Shawcor Ltd. Announces Third Quarter 2009 Results

(TSX: SCL.A, SCL.B)

TORONTO, Nov. 3 /CNW/ -

    
    Financial Summary

    (in thousands of Canadian   Three Months Ended       Nine Months Ended
     dollars except per            September 30,           September 30,
     share amounts)              2009        2008        2009        2008
                                           Restated                Restated
                                           (note 1)                (note 1)
    -------------------------------------------------------------------------
    Operating Results
    Revenue                   $  302,812  $  357,249  $  923,067  $  945,724

    EBITDA (note 2)               64,472      68,611     200,069     163,567
    Operating income from
     continuing operations        49,972      52,315     153,584     120,423
    Income from continuing
     operations                   33,690      33,962      99,553      78,708
    Income (loss) from
     discontinued operations          57         (82)        371      10,402
    Net income                    33,747      33,880      99,924      89,110

    Net income (loss) per share
     (Class A and B) - Basic
      Continuing operations         0.48        0.48        1.41        1.11
      Discontinued operations       0.00        0.00        0.01        0.15
      Total                         0.48        0.48        1.42        1.26

    Net income (loss) per share
     (Class A and B) - Diluted
      Continuing operations         0.48        0.47        1.41        1.10
      Discontinued operations       0.00        0.00        0.01        0.14
      Total                         0.48        0.47        1.42        1.24
    -------------------------------------------------------------------------
    Cash Flow
    Cash provided by continuing
     operating activities         59,575      23,967     156,395      78,437
    Additions to property,
     plant and equipment           5,751      23,085      25,926      61,999
    -------------------------------------------------------------------------
    Financial Position
    Working capital                                      274,196     168,891
    Total assets                                       1,136,627   1,131,541
    Shareholders' equity per
     share (Class A and B)
     (note 3)                                         $    10.90  $     9.18
    -------------------------------------------------------------------------

    Note 1: Restated for change in accounting policy. Refer to note 1 to the
    interim consolidated financial statements for the three and nine months
    ended September 30, 2009.

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

    Income from continuing
     operations               $   33,690  $   33,962  $   99,553  $   78,708
    Add (deduct):
      Income taxes                15,607      15,741      50,121      38,394
      Interest expense - net         675       2,523       3,910       3,505
      Amortization of property,
       plant and equipment        13,405      15,400      43,200      41,907
      Amortization of
       intangible assets           1,095         985       3,285       1,053
    -------------------------------------------------------------------------
    EBITDA                    $   64,472  $   68,611  $  200,069  $  163,567
    -------------------------------------------------------------------------

    Note 3: Shareholders' equity per share is a non-GAAP measure calculated
    by dividing shareholders' equity by the number of Class A and Class B
    shares outstanding at the date of the balance sheet.
    

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

Third Quarter 2009 Highlights

Consolidated revenue from continuing operations for the third quarter of 2009 totaled $302.8 million, a decrease of $54.4 million or 15.2%, compared to the third quarter of 2008, with the decrease related to reduced market activity in both of the Company's industry segments. The decrease in the Pipeline and Pipe Services segment was mainly as a result of lower small diameter pipe coating volumes stemming from a decline in drilling activity in North America as well as reduced pipe coating project volumes in Europe and the Middle East. Revenue in the Petrochemical and Industrial segment decreased primarily as a result of reduced business activity levels due to the soft economic conditions in industrial and automotive markets in North America and Western Europe. The decrease was partially offset by the impact on the translation of the Company's U.S. dollar denominated revenue from the year over year weakening of the Canadian dollar.

During the third quarter of 2009, the effect of foreign exchange fluctuations on the translation of foreign currency operations had a favourable impact on revenue, operating income from continuing operations and net income of approximately $8.5 million, $4.5 million and $2.6 million, respectively, compared to the third quarter of 2008.

Operating income from continuing operations totaled $50.0 million in the third quarter, a 4.5% decrease compared to the $52.3 million reported in the third quarter of 2008 with the 15.2% year over year revenue reduction partially offset by improved operating margins in the Pipeline and Pipe Services segment resulting from improved manufacturing efficiencies and lower manufacturing input costs. Net income in the third quarter of 2009 totaled $33.7 million ($0.48 per share, diluted) and remained relatively flat compared to the net income in the third quarter of 2008 of $33.9 million ($0.47 per share, diluted).

First Nine Months of 2009 Highlights

Consolidated revenue from continuing operations in the first nine months of 2009 was $923.1 million, compared to $945.7 million in the first nine months of 2008, a decrease of $22.6 million or 2.4%. The decrease was primarily due to lower revenues in both of the Company's industry segments as a result of reduced market activity, partially offset by the favourable effect of foreign exchange fluctuations.

During the first nine months of 2009, the effect of foreign exchange fluctuations on the translation of foreign currency operations had a favourable impact on revenue, operating income from continuing operations and net income of approximately $69.5 million, $25.9 million and $16.7 million, respectively, compared to the first nine months of 2008.

Net income in the first nine months of 2009 totaled $99.9 million ($1.42 per share, diluted) compared to $89.1 million ($1.24 per share, diluted) in the first nine months of 2008, an increase of $10.8 million ($0.18 per share, diluted) or 12.1%. The increase was primarily due to higher operating income, partially offset by a $10.4 million ($0.14 per share, diluted) reduction in income from discontinued operations as the Company had recorded a settlement of a lawsuit related to the Company's closed pipe coating operation in Mobile, Alabama in the first nine months of 2008.

The Company's backlog at September 30, 2009 of $239.9 million declined 20.4% from the level at the beginning of the quarter as strong revenue exceeded new order bookings. However, subsequent to the quarter ended September 30, 2009, the Company has secured letters of intent for several large pipe coating projects with customers in Canada (approximately $54.0 million in revenue value) that are not included in the backlog. In South East Asia, ShawCor's pipe coating division has secured a letter of intent relating to the PNG LNG project in Papua New Guinea (approximately $180.0 million in revenue value) which, if the project is sanctioned for construction, will have a significant positive impact on the Company's backlog.

MANAGEMENT'S DISCUSSION AND ANALYSIS

The following Management Discussion and Analysis ("MD&A") is intended to help the reader understand the results of operations and financial condition of the Company. The MD&A should be read in combination with the Consolidated Financial Statements and accompanying notes, and the MD&A included in the Company's 2008 Annual Report. All dollar amounts in the MD&A are in thousands of Canadian dollars, except per share amounts, or unless otherwise stated.

Revenue, Income from Operations and Net Income

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

Consolidated Results

    
    -------------------------------------------------------------------------
    Three months ended
    (in thousands of                September 30,   June 30,    September 30,
     Canadian dollars)                  2009          2009          2008
                                                                 Restated(a)
    -------------------------------------------------------------------------
    Revenue from continuing operations  $302,812      $312,791      $357,249
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Operating income from
     continuing operations               $49,972       $53,178       $52,315
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Operating margin                       16.5%         17.0%         14.6%
    -------------------------------------------------------------------------
    (a) Restated for a change in accounting policy - refer to note 1 to the
        interim consolidated financial statements for the period ended
        September 30, 2009.
    

Third Quarter 2009 versus Third Quarter 2008

Consolidated revenue from continuing operations for the third quarter of 2009 totaled $302.8 million, a decrease of $54.4 million or 15.2%, compared to the third quarter of 2008, which was related to decreases across both industry segments. The decrease in the Pipeline and Pipe Services was mainly as a result of lower small diameter pipe coating volumes resulting from lower levels of drilling activity in North America. Revenue related to the Petrochemical and Industrial segment decreased primarily as a result of reduced business activity levels due to the soft economic conditions in industrial and automotive markets in North America and Western Europe.

During the third quarter of 2009, the effect of foreign exchange fluctuations on the translation of foreign currency operations had a favourable impact on revenue, operating income from continuing operations and net income of approximately $8.5 million, $4.5 million and $2.6 million, respectively compared to the third quarter of 2008.

