company had notional amounts of $39.3 million of
    forward contracts outstanding (December 31, 2007 - $35.7 million) with
    the fair value of the Company's net obligation from all foreign exchange
    forward contracts totaling $1.5 million (December 31, 2007 -
    $1.5 million, net benefit).

    c) Financial Risk Management

    The Company's operations expose it to a variety of financial risks
    including: market risk (including foreign exchange and interest rate
    risk), credit risk and liquidity risk. The Company's overall risk
    management program focuses on the unpredictability of financial markets
    and seeks to minimize potential adverse effects on the Company's
    financial position and financial performance. Risk management is the
    responsibility of Company management. Material risks are monitored and
    are regularly reported to the Audit Committee of the Board of Directors.

    Foreign exchange risk

    The majority of the Company's business is transacted outside of Canada
    through subsidiaries operating in several countries. The net investments
    in these subsidiaries as well as their revenue, operating expenses and
    non-operating expenses are based in foreign currencies. As a result, the
    Company's consolidated revenue, expenses and financial position, may be
    impacted by fluctuations in foreign exchange rates as these foreign
    currency items are translated into Canadian dollars. As of June 30, 2008,
    fluctuations of +/- 5% in the Canadian dollar, relative to those foreign
    currencies, would impact the Company's consolidated revenue, operating
    income from continuing activities and income from continuing activities
    for the three months then ended by approximately $7.4 million,
    $1.6 million and $900 thousand, respectively, prior to hedging
    activities. The Company utilizes foreign exchange forward contracts to
    manage foreign exchange risk from its underlying customer contracts. The
    Company does not enter into foreign exchange contracts for speculative
    purposes.

    The Company's 5.11% Senior Notes and associated interest expense are
    denominated in U.S. dollars. Fluctuations in the exchange rate between
    the Canadian and U.S. dollar would impact the carrying value of the Notes
    in terms of Canadian dollars as well as amount of interest expenses when
    translated into Canadian dollars. Effective July 3, 2003, the Company
    designated the Senior Notes as a hedge of a portion of its net investment
    in the Company's U.S. dollar based operations. Gains and losses from the
    translation of this debt are not included in the income statement, but
    are shown in accumulated other comprehensive income. As of June 30, 2008,
    fluctuations of +/- 5% in the Canadian dollar, relative to the U.S.
    dollar, would impact the Company's accumulated other comprehensive income
    and interest expense by $3.8 million and $50 thousand, respectively, for
    the three months then ended.

    The objective of the Company's foreign exchange risk management
    activities is to minimize transaction exposures associated with the
    Company's foreign currency-denominated cash streams and the resulting
    variability of the Company's earnings. The Company utilizes foreign
    exchange forward contracts to manage this foreign exchange risk. The
    Company does not enter into foreign exchange contracts for speculative
    purposes. With the exception of the Company's U.S. dollar based
    operations, the Company does not hedge translation exposures.

    Interest rate risk

    The following table summarizes the Company's exposure to interest rate
    risk at June 30, 2008:

    -------------------------------------------------------------------------
    (in thousands)                 Fixed interest rate maturing in
    -------------------------------------------------------------------------
                          Floating     1 year or      Greater
                            rate          less      than 1 year      Total
    -------------------------------------------------------------------------
    Financial assets
    -------------------------------------------------------------------------
      Cash and cash
       equivalents         $87,996       $35,513       $     -      $123,509
    -------------------------------------------------------------------------
    Total                  $87,996       $35,513       $     -      $123,509
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Weighted average
     fixed rate of
     cash equivalents            -         1.94%             -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Financial liabilities
    -------------------------------------------------------------------------
      Bank indebtedness    $68,077       $     -       $     -       $68,077
    -------------------------------------------------------------------------
      Long-term debt         6,568        25,289        49,804        81,661
    -------------------------------------------------------------------------
    Total                  $74,645       $25,289       $49,804      $149,738
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Weighted average
     fixed rate of debt          -             -         5.11%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Company's interest rate risk arises primarily from its floating rate
    bank indebtedness, and is not currently considered to be material.

    Credit risk

    Credit risk arises from cash and cash equivalents held with banks,
    forward foreign exchange contracts, as well as credit exposure of
    customers, including outstanding accounts receivable. The maximum credit
    risk is equal to the carrying value of the financial instruments.