Operating income from continuing operations totaled $50.0 million (16.5% of revenue from continuing operations) in the third quarter, representing a 4.5% decrease compared to the $52.3 million (14.6% of revenue from continuing operations) achieved in the third quarter of 2008. The decrease was primarily due to the year over year revenue reduction partially offset by the improved operating margins in the Pipeline and Pipe Services segment resulting from improved manufacturing efficiencies and lower manufacturing input costs.

Net income in the third quarter of 2009 totaled $33.7 million ($0.48 per share, diluted) and remained relatively flat compared to the net income in the third quarter of 2008 of $33.9 million (0.47 per share, diluted).

Third Quarter 2009 versus Second Quarter 2009

Consolidated revenue from continuing operations in the third quarter of 2009 decreased by $10.0 million or 3.2% compared to the second quarter of 2009. The decrease was primarily due to the unfavourable impact of foreign exchange rate fluctuations.

During the third quarter of 2009, the effect of foreign exchange fluctuations on the translation of foreign currency operations had an unfavourable impact on revenue, operating income from continuing operations and net income of approximately $17.4 million, $5.9 million and $3.9 million, respectively, compared to the second quarter of 2009.

Operating income from continuing operations and net income in the third quarter of 2009 decreased $3.2 million or 6.0% and $889 thousand or 2.6%, respectively, compared to the second quarter of 2009, primarily due to the decrease in consolidated revenue.

First nine months of 2009 versus First nine months of 2008

Consolidated revenue from continuing operations in the first nine months of 2009 was $923.1 million, compared to $945.7 million in the first nine months of 2008, a decrease of $22.6 million or 2.4%. The decrease was primarily due to lower revenue in both of the Company's industry segments as a result of reduced market activity, partially offset by the favourable effect of foreign exchange fluctuations.

During the first nine months of 2009, the effect of foreign exchange fluctuations on the translation of foreign currency operating results had a favourable impact on revenue, operating income from continuing operations and net income of approximately $69.5 million, $25.9 million and $16.7 million, respectively compared to the first nine months of 2008.

Operating income from continuing operations in the first nine months of 2009 increased $33.2 million or 27.5%, compared to the first nine months of 2008. The increase was primarily due to the improved operating margins as a result of greater manufacturing efficiencies and reduced manufacturing input costs, partially offset by the impact of lower revenue on facility utilization and overhead absorption in the period.

Net income for the first nine months of 2009 increased $10.8 million ($0.18 per share, diluted) or 12.1%, compared to the first nine months of 2008, primarily due to higher operating income, partially offset by a $10.4 million ($0.14 per share, diluted) reduction in income from discontinued operations as the Company had recorded a settlement of a lawsuit related to the Company's closed pipe coating operation in Mobile, Alabama in the first nine months of 2008.

Pipeline and Pipe Services

    
    -------------------------------------------------------------------------
    Three months ended
    (in thousands of                September 30,   June 30,    September 30,
     Canadian dollars)                  2009          2009          2008
                                                                 Restated(a)
    -------------------------------------------------------------------------
    Revenue from continuing operations  $273,262      $283,888      $323,347
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Operating income from
     continuing operations               $53,433       $58,853       $52,971
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Operating margin                       19.6%         20.7%         16.4%
    -------------------------------------------------------------------------
    (a) Restated for a change in accounting policy - refer to note 1 to the
        interim consolidated financial statements for the period ended
        September 30, 2009.
    

Third Quarter 2009 vs. Third Quarter 2008

In the Pipeline and Pipe Services segment, revenue in the third quarter of 2009 totaled $273.3 million and was $50.1 million or 15.5% lower than in the third quarter of 2008, primarily due to a decrease in revenue at Bredero Shaw and Flexpipe Systems.

Revenue for Bredero Shaw in the third quarter of 2009 decreased 15.3% compared to the third quarter of 2008 mainly as a result of a decline in drilling activity in North America as well as reduced pipe coating project volumes in Europe and the Middle East, partially offset by the favourable impact of the weaker Canadian dollar on the translation of the division's mainly U.S. dollar-based revenue. In the Europe, Africa and Russia region, revenue decreased by 89.4% as low utilization at the Leith, Scotland and Orkanger, Norway facilities contrasted with the third quarter of 2008 when the Badarastskaya Bay and Pluto projects had contributed strong volumes. Revenue in the Middle East region decreased by 61.1% in the third quarter of 2009 compared to the third quarter of 2008, primarily due to lower pipe coating project activity in Saudi Arabia and Ras Al Khaimah. In the Asia Pacific region, revenue increased 9.6% due mainly to higher levels of pipe coating activity at the region's plant in Kabil, Indonesia. In the America's region, revenue in the third quarter of 2009 increased by 23.1% from the third quarter of 2008, mainly due to strong growth in Mexico and $50.5 million in revenue contributed by the North East Offshore and Tobago pipeline projects in Trinidad, partially offset by a decrease in small diameter pipe coating activity in Western Canada and the U.S., which declined by 46.1% and 19.4%, respectively.

Revenue for Flexpipe Systems in the third quarter of 2009 decreased 55.4% compared to the third quarter of 2008 as a result of the continuing low levels of drilling and well completion activity in Western Canada.

Operating income from continuing operations in the quarter for the segment totaled $53.4 million (19.6% of revenue from continuing operations) and increased marginally from $53.0 million (16.4% of revenue from continuing operations) in the third quarter of 2008. The improvement in operating margins of 3.2 percentage points was the result of improved manufacturing efficiencies, reduced manufacturing input costs and a reduction in fixed costs stemming from the reorganization of Bredero Shaw's Europe, Africa and Russia region.

Third Quarter 2009 versus Second Quarter 2009

In the Pipeline and Pipe Services segment, revenue in the third quarter of 2009 was 3.7% lower than in the second quarter of 2009 primarily due to a decrease at Bredero Shaw, partially offset by an increase at Shaw Pipeline Services.

Revenue in the quarter at Bredero Shaw decreased mainly due to the unfavorable effect of foreign exchange fluctuations, lower large diameter pipe coating project volumes in North America and the impact of the winding down of several large diameter pipe coating projects in the Middle East and Europe, Africa and Russia regions, partially offset by an increase in revenue relating to the Trinidad project and stronger volumes at the Kabil Indonesia facility. Revenue in the quarter at Shaw Pipeline Services increased primarily due to increased higher levels of U.S. land-based pipeline girth well inspection activity.

Operating income from continuing operations in the third quarter of 2009 was 9.2% lower than the level achieved in the second quarter of 2009, primarily as a result of the decrease in revenue in the third quarter of 2009. Operating margin in the third quarter of 2009 decreased by 1.1 percentage points when compared to the second quarter of 2009, primarily due to the unfavorable effect of foreign exchange fluctuations.

First nine months of 2009 versus First nine months of 2008

Revenue in the first nine months of 2009 in the Pipeline and Pipe Services segment was $837.1 million compared to $838.1 million in the first nine months of 2008. The marginal decrease was primarily due to a decrease at Bredero Shaw as a result of lower small diameter pipe coating volumes in North America, almost entirely offset by the inclusion of revenue from Flexpipe Systems, which was acquired on June 27, 2008 and the favourable impact of the weaker Canadian dollar on the translation of foreign currency operating results.

Operating income from continuing operations in the first nine months of 2009 was $168.9 million compared to $119.3 million for the first nine months of 2008, an increase of $49.6 million or 41.6%. The increase was primarily due to a 5.9 percentage point increase in operating margins, the result of improved manufacturing efficiencies and a decrease in manufacturing input costs.

Petrochemical and Industrial

    
    -------------------------------------------------------------------------
    Three months ended
    (in thousands of                September 30,   June 30,    September 30,
     Canadian dollars)                  2009          2009          2008
    -------------------------------------------------------------------------
    Revenue from continuing operations   $29,916       $30,100       $34,246
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Operating income from
     continuing operations                $2,092        $2,208        $5,170
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Operating margin                        7.0%          7.3%         15.1%
    -------------------------------------------------------------------------
    

Third Quarter 2009 versus Third Quarter 2008

In the Petrochemical and Industrial segment, revenue in the third quarter of 2009 totaled $29.9 million compared to $34.2 million in the third quarter of 2008, a decrease of $4.3 million or 12.6%. The decrease was primarily due to reduced business activity levels at DSG-Canusa as a result of the significantly weaker demand in industrial and automotive markets in North America and Western Europe.

Operating income from continuing operations in the quarter for the segment totaled $2.1 million (7.0% of revenue from continuing operations) compared to $5.2 million (15.1% of revenue from continuing operations) in the third quarter of 2008 and reflected the impact of the lower revenue in the period.

Third Quarter 2009 versus Second Quarter 2009

Revenue and operating income for the segment in the third quarter of 2009 decreased marginally over levels in the second quarter of 2009 and resulted from the unfavorable effect of foreign exchange fluctuations.

First nine months of 2009 versus First nine months of 2008

Revenue for the Petrochemical and Industrial segment in the first nine months of 2009 was $89.3 million compared to $109.0 million for the first nine months of 2008, a decrease of $19.6 million or 18.0%. The decrease was mainly due to a decline at DSG-Canusa as a result of the current global economic downturn, especially in the automotive industry. ShawFlex revenue was also negatively impacted during the first nine months of 2009 by lower industry wire and cable prices as a result of reductions in the price of copper compared to the first nine months of 2008.

Operating income in the first nine months of 2009 was $4.6 million and in the first nine months of 2008 was $16.6 million, a decrease of $11.9 million or 72.1%. Operating margins declined by 10.0 percentage points, a result of the decrease in revenue during the period, the impact of lower business activity on factory utilization, and a one-time increase in fixed costs related to restructuring at DSG-Canusa's European operations.

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.

Third Quarter 2009 versus Third Quarter 2008

Financial and corporate costs for the third quarter of 2009, before net foreign exchange losses of $2.3 million, totaled $3.2 million a decrease of $2.8 million from the $6.0 million in the third quarter of 2008, before net foreign exchange gains of $247 thousand. The decrease compared to the second quarter of 2008 was primarily due to the reversal of a provision related to resolved workers compensation claims, lower professional fees and a higher allocation of corporate costs to R&D expense reported in the Pipeline and Pipe Services segment due to increased R&D activity.

Third Quarter 2009 versus Second Quarter 2009

Financial and corporate costs decreased by $3.1 million in the third quarter of 2009 compared to the second quarter of 2009, primarily as a result of a decrease in professional fees and general liability insurance costs.

First nine months of 2009 versus First nine months of 2008

Financial and corporate costs for the first nine months of 2009 totaled $17.5 million, before net foreign exchange losses of $2.5 million, a marginal decrease compared to $17.6 million, before net foreign exchange gains of $2.3 million in the first nine months of 2008.

Net Interest Expense

Third Quarter 2009 versus Third Quarter 2008

Net interest expense totaled $675 thousand in the third quarter of 2009, compared to $2.5 million in the third quarter of 2008, a decrease of $1.8 million primarily due to a repayment of Senior Notes of $28.7 million made in the second quarter of 2009. Refer to note 8 to the interim consolidated financial statements for the quarter ended September 30, 2009, for further information.

Third Quarter 2009 versus Second Quarter 2009

Net interest expense decreased by $897 thousand in the third quarter of 2009 compared to the second quarter of 2009, primarily due to the repayment of Senior Notes of $28.7 million, discussed above.

First nine months of 2009 versus First nine months of 2008

Net interest expense for the first nine months of 2009 totaled $3.9 million compared to $3.5 million, in the first nine months of 2008, an increase of $405 thousand. The increase was primarily due to lower cash balances as a result of the Flexpipe Systems acquisition on June 27, 2008 and cash employed to repurchase shares under the Normal Course Issuer Bid, partially offset by a decrease in interest expense as a result of the repayment of Senior Notes of $28.7 million, discussed above.

Income Taxes

Income tax expense related to continuing operations in the third quarter of 2009 was $15.6 million, an effective rate of 31.7%, compared to $15.7 million or an effective rate of 31.6% in the third quarter of 2008 and $17.3 million, an effective rate of 33.5%, in the second quarter of 2009. The effective tax rate in the third quarter of 2009 was marginally higher than the Company's expected tax rate of 31.0%, primarily as a result of foreign withholding taxes on inter-corporate dividends and the impact of certain costs which are not deductible for income tax purposes.

Cash Flow

Cash provided by continuing operating activities

Cash provided by continuing operating activities in the third quarter of 2009 totaled $59.6 million, compared to $24.0 million in the third quarter of 2008 and $58.1 million in the second quarter of 2009 with the changes reflecting the changes in income from continuing operations as well as the movement in net working capital. During the quarter, the change in non-cash working capital and foreign exchange was a decrease of $11.0 million, with reduced accounts receivable, inventory and higher taxes payable, partially offset by lower accounts payable and deferred revenue.

Cash provided by continuing operating activities in the first nine months of 2009 totaled $156.4 million, compared to $78.4 million in the first nine months of 2008, an increase of $78.0 million as a result of an increase in income from continuing operations and the movement in net working capital. During the first nine months of 2009, the change in non-cash working capital and foreign exchange was a decrease of $4.6 million, with reduced accounts receivable, inventory and higher taxes payable, partially offset by lower accounts payable and deferred revenue. This reduction in working capital compares with an increase in the first nine months of 2008 of $50.8 million.

Cash used in continuing investing activities

Cash used in continuing investing activities in the third quarter of 2009 totaled $5.6 million, compared to $10.3 million in the second quarter of 2009 and $23.1 million in the third quarter of 2008, and was comprised of capital expenditures on property, plant and equipment of $5.8 million partially offset by foreign exchange adjustments.

Cash used in continuing investing activities in the first nine months of 2009 totaled $30.0 million, compared to $180.7 million in the first nine months of 2008 and was comprised of capital expenditures on property, plant and equipment of $25.9 million and a long-term notes receivable investment of $4.1 million.

Cash provided by (used in) continuing financing activities

Cash used in continuing financing activities in the third quarter of 2009 totaled $4.7 million, compared to $51.6 million last quarter and $24.4 million in the third quarter of 2008, and mainly consisted of dividends paid to shareholders of $4.9 million.

Cash used in continuing financing activities in the first nine months of 2009 totaled $75.0 million, compared to cash provided by continuing financing activities in the first nine months of 2008 of $18.8 million, and consisted of dividends paid to shareholders of $32.2 million and the repayment of Senior Notes and bank indebtedness of $28.7 million and $15.4 million, respectively.

Other Comprehensive Loss

Other comprehensive loss in the quarter totaled $13.0 million and was comprised of an unrealized foreign currency loss on translation of self- sustaining foreign operations as a result of the strengthening of the Canadian dollar during the period, net of hedging activities.

Liquidity and Capitalization

At September 30, 2009, the Company recorded a working capital ratio (the ratio of current assets to current liabilities) of 2.1 to 1 compared to 1.65 to 1 at December 31, 2008. Operating working capital, excluding cash and cash equivalents, bank indebtedness, the current portion of long-term debt, current future taxes and working capital of discontinued operations, decreased $12.6 million during the quarter to $163.8 million, reflecting lower accounts receivables and inventory levels.