    The objective of managing counter party credit risk is to prevent losses
    in financial assets. The Company assesses the credit quality of the
    counter parties, taking into account their financial position, past
    experience and other factors. Management also establishes and regularly
    reviews credit limits of counter parties and monitors utilization of
    those credit limits on an ongoing basis.

    The carrying value of accounts receivable are reduced through the use of
    an allowance for doubtful accounts and the amount of the loss is
    recognized in the income statement with a charge to selling, general and
    administrative expenses. When a receivable balance is considered to be
    uncollectible, it is written off against the allowance for doubtful
    accounts. Subsequent recoveries of amounts previously written off are
    credited against selling, general and administrative expenses.

    The aging of trade accounts receivable and the balance of the allowance
    for doubtful accounts as of June 30, 2008 are as follows:

    (in thousands of Canadian dollars)                         June 30, 2008
    -------------------------------------------------------------------------
    Not past due                                                 $   203,606
    Past due 1 to 30 days                                             28,562
    Past due 31 to 60 days                                             9,699
    Past due 61 to 90 days                                             5,182
    Past due for more than 90 days                                     4,895
                                                                 ------------
    Total trade receivables                                          251,944
    Less: allowance for doubtful accounts                              4,151
                                                                 ------------
    Net receivables                                              $   247,793
                                                                 ------------
                                                                 ------------

    The following is an analysis of the change in the allowance for doubtful
    accounts for the three months ended June 30, 2008:

                                                            Six Months Ended
    (in thousands of Canadian dollars)                         June 30, 2008
    -------------------------------------------------------------------------
    Balance, beginning of period                                 $     4,165
    Bad debt expense                                                     295
    Write-offs of bad debts                                             (251)
    Impact of change in foreign exchange rates                           (58)
                                                                 ------------
    Balance, end of period                                       $     4,151
                                                                 ------------
                                                                 ------------

    Liquidity Risk

    The Company's objective in managing liquidity risk is to maintain
    sufficient, readily available cash reserves in order to meet its
    liquidity requirements at any point in time. The Company achieves this by
    maintaining sufficient cash and cash equivalents and through the
    availability of funding from committed credit facilities. As of June 30,
    2008, the Company has cash and cash equivalents totaling $124.2 million
    and had unutilized lines of credit available to use of $66.3 million. The
    following are the contractual maturities of the Company's financial
    liabilities as of June 30, 2008:

    -------------------------------------------------------------------------
                                                     Less than    After one
    (in thousands of Canadian dollars)                one year       year
    -------------------------------------------------------------------------
    Accounts payable and accrued liabilities        $   146,279  $         -
    -------------------------------------------------------------------------
    Asset retirement obligations                          2,103       13,471
    -------------------------------------------------------------------------
    Bank indebtedness                                    68,077            -
    -------------------------------------------------------------------------
    Long-term debt                                       28,369       53,292
    -------------------------------------------------------------------------
    Interest on financial instruments                     3,877        3,876
    -------------------------------------------------------------------------
    Derivative financial instruments                         34          343
    -------------------------------------------------------------------------

    17. Capital management

    The Company defines capital that it manages as the aggregate of its
    shareholders' equity and interest bearing debt. The Company's objectives
    when managing capital are to ensure that the Company will continue to
    operate as a going concern and continue to provide products and services
    to its customers, preserve its ability to finance expansion opportunities
    as they arise, and provide returns to its shareholders.

    As at June 30, 2008, total managed capital was $795.1 million
    (December 31, 2007 - $652.7 million), comprised of shareholders equity of
    $645.3 million (December 31, 2007 - $580.0 million), long-term debt of
    $81.7 (December 31, 2007 - $72.7 million) and bank indebtedness of
    $68.1 million (December 31, 2007 - $107 thousand).