Change in Accounting Policies

The following are changes in the Company's accounting policies which came into effect in the first quarter of 2009:

a) Goodwill and Intangible Assets

On January 1, 2009, the Company adopted CICA Handbook section 3064, Goodwill and Intangible Assets. Also as of this date, as is required on adoption of this section, the Company no longer applies Emerging Issues Committee Abstract EIC-27, Revenues and Expenditures During the Pre-operating Period. As required, this accounting standard has been adopted retrospectively with restatement of prior year figures. The following adjustments were made to the Company's consolidated financial statements as a result of adopting this accounting standard:

Change in Consolidated Balance Sheets:

    
                                                      As at         As at
                                                     Dec. 31,      Dec. 31,
    (in thousands of Canadian dollars)                 2008          2007
    -------------------------------------------------------------------------
    Increase in inventories                        $     1,678   $     2,501
    Decrease in other assets                            (3,285)       (5,067)
    Increase in future taxes                               484           770
                                                  ---------------------------
    Decrease in total assets                       $    (1,123)  $    (1,796)
                                                  ---------------------------
                                                  ---------------------------
    Future income taxes                            $         -   $         -
    Decrease in retained earnings                       (1,123)       (1,796)
                                                  ---------------------------
    Decrease in total liabilities
     and shareholders' equity                      $    (1,123)  $    (1,796)
                                                  ---------------------------
                                                  ---------------------------



    Change in Consolidated Statement of Income:

                                                  Three Months   Nine Months
                                                      Ended         Ended
                                                  September 30, September 30,
                                                       2008          2008
                                                  ------------- -------------
    Increase (decrease) in cost of goods sold      $    (1,829)  $     4,731
    Increase (decrease) in income taxes                    549        (1,419)
                                                  ------------- -------------
    Increase (decrease) in income from
     continuing operations                         $     1,280   $    (3,312)
                                                  ------------- -------------
                                                  ------------- -------------
    Increase (decrease) in net income              $     1,280   $    (3,312)
                                                  ------------- -------------
                                                  ------------- -------------
    Earnings per share
    Basic
      Continuing operations                        $      0.02   $     (0.04)
      Total                                        $      0.02   $     (0.04)

    Diluted
      Continuing operations                        $      0.01   $     (0.04)
      Total                                        $      0.01   $     (0.04)
    

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

Costs incurred in the mobilization of project-specific plants for fixed term projects are included in work-in-process inventories and are charged to costs of goods sold on a percentage-of-completion basis. Such costs are to be included in inventories only if incurred after the Company is awarded the project and if directly related to the performance of the contract.

b) Credit Risk and the Fair Value of Financial Assets and Financial Liabilities

On January 1, 2009, the Company adopted EIC-173, Credit Risk and the Fair Value of Financial Assets and Financial Liabilities. The adoption of this accounting standard had no effect on the Company's consolidated financial statements.

International Financial Reporting Standards

During 2008, the AcSB confirmed that publicly accountable enterprises, including the Company, will be required to adopt International Financial Reporting Standards ("IFRS") in place of Canadian Generally Accepted Accounting Principles ("GAAP") for interim and annual reporting purposes. The required changeover date is for fiscal years beginning on or after January 1, 2011.

The Company has commenced the process to transition to IFRS and has developed a project plan, which was described in the Company's 2008 Annual Report to Shareholders.

The Company is currently engaged in the solution development phase of the project, which involves the training of project team members and the development of new IFRS accounting policies and implementation guidance. This phase of the project is expected to be completed by the end of the fourth quarter of 2009.

During the implementation phase, the Company will execute the changes to business processes, financial systems, accounting policies, disclosure controls and internal controls over financial reporting that will be required to implement IFRS. This phase of the project is expected to be completed by the end of the second quarter of 2010.

At this time, the impact on the Company's consolidated financial statements is not reasonably determinable.

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 September 30, 2009:

    
                                                                September 30,
                                                                     2009
                                                                -------------
    U.S. dollars sold for Canadian dollars
      Less than one year                                    US$       12,000
      Weighted-average rate                                           1.1748

    U.S. dollars sold for Euros
      Less than one year                                    US$        1,465
      Weighted-average rate                                           1.3442

    U.S. dollars sold for British Pounds
      Less than one year                                    US$        5,000
      Weighted-average rate                                           1.5509

    Euros sold for U.S. dollars
      Less than one year                                    Euro       2,150
      Weighted-average rate                                           1.4490

      One year to two years                                 Euro       2,200
      Weighted-average rate                                           1.4465

    Euros sold for British Pounds
      Less than one year                                    Euro         508
      Weighted-average rate                                           1.1760

    Euros sold for Norwegian Kroners
      Less than one year                                    Euro       1,681
      Weighted-average rate                                           8.7647
    

As of September 30, 2009, the Company had notional amounts of $30.3 million of forward contracts outstanding ($25.5 million as of December 31, 2008) with the fair value of the Company's net benefit from all foreign exchange forward contracts totaling $1.5 million ($1.5 million, net obligation, as of December 31, 2008).

Critical Accounting Estimates

The preparation of the consolidated financial statements in conformity with 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 MD&A contained in the Company's 2008 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 its 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 MD&A contained in the Company's 2008 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)
      2009                $307,464  $312,791  $302,812  $      -  $        -
      2008                 293,357   295,118   357,249   433,853   1,379,577
      2007                 221,329   276,440   264,892   285,438   1,048,099

    Operating income from
     continuing operations
     (Restated - see
     note below)
      2009                  50,434    53,178    49,972         -           -
      2008                  40,919    27,189    52,315    75,588     196,011
      2007                  27,074    39,764    52,149    43,081     162,068

    Income from continuing
     operations (Restated -
     see note below)
      2009                  31,520    34,343    33,690         -           -
      2008                  26,952    17,825    33,962    56,013     134,752
      2007                  22,679    25,177    34,845    36,565     119,266

    Income (loss) from
     discontinued operations
     (Restated - see
     note below)
      2009                      21       293        57         -           -
      2008                     (69)   10,553       (82)      609      11,011
      2007                     (55)      (48)      (59)  (30,300)    (30,462)

    Net income (Restated -
     see note below)
      2009                  31,541    34,636    33,747         -           -
      2008                  26,852    28,378    33,880    56,623     145,733
      2007                  22,624    25,129    34,786     6,265      88,804

    Operating income from
     continuing operations
     per share (Classes A
     and B) (Restated -
     see note below)
    Basic
      2009                    0.72      0.76      0.71         -           -
      2008                    0.57      0.38      0.74      1.07        2.76
      2007                    0.37      0.55      0.73      0.60        2.23

    Diluted
      2009                    0.72      0.76      0.70         -           -
      2008                    0.57      0.38      0.73      1.07        2.74
      2007                    0.36      0.54      0.72      0.59        2.21

    Income from continuing
     operations per share
     (Classes A and B)
     (Restated - see
     note below)
    Basic
      2009                    0.45      0.49      0.48         -           -
      2008                    0.38      0.25      0.48      0.79        1.90
      2007                    0.31      0.35      0.49      0.51        1.64

    Diluted
      2009                    0.45      0.49      0.48         -           -
      2008                    0.37      0.25      0.47      0.78        1.88
      2007                    0.30      0.34      0.48      0.51        1.62

    Income (loss) from
     discontinued operations
     per share (Classes A
     and B) (Restated -
     see note below)
    Basic
      2009                    0.00      0.00      0.00         -           -
      2008                    0.00      0.15      0.00      0.01        0.16
      2007                    0.00      0.00      0.00     (0.42)      (0.42)

    Diluted
      2009                    0.00      0.00      0.00         -           -
      2008                    0.00      0.15      0.00      0.01        0.15
      2007                    0.00      0.00      0.00     (0.42)      (0.41)

    Net income per share
     (Classes A and B)
     (Restated - see
     note below)
    Basic
      2009                    0.45      0.49      0.48         -           -
      2008                    0.38      0.40      0.48      0.80        2.06
      2007                    0.31      0.35      0.49      0.09        1.22

    Diluted
      2009                    0.45      0.49      0.48         -           -
      2008                    0.37      0.40      0.47      0.79        2.03
      2007                    0.30      0.34      0.48      0.09        1.21

    Note: Quarterly revenue and operating income from continuing operations
    figures have been restated to reflect the change in accounting policy for
    deferred project costs adopted in the first quarter of 2009. Refer to
    note 1 to the interim consolidated financial statements for the quarter
    ended September 30, 2009.
    

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 90% 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 comparability of the quarterly information disclosed above is also impacted by movements in exchange rates as the majority of the Company's revenue is transacted in currencies other than Canadian dollars, primarily 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.

Outstanding Share Capital

As at October 21, 2009, the Company had 57,438,253 Class A Subordinate Voting Shares outstanding and 13,060,209 Class B Multiple Voting Shares outstanding. Each Class B share is convertible into a Class A share at the option of the holder. In addition, as at October 21, 2009, the Company had stock options outstanding to purchase up to 2,849,146 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 geographic diversification has been a critical factor in the strong financial performance reported in the first nine months of 2009. Continued strength in international business activity with such projects as the Kumang Cluster and Gumusut projects in the Asia Pacific region and the NEO project in Trinidad, have offset the revenue weakness associated with the dramatic decline in drilling activity in North America.

The Company's consolidated order backlog at September 30, 2009, representing the value of firm customer purchase orders expected to be completed within one year, totaled $239.9 million, 20.4% lower than at the beginning of the quarter. However, subsequent to the quarter ended September 30, 2009, the Company has secured letters of intent for several large pipe coating projects with customers in Canada (approximately $54.0 million in revenue value) that are not included in the backlog. In South East Asia, ShawCor's pipe coating division has secured s letter of intent relating to the PNG LNG project in Papua New Guinea (approximately $180.0 million in revenue value) which, if the project is sanctioned for construction, will have a significant positive impact on the Company's backlog.

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 November 4, 2009 at 10:00 am ET to discuss the Company's third quarter 2009 financial results. Please visit our website at www.shawcor.com for future details.

    
    SHAWCOR LTD.
    INTERIM FINANCIAL INFORMATION (Unaudited)
    (in thousands of Canadian dollars except per share data)

    CONSOLIDATED STATEMENTS OF INCOME

                                   Three Months Ended     Nine Months Ended
                                      September 30,         September 30,
                                  --------------------- ---------------------
                                     2009       2008       2009       2008
                                              Restated-             Restated-
                                               note 1                note 1
                                  ---------- ---------- ---------- ----------
    Revenue                        $302,812   $357,249   $923,067   $945,724
    Cost of goods sold              173,350    234,463    541,338    623,701
                                  ---------- ---------- ---------- ----------
    Gross profit                    129,462    122,786    381,729    322,023

    Selling, general and
     administrative expenses
     (notes 2 and 3)                 59,521     52,403    171,290    155,595
    Amortization of property,
     plant and equipment             13,405     15,400     43,200     41,907
    Amortization of
     intangible assets                1,095        985      3,285      1,053
    Foreign exchange
     losses (gains)                   2,321       (247)     2,506     (2,286)
    Research and development
     expenses                         3,148      1,930      7,864      5,331
                                  ---------- ---------- ---------- ----------
    Operating income from
     continuing operations           49,972     52,315    153,584    120,423
    Interest income on short-
     term deposits                      191        224        507      2,286
    Interest expense on
     bank indebtedness                 (368)    (1,494)    (1,343)    (2,165)
    Interest expense on
     long-term debt                    (498)    (1,253)    (3,074)    (3,626)
                                  ---------- ---------- ---------- ----------
    Income before income taxes
     and non-controlling interest    49,297     49,792    149,674    116,918
    Income taxes                     15,607     15,741     50,121     38,394
                                  ---------- ---------- ---------- ----------
    Income before non-controlling
     interest                        33,690     34,051     99,553     78,524
    Non-controlling interest              -        (89)         -        184
                                  ---------- ---------- ---------- ----------
    Income from continuing
     operations                      33,690     33,962     99,553     78,708
    Income (loss) from discontinued
     operations (note 4)                 57        (82)       371     10,402
                                  ---------- ---------- ---------- ----------
    Net income                     $ 33,747   $ 33,880   $ 99,924   $ 89,110
                                  ---------- ---------- ---------- ----------
                                  ---------- ---------- ---------- ----------

    Earnings per shares (note 19)
    Basic
      Continuing operations        $   0.48   $   0.48   $   1.41   $   1.11
      Discontinued operations             -          -       0.01       0.15
                                  ---------- ---------- ---------- ----------
      Total                        $   0.48   $   0.48   $   1.42   $   1.26
                                  ---------- ---------- ---------- ----------
                                  ---------- ---------- ---------- ----------
    Diluted
      Continuing operations        $   0.48   $   0.47   $   1.41   $   1.10
      Discontinued operations             -          -       0.01       0.14
                                  ---------- ---------- ---------- ----------
      Total                        $   0.48   $   0.47   $   1.42   $   1.24
                                  ---------- ---------- ---------- ----------
                                  ---------- ---------- ---------- ----------

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

    SEGMENTED INFORMATION
                                   Three Months Ended     Nine Months Ended
                                      September 30,         September 30,
                                  --------------------- ---------------------
                                     2009       2008       2009       2008
                                              Restated-             Restated-
                                               note 1                note 1
                                  ---------- ---------- ---------- ----------
    Revenue
      Pipeline and Pipe Services   $273,262   $323,347   $837,101   $838,125
      Petrochemical and Industrial   29,916     34,246     89,334    108,968
      Intersegment Eliminations        (366)      (344)    (3,368)    (1,369)
                                  ---------- ---------- ---------- ----------
                                   $302,812   $357,249   $923,067   $945,724
                                  ---------- ---------- ---------- ----------
                                  ---------- ---------- ---------- ----------
    Income (loss) from operations
      Pipeline and Pipe Services   $ 53,433   $ 52,971   $168,932   $119,339
      Petrochemical and Industrial    2,092      5,170      4,625     16,561
      Financial and Corporate        (5,553)    (5,826)   (19,973)   (15,477)
                                  ---------- ---------- ---------- ----------
                                   $ 49,972   $ 52,315   $153,584   $120,423
                                  ---------- ---------- ---------- ----------
                                  ---------- ---------- ---------- ----------



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

    CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   Three Months Ended     Nine Months Ended
                                      September 30,         September 30,
                                  --------------------- ---------------------
                                     2009       2008       2009       2008
                                              Restated-             Restated-
                                               note 1                note 1
                                  ---------- ---------- ---------- ----------
    Operating activities:
      Income from continuing
       operations                  $ 33,690   $ 33,962   $ 99,553   $ 78,708
      Items not requiring
       an outlay of cash:
        Amortization of property,
         plant and equipment         13,405     15,400     43,200     41,907
        Amortization of
         intangible assets            1,095        985      3,285      1,053
        Amortization of
         transaction costs              111        110        333        330
        Asset retirement obligation
         expense (note 10)             (427)       170      2,033      1,902
        Stock-based compensation
         (note 2)                       772        836      2,394      2,529
        Future income taxes          (1,977)       674       (327)       409
        Loss on disposal of
         property, plant and
         equipment                    1,028        255      1,361        358
        Gain on short-term
         investments                    (73)         -     (1,202)         -
        Impairment of available-
         for-sale financial assets        -          -        336      1,498
        Non-controlling interest in
         earnings of subsidiaries         -         89          -       (184)
        Gain on disposal of
         subsidiary                       -          -          -     (1,063)
      Settlement of asset retirement
       obligations (note 10)           (280)       716     (2,244)      (658)
      Change in employee
       future benefits                1,272        857      3,087      2,489
      Change in non-cash working
       capital and foreign exchange  10,958    (30,087)     4,585    (50,841)
                                  ---------- ---------- ---------- ----------
    Cash provided by continuing
     operating activities            59,575     23,967    156,395     78,437
                                  ---------- ---------- ---------- ----------

    Investing activities:
      Purchases of property,
       plant and equipment           (5,751)   (23,085)   (25,926)   (61,999)
      Proceeds on disposal of
       property, plant and equipment    (61)         -         44         33
      Acquisition of subsidiaries         -          -          -   (124,376)
      Increase in long-term
       notes receivable                 180          -     (4,068)         -
      Proceeds on disposal
       of subsidiaries                    -          -          -      5,635
      Investment in shares                           -          -          -
                                  ---------- ---------- ---------- ----------
    Cash used in continuing
     investing activities            (5,632)   (23,085)   (29,950)  (180,707)
                                  ---------- ---------- ---------- ----------

    Financing activities:
      Increase (decrease) in
       bank indebtedness               (689)   (10,005)   (15,418)    52,965
      Repayment of long-term debt         -          -    (28,705)         -
      Issue of shares (note 11)         816        304      1,301      1,739
      Purchase of shares for
       cancellation                       -    (10,154)         -    (22,796)
      Dividends paid to
       shareholders                  (4,850)    (4,537)   (32,205)   (13,085)
                                  ---------- ---------- ---------- ----------
    Cash provided by (used
     in) continuing financing
     activities                      (4,723)   (24,392)   (75,027)    18,823
                                  ---------- ---------- ---------- ----------