    The Company manages its capital structure and makes adjustments to it in
    light of changes in economic conditions, the risk characteristics of the
    underlying assets and business investment opportunities. To maintain or
    adjust the capital structure, the Company may attempt to issue or re-
    acquire shares, acquire or dispose of assets, or adjust the amount of
    cash, cash equivalent, bank indebtedness or long-term debt balances. The
    Company's capital is not subject to any capital requirements imposed by
    any regulators; however, it is limited by the terms of its credit
    facility and long-term debt agreements. Specifically, the Company is
    required to maintain a Fixed Charge Coverage Ratio (Earnings Before
    Interest, Taxes, Depreciation and Amortization ("EBITDA") divided by
    interest expense) of more than 2.5 to 1 and a debt to total
    capitalization ratio of less than 0.45 to one. The Company's capital
    structure at June 30, 2008 was within the parameters established by these
    agreements.

    18. Segmented information

    The Company classifies its operations into two general segments of the
    global energy industry: Pipeline and Pipe Services and Petrochemical and
    Industrial. Revenue and income (loss) from operations for the three
    months and six months ended June 30, 2008 and 2007, and goodwill and
    total assets as of those dates by segment are as follows:

                             Three Months Ended         Six Months Ended
    (in thousands of               June 30                   June 30
     Canadian dollars)        2008         2007         2008         2007
    -------------------------------------------------------------------------
    Revenue
      Pipeline and Pipe
       Services               258,984      238,964      514,778      421,332
      Petrochemical and
       Industrial              36,585       38,179       74,722       77,698
      Intersegment
       Eliminations              (451)        (703)      (1,025)      (1,261)
                          ---------------------------------------------------
                              295,118      276,440      588,475      497,769
                          ---------------------------------------------------
                          ---------------------------------------------------

    Income (loss) from
     operations
      Pipeline and Pipe
       Services                34,420       46,378       72,928       70,914
      Petrochemical and
       Industrial               5,316        6,500       11,391       13,483
      Intersegment
       Eliminations            (6,287)      (5,842)      (9,651)      (9,389)
                          ---------------------------------------------------
                               33,449       47,036       74,668       75,008
                          ---------------------------------------------------
                          ---------------------------------------------------

    Goodwill
      Pipeline and Pipe
       Services                                         190,779      150,122
      Petrochemical and
       Industrial                                        18,629       16,999
                                                    -------------------------
                                                        209,408      167,121
                                                    -------------------------
                                                    -------------------------

    Total assets
      Pipeline and Pipe
       Services                                       1,207,161      911,997
      Petrochemical and
       Industrial                                        84,242       80,400
      Financial and
       Corporate                                        945,960    1,143,581
      Elimination                                    (1,090,953)  (1,214,068)
                                                    -------------------------
                                                      1,146,410      921,910
                                                    -------------------------
                                                    -------------------------

    19. Joint venture operations

    The Company's joint venture operations have been accounted for through
    proportionate consolidation with the Company's share of each joint
    venture's assets, liabilities, revenue, expenses, net income and cash
    flows consolidated based on the Company's ownership position. The figures
    related to these joint ventures included in the Company's consolidated
    financial statements are summarized as follows:


    (in thousands of         Three Months Ended         Six Months Ended
     Canadian dollars)             June 30                   June 30
    -------------------------------------------------------------------------
                              2008         2007         2008         2007
                          ------------ ------------ ------------ ------------

    Revenue               $    21,277  $    12,203  $    37,965  $    25,743
    Operating and other
     expenses                  17,180        8,715       31,339       19,002
    Net income before
     income taxes               4,097        3,488        6,626        6,741
    Provision for taxes           820          312        1,221          710
                          ------------ ------------ ------------ ------------
    Net income            $     3,277  $     3,176  $     5,405  $     6,031
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------

    Cash provided by
     (used in):
    Operating activities  $     4,099  $    (1,170) $     5,404  $    (2,335)
    Investing activities       (1,627)           -       (3,799)           -
    Financing activities            -            -       (2,872)           -

    Current assets                  -            -       26,621       19,238
    Property, plant and
     equipment, net                 -            -       14,426       10,695
    Goodwill                        -            -        5,135        5,013
    Current liabilities             -            -       16,610       13,463


    20. Earnings per share

    The weighted average number of common shares for the purpose of the
    earnings per share calculations was as follows:

                                                        Six Months Ended
                                                             June 30
                                                        2008         2007
    -------------------------------------------------------------------------
    Basic
      Class A                                        57,922,183   58,613,990
      Class B                                        13,077,909   13,078,142
                                                   --------------------------
    Total                                            71,000,092   71,692,132
                                                   --------------------------
                                                   --------------------------