    Foreign exchange on foreign
     cash and cash equivalents       (4,479)     1,531     (8,395)     6,024
                                  ---------- ---------- ---------- ----------

    Net cash provided by (used in)
     continuing operations           44,740    (21,979)    43,023    (77,423)

    Net cash provided by (used in)
     discontinued operations
     (note 4)                           739    (37,638)     1,416    (33,702)

    Cash and cash equivalents
     at beginning of period          77,892    123,509     78,932    175,017
                                  ---------- ---------- ---------- ----------
    Cash and cash equivalents
     at end of period              $123,371   $ 63,892   $123,371   $ 63,892
                                  ---------- ---------- ---------- ----------
                                  ---------- ---------- ---------- ----------



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

    CONSOLIDATED BALANCE SHEETS

                                                  September 30,  December 31,
                                                       2009          2008
                                                                  Restated-
                                                                   Note 1
                                                  ------------- -------------
    Assets
    Current assets
      Cash and cash equivalents (note 5)           $   123,371   $    78,932
      Short-term investments                             1,202             -
      Accounts receivable                              235,140       307,933
      Taxes receivable                                  13,542         9,261
      Inventories                                      124,035       152,284
      Prepaid expenses                                  18,340        14,635
      Derivative financial instruments                   1,674           523
      Current future income taxes                        3,318         3,532
      Current assets of discontinued operation
       (note 4)                                         10,815        12,256
                                                  ------------- -------------
                                                       531,437       579,356
    Property, plant and equipment, net                 279,440       307,735
    Goodwill                                           218,312       229,549
    Intangible assets (note 6)                          63,879        66,452
    Future income taxes                                 29,868        31,173
    Other assets (note 7)                               13,691        13,024
                                                  ------------- -------------
                                                   $ 1,136,627   $ 1,227,289
                                                  ------------- -------------
                                                  ------------- -------------

    Liabilities
    Current liabilities
      Bank indebtedness (note 8)                   $         -   $    15,418
      Accounts payable and accrued liabilities         151,303       193,675
      Taxes payable                                     65,827        53,405
      Derivative financial instruments                     139         2,049
      Deferred revenues                                 12,898        54,692
      Current portion of long-term debt                 27,015        30,672
      Current liabilities of discontinued
       operation (note 4)                                   59           455
                                                  ------------- -------------
                                                       257,241       350,366
    Long-term debt                                      26,666        60,554
    Future income taxes                                 72,303        73,939
    Derivative financial instruments                        39             -
    Other non-current liabilities (note 9)              11,448         9,978
                                                  ------------- -------------
                                                       367,697       494,837
                                                  ------------- -------------

    Shareholders' Equity
    Capital stock (note 11)                            203,671       202,073
    Contributed surplus (note 12)                       16,610        14,512
    Retained earnings                                  669,126       601,407
    Accumulated other comprehensive loss (note 13)    (120,477)      (85,540)
                                                  ------------- -------------
                                                       768,930       732,452
                                                  ------------- -------------
                                                   $ 1,136,627   $ 1,227,289
                                                  ------------- -------------
                                                  ------------- -------------



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

    CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

                                   Three Months Ended     Nine Months Ended
                                      September 30,         September 30,
                                  --------------------- ---------------------
                                     2009       2008       2009       2008
                                              Restated-             Restated-
                                               note 1                note 1
                                  ---------- ---------- ---------- ----------
    Balance at beginning of period $640,229   $523,487   $601,407   $489,836
    Transitional adjustment
     (note 1)                             -          -          -     (1,796)
                                  ---------- ---------- ---------- ----------
    Adjusted balance at
     beginning of period            640,229    523,487    601,407    488,040
    Net income                       33,747     33,880     99,924     89,110
                                  ---------- ---------- ---------- ----------
                                    673,976    557,367    701,331    577,150

    Excess of purchase price paid
     over stated value of shares
     (note 11)                            -     (8,752)         -    (19,987)
    Dividends declared               (4,850)    (4,537)   (32,205)   (13,085)
                                  ---------- ---------- ---------- ----------
    Balance at end of period       $669,126   $544,078   $669,126   $544,078
                                  ---------- ---------- ---------- ----------
                                  ---------- ---------- ---------- ----------



    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                                   Three Months Ended     Nine Months Ended
                                      September 30,         September 30,
                                  --------------------- ---------------------
                                     2009       2008       2009       2008
                                              Restated-             Restated-
                                               note 1                note 1
                                  ---------- ---------- ---------- ----------
    Net income                     $ 33,747   $ 33,880   $ 99,924   $ 89,110
    Other comprehensive income
     (loss), net of income taxes:
      Unrealized gain (loss) on
       translating financial
       statements of self-
       sustaining foreign
       operations                   (15,822)    (5,868)   (41,374)    17,432
      Loss on translating
       financial statements of
       self-sustaining foreign
       operations transferred
       to net income in the
       current period                     -          -        678          -
      Gain (loss) on hedges of
       unrealized foreign
       currency translation           3,460     (1,757)     6,948     (3,975)
      Income tax benefit
       (expense)                       (592)       300     (1,189)       678
                                  ---------- ---------- ---------- ----------
    Unrealized foreign currency
     translation gain, net of
     hedging activites              (12,954)    (7,325)   (34,937)    14,135
                                  ---------- ---------- ---------- ----------
      Unrealized loss on
       available-for-sale
       financial assets arising
       during the period                  -       (959)      (336)    (1,870)
      Unrealized loss on
       available-for-sale
       financial assets
       transferred to net income
       in the current period              -          -        336      1,498
      Income tax expense
       transferred to net
       income in the period               -          -          -        253
                                  ---------- ---------- ---------- ----------
    Change in unrealized loss
     on available-for-sale
     financial assets                     -       (959)         -       (119)
                                  ---------- ---------- ---------- ----------
      Gain on derivatives
       designated as cash
       flow hedges                        -          -          -          -
      Income tax expense                  -          -          -          -
      Gain on derivatives
       designated as cash flow
       hedges in prior periods
       transferred to net income
       in the current period              -          -          -     (1,508)
      Income tax expenses
       transferred to net income
       in the current period              -          -          -        512
                                  ---------- ---------- ---------- ----------
    Change in loss on derivatives
     designated as cash flow hedges       -          -          -       (996)
                                  ---------- ---------- ---------- ----------
                                    (12,954)    (8,284)   (34,937)    13,020
                                  ---------- ---------- ---------- ----------
    Comprehensive income           $ 20,793   $ 25,596   $ 64,987   $102,130
                                  ---------- ---------- ---------- ----------
                                  ---------- ---------- ---------- ----------
    

ShawCor Ltd.

Notes to the Consolidated Financial Statements (Unaudited)

(in thousands of Canadian Dollars, except per share amounts, unless otherwise stated)

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, 2008. Accordingly, the unaudited interim consolidated financial statements should be read in conjunction with the Company's annual consolidated financial statements.

a) Goodwill and Intangible Assets

On January 1, 2009, the Company adopted CICA Handbook section 3064, Goodwill and Intangible Assets. Also as of this date, as is required on adoption of this section, the Company no longer applies Emerging Issues Committee Abstract EIC-27, Revenues and Expenditures During the Pre-operating Period. As required, this accounting standard has been adopted retrospectively with restatement of prior year figures. The following adjustments were made to the Company's consolidated financial statements as a result of adopting this accounting standard:

Change in Consolidated Balance Sheets:

    
                                                      As at         As at
                                                   December 31,  December 31,
                                                       2008          2007
    -------------------------------------------------------------------------
    Increase in inventories                        $     1,678   $     2,501
    Decrease in other assets                            (3,285)       (5,067)
    Increase in future taxes                               484           770
                                                  ---------------------------
    Decrease in total assets                       $    (1,123)  $    (1,796)
                                                  ---------------------------
                                                  ---------------------------
    Future income taxes                            $         -   $         -
    Decrease in retained earnings                       (1,123)       (1,796)
                                                  ---------------------------
    Decrease in total liabilities
     and shareholders' equity                      $    (1,123)  $    (1,796)
                                                  ---------------------------
                                                  ---------------------------
    

Change in Consolidated Statement of Income:

    
                                                  Three Months   Nine Months
                                                      Ended         Ended
                                                  September 30, September 30,
                                                       2008          2008
                                                  ------------- -------------
    Increase (decrease) in cost of goods sold      $    (1,829)  $     4,731
    Increase (decrease) in income taxes                    549        (1,419)
                                                  ------------- -------------
    Increase (decrease) in income from
     continuing operations                         $     1,280   $    (3,312)
                                                  ------------- -------------
                                                  ------------- -------------
    Increase (decrease) in net income              $     1,280   $    (3,312)
                                                  ------------- -------------
                                                  ------------- -------------
    Earnings per share
    Basic
      Continuing operations                        $      0.02   $     (0.04)
      Total                                        $      0.02   $     (0.04)

    Diluted
      Continuing operations                        $      0.01   $     (0.04)
      Total                                        $      0.01   $     (0.04)
    

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

Costs incurred in the mobilization of project-specific plants for fixed term projects are included in work-in-process inventories and are charged to costs of goods sold on a percentage-of-completion basis. Such costs are to be included in inventories only if incurred after the Company is awarded the project and if directly related to the performance of the contract.

b) Credit Risk and the Fair Value of Financial Assets and Financial Liabilities

On January 1, 2009, the Company adopted EIC-173, Credit Risk and the Fair Value of Financial Assets and Financial Liabilities. The adoption of this accounting standard had no effect on the Company's consolidated financial statements.

2. Stock-based compensation

The Board of Directors approved the granting of 520,200 stock options during the nine months ended September 30, 2009 under the 2001 Employee Plan (the "Plan"). The total fair value of the stock options granted during the nine months ended September 30, 2009 was $2.6 million (2008 - $4.1 million) and the weighted average fair value of the options was $5.63 (2008 - $10.54), calculated using the Black-Scholes pricing model with the following assumptions:

    
                                                       2009          2008
                                                  ------------- -------------
    Expected life of options                        6.25 years    6.25 years
    Expected stock price volatility                     34.79%        29.30%
    Expected dividend yield                              1.41%         0.75%
    Risk-free interest rate                              2.60%         3.68%
    

The fair value of options granted under the 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 and nine months ended September 30, 2009, included in selling, general and administrative ("SG&A") expenses, was $772 thousand and $2.4 million, respectively ($836 thousand and $2.5 million, for the three and nine months ended September 30, 2008, respectively).

3. 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 and nine months ended September 30, 2009 was $2.1 million and $7.0 million, respectively ($2.5 million and $7.3 million, for the three and nine months ended September 30, 2008, respectively).

4. 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.

The following table summarizes the financial results and cash flows from discontinued operations for the three and nine months ended September 30, 2009 and 2008 and the assets and liabilities as of those dates:

    
                                   Three Months Ended     Nine Months Ended
                                      September 30,         September 30,
                                  --------------------- ---------------------
                                     2009       2008       2009       2008
                                  ---------- ---------- ---------- ----------
    Revenue                        $      -   $      -   $      -   $      -
                                  ---------- ---------- ---------- ----------
    Income (loss) from operations        57        (35)       371     17,052
    Interest expense                      -                     -          -
                                  ---------- ---------- ---------- ----------
    Income (loss) from
     discontinued operations
     before income taxes                 57        (35)       371     17,052
    Income tax recovery (expense)         -        (47)         -     (6,650)
                                  ---------- ---------- ---------- ----------
    Income (loss) from
     discontinued operations       $     57   $    (82)  $    371   $ 10,402
                                  ---------- ---------- ---------- ----------
                                  ---------- ---------- ---------- ----------
    Cash flow used in operating
     activities                    $    739   $(37,638)  $  1,416   $(33,702)
    Cash flow from (used in)
     investing activities                 -          -          -          -
                                  ---------- ---------- ---------- ----------
    Cash flow from (used in)
     operating activities          $    739   $(37,638)  $  1,416   $(33,702)
                                  ---------- ---------- ---------- ----------
                                  ---------- ---------- ---------- ----------
    Current assets                                       $ 10,815   $ 10,374
    Property, plant and
     equipment, net                                      $      -   $      -
    Current liabilities                                  $     59   $  1,231
    

5. Cash and cash equivalents

    
                                                  September 30,  December 31,
                                                       2009          2008
                                                  ------------- -------------
    Cash                                           $    88,216   $    78,932
    Cash equivalents                                    35,155             -
                                                  ------------- -------------
                                                   $   123,371   $    78,932
                                                  ------------- -------------
                                                  ------------- -------------
    

6. Intangible assets

    
                                                  September 30,  December 31,
                                                       2009          2008
                                                                  Restated-
                                                                   Note 1
                                                  ------------- -------------
    Cost
    Intellectual property with limited life        $    57,576   $    57,576
    Intangible assets with limited life                  9,547         8,847
    Intangible assets with indefinite life               1,931         1,931
                                                  ------------- -------------
                                                   $    69,054   $    68,354
                                                  ------------- -------------

      Accumulated amortization                           5,175         1,902
                                                  ------------- -------------
                                                   $    63,879   $    66,452
                                                  ------------- -------------
                                                  ------------- -------------
    

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

7. Other assets

    
                                                  September 30,  December 31,
                                                       2009          2008
                                                                  Restated-
                                                                   Note 1
                                                  ------------- -------------
    Long-term investment                           $        24   $       360
    Long-term prepaid expenses                           4,424         5,931
    Long-term notes receivable                           4,068             -
    Accrued employee future benefit asset                5,175         6,733
                                                  ------------- -------------
                                                   $    13,691   $    13,024
                                                  ------------- -------------
                                                  ------------- -------------
    

Long-term investment as of September 30, 2009 represents an investment in Garneau Inc., a Canadian-based, publicly traded pipe coating company. The Company has reviewed the 2008 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 SG&A expense, in the financial and corporate segment, during the three and nine months ended September 30, 2009 of $nil and $336 thousand, respectively ($nil and $1.5 million for the three and nine months ended September 30, 2008, respectively).

Long-term notes receivable as of September 30, 2009 relates to amount advanced by the Company to an external party to support the construction of port facilities at a Bredero Shaw plant location in Kabil, Indonesia.

8. Bank indebtedness and Long-term debt

As of September 30, 2009, the Company had total operating credit lines of $259.0 million ($293.5 million as of December 31, 2008), of which $73.0 million has been drawn for various standby letters of credit for performance, bid and surety bonds ($81.5 million as of December 31, 2008), to yield unutilized credit facilities of $186.0 million ($198.0 million as of December 31, 2008), excluding the Company's proportionate share of the bank indebtedness of its joint venture, Arabian Pipecoating Company Limited of $nil ($15.4 million as of December 31, 2008).

Under the terms of the Company's 5.11% Senior Notes ("Senior Notes"), the Company is required to repay the Senior Notes in three equal annual installments of USD$25 million. On June 30, 2009, the Company made the first repayment of $28.7 million ("Repayment") using the current exchange rate. The Repayment was funded by USD$25.0 million that was permanently repatriated from the Company's U.S. dollar based operations ("Repatriation"). The Repatriation gave rise to a net foreign exchange loss of $678 thousand and was transferred from accumulated other comprehensive income to the consolidated statement of income during the second quarter of 2009. As at September 30, 2009, $53.6 million was outstanding under the Senior Notes, of which $27.0 million has been classified as current portion of long-term debt.