    Dilutive effect of stock options
      Class A                                           873,513    2,509,289
      Class B                                                 -            -
                                                   --------------------------
    Total                                               873,513    2,509,289
                                                   --------------------------
                                                   --------------------------

    Diluted
      Class A                                        58,795,696   61,123,279
      Class B                                        13,077,909   13,078,142
                                                   --------------------------
    Total                                            71,873,605   74,201,421
                                                   --------------------------
                                                   --------------------------

    21. Acquisitions and divestitures

    On April 14, 2008, the Company acquired 20% of the outstanding shares of
    PT Bredero Shaw Indonesia for $2.5 million. The excess of the
    proportionate fair value of the net assets of this company over the
    amount of the disbursement that was made to acquire the shares has been
    allocated as a reduction to fixed assets. Subsequent to this transaction,
    the Company owns 95% of the outstanding shares of this subsidiary.

    On June 27, 2008, the Company announced the acquisition of the
    outstanding shares of Flexpipe. Flexpipe is a leading manufacturer of
    spoolable, composite line pipe which is used by oil and gas producers in
    applications that benefit from the product's ease and speed of
    installation and its pressure and corrosion resistance capabilities and
    is based in Canada. This transaction is being accounted for using the
    purchase method with the balance sheet and financial results of Flexpipe
    included in the Company's consolidated financial statements from the date
    of acquisition. The allocation of the purchase price has not yet been
    finalized pending the completion of an appraisal of the acquired assets
    and liabilities. This is expected to be completed within the next twelve
    months. The following are the preliminary details of the acquisition.
    These details may be adjusted pending the finalization of the purchase
    equation:

    (In thousands of Canadian dollars)
    -------------------------------------------------------------------------
    Net assets acquired at assigned values:
      Current assets                                             $    36,583
      Property, plant and equipment                                   17,898
      Goodwill                                                        43,825
      Other intangible assets                                         58,700
      Current liabilities                                            (13,272)
      Future income taxes                                             (9,392)
      Other long-term liabilities                                       (640)
    -------------------------------------------------------------------------
                                                                 $   133,702
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Consideration given:
      Cash, net of cash acquired of $1,376                       $   121,905
      Indebtedness assumed                                            11,797
    -------------------------------------------------------------------------
                                                                 $   133,702
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    On June 30, 2008, the Company recorded the sale of its wholly-owned
    division Bredero Shaw Nigeria Ltd. ("BSNL") for proceeds of $5.6 million
    and consequently recorded a gain of $1.1 million representing the excess
    of the purchase price over the carrying value of the net assets sold. The
    following is a summarized balance sheet of BSNL at the time of sale:

    (in thousands of Canadian dollars)
    -------------------------------------------------------------------------
    Current assets                                               $     5,581
    Property, plant and equipment, net                                   129
    Current liabilities                                                  799
    -------------------------------------------------------------------------

    On June 6, 2007, the Company purchased all of the outstanding shares of
    X-Tek Industrial Limited from X-Tek Systems Limited. The name of the
    company was subsequently changed to Shaw Inspection Systems Limited
    ("SISL"). The following are the finalized details of the acquisition:

    (In thousands of Canadian dollars)
    -------------------------------------------------------------------------
    Net assets acquired at assigned values:
      Current assets                                             $     2,323
      Property, plant and equipment                                      329
      Goodwill                                                           560
      Other intangible assets                                          1,558
      Current liabilities                                             (1,984)
    -------------------------------------------------------------------------
                                                                 $     2,786
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Consideration given:
      Cash                                                             2,786
    -------------------------------------------------------------------------
                                                                 $     2,786
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    22. Upcoming accounting changes

    In February 2008, the CICA issued new Handbook section 3064, Goodwill and
    Intangible Assets, which is effective for fiscal years beginning on or
    after October 1, 2008. The Company is currently evaluating the impact of
    the new accounting standards on its financial position, results of
    operations and disclosures.

    23. Comparative figures

    Comparative figures have been reclassified where necessary to correspond
    with the current year's presentation.
    





For further information:

For further information: Gary S. Love, Vice President, Finance and CFO,
Telephone: (416) 744-5818, e-mail: glove@shawcor.com, website:
www.shawcor.com

Organization Profile

ShawCor Ltd.

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