9. Other non-current liabilities

    
                                                  September 30,  December 31,
                                                       2009          2008
                                                  ------------- -------------
    Non-current asset retirement obligations
     (note 10)                                     $     6,024   $     6,680
    Accrued employee future benefit obligations          4,827         3,298
    Long-term capital leases                               597             0
                                                  ------------- -------------
                                                   $    11,448   $     9,978
                                                  ------------- -------------
                                                  ------------- -------------
    

10. Assets retirement obligations

    
                                                  September 30,  December 31,
                                                       2009          2008
                                                  ------------- -------------
    Balance, at beginning of year                  $    22,606   $    14,082
    Liabilities settled in year                         (2,243)         (891)
    Liabilities incurred in year                             -         8,675
    Revisions to cash flow estimates                     1,190             -
    Accretion expense                                      845           703
    Translation of self-sustaining
     foreign operations                                     83            37
                                                  ------------- -------------
                                                   $    22,481   $    22,606
                                                  ------------- -------------
                                                  ------------- -------------
    

Asset retirement obligations are included in the consolidated balance sheets as follows:

    
                                                  September 30,  December 31,
                                                       2009          2008
                                                  ------------- -------------
    Accounts payable and accrued liabilities       $    16,457   $    15,926
    Other non-current liabilities                        6,024         6,680
                                                  ------------- -------------
                                                   $    22,481   $    22,606
                                                  ------------- -------------
                                                  ------------- -------------
    

The total undiscounted cash flows which are estimated to be required to settle all asset retirement obligations is $25.4 million ($24.0 million as of December 31, 2008) and the credit-adjusted risk-free rates at which the estimated cash flows have been discounted range between 5.11% and 7.0%.

11. Capital stock

The following shares were outstanding as of September 30, 2009 and December 31, 2008:

    
    (in thousands of Canadian dollars             September 30,  December 31,
     except number of shares information)              2009          2008
                                                  ------------- -------------
    Number of shares: Class A
    Balance, begining of the period                 57,358,537    58,234,570
    Issued - stock options                              76,880       113,234
    Conversions Class B to Class A                           -        17,933
    Purchase - normal course issuer bid                      -    (1,007,200)
                                                  ------------- -------------
    Balance, end of the period                      57,435,417    57,358,537
                                                  ------------- -------------
    Number of shares: Class B                       13,060,209    13,060,209
                                                  ------------- -------------
    Total number of shares                          70,495,626    70,418,746
                                                  ------------- -------------
                                                  ------------- -------------

    Stated value:
    Balance, begining of the period                $   201,070   $   202,248
    Issued - stock options                               1,301         1,763
    Conversions Class B to Class A                           -             1
    Purchase - normal course issuer bid                      -        (3,518)
    Compensation cost on exercised options                 297           576
                                                  ------------- -------------
    Balance, end of the period                         202,668       201,070
                                                  ------------- -------------
    Stated value: Class B                                1,003         1,003
                                                  ------------- -------------
    Total stated value                             $   203,671   $   202,073
                                                  ------------- -------------
                                                  ------------- -------------
    

During the nine months ended September 30, 2009, the Company repurchased and cancelled nil Class A Subordinated Voting Shares (2,574,600 during the nine months ended September 30, 2008) under the terms of a Normal Course Issuer Bid. The excess of cost over stated capital of the acquired shares, which for the nine months ended September 30, 2009 totaled $nil ($20.0 million for the nine months ended September 30, 2008), was charged to retained earnings.

12. Contributed surplus

    
                                   Three Months Ended     Nine Months Ended
                                      September 30,         September 30,
                                  --------------------- ---------------------
                                     2009       2008       2009       2008
                                  ---------- ---------- ---------- ----------
    Balance, beginning of period   $ 15,958   $ 12,924   $ 14,512   $ 11,729
    Stock compensation expense
     (note 2)                           772        836      2,394      2,529
    Fair value of stock options
     exercised                         (120)       (74)      (296)      (572)
                                  ---------- ---------- ---------- ----------
    Balance, end of period         $ 16,610   $ 13,686   $ 16,610   $ 13,686
                                  ---------- ---------- ---------- ----------
                                  ---------- ---------- ---------- ----------
    

13. Accumulated other comprehensive loss

    
                                                  September 30,  December 31,
                                                       2009          2008
                                                  ------------- -------------
    Unrealized foreign currency translation
     lossses, net of hedging activities            $  (120,477)  $   (85,540)
    Unrealized loss on available-for-sale
     financial asset                                         -             -
                                                  ------------- -------------
    Gain on derivatives designated as
     cash flow hedges                              $  (120,477)  $   (85,540)
                                                  ------------- -------------
                                                  ------------- -------------
    

14. Stock option plans

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

    
                           September 30, 2009          December 31, 2008
                      --------------------------- ---------------------------
                                       Weighted                    Weighted
                                       Average                     Average
                                       Exercise                    Exercise
                       Total Shares     Price      Total Shares     Price
                      ------------- ------------- ------------- -------------
    Balance outstanding,
     beginning of
     period              2,470,466   $     19.14     2,173,980   $     17.24
    Granted                520,200         15.70       428,600         30.03
    Exercised              (76,880)        16.93      (113,234)        15.56
    Forfeited              (64,640)        22.00       (16,880)        19.24
    Expired                      -             -        (2,000)        15.94
                      ------------- ------------- ------------- -------------
    Balance outstanding,
     end of period       2,849,146   $     18.84     2,470,466   $     19.14
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------



                    Options Outstanding                 Options Exercisable
    ------------------------------------------------- -----------------------
                               Weighted
                                average
                  Outstanding  remaining    Weighted  Exercisable   Weighted
      Range of       as at    contractual   average       at        average
      exercise     September     life       exercise   September    exercise
       prices      30, 2009    in years      price     30, 2009      price
    ------------  ----------- ----------- ----------- ----------- -----------
    $10.00 to
     $15.00          469,326        3.66      $12.64     469,326      $12.64
    $15.01 to
     $20.00        1,593,100        6.11      $16.45     911,988      $16.78
    $20.01 to
     $25.00           50,000        6.46      $21.11      25,600      $20.96
    $25.01 to
     $30.00          706,720        7.79      $27.66     206,360      $26.83
    $30.01 to
     $35.00           30,000        8.26      $31.77       6,000      $31.77
                  -----------                         -----------
                   2,849,146                           1,619,274
                  -----------                         -----------
                  -----------                         -----------


                    Options Outstanding                 Options Exercisable
    ------------------------------------------------- -----------------------
                               Weighted
                                average
                  Outstanding  remaining    Weighted  Exercisable   Weighted
      Range of      as at    contractual   average       at        average
      exercise     December      life       exercise   December     exercise
       prices      31, 2009    in years      price     31, 2009      price
    ------------  ----------- ----------- ----------- ----------- -----------
    $10.00 to
     $15.00          474,966        4.41      $12.63     444,486      $12.73
    $15.01 to
     $20.00        1,181,100        5.41      $16.84     791,304      $16.77
    $20.01 to
     $25.00           40,000        6.50      $20.90      18,400      $21.03
    $25.01 to
     $30.00          744,400        8.54      $27.62      69,560      $25.02
    $30.01 to
     $35.00           30,000        9.01      $31.77           -       $0.00
                  -----------                         -----------
                   2,470,466                           1,323,750
                  -----------                         -----------
                  -----------                         -----------
    

15. Financial instruments and financial risk management

a) Categories of Financial Assets and Financial Liabilities

Under 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:

    
                                                  September 30,  December 31,
                                                       2009          2008
                                                  ------------- -------------
    Financial assets:
      Held for trading, measured at fair value
        Cash                                       $    88,216   $    78,932
        Short-term investments                     $     1,202   $         -

      Held to maturity, recorded at amortized cost
        Cash equivalents                           $    35,155   $         -

      Loans and receivables, recorded
       at amortized cost
        Accounts receivable                        $   235,140   $   307,933
        Taxes receivable                           $    13,542   $     9,261
        Long-term notes receivable                 $     4,068   $         -

      Available for sale, measured at fair value
        Long-term investments                      $        24   $       360

      Derivatives, measured at fair value
        Derivative financial instruments           $     1,674   $       523

    Financial liabilites:
      Other liabilities, recorded at amortized cost
        Bank indebtedness                          $         -   $    15,418
        Accounts payable and accrued liabilities   $   151,303   $   193,675
        Taxes payable                              $    65,827   $    53,405
        Current portion of long-term debt          $    27,015   $    30,672
        Long-term debt                             $    26,666   $    60,554

      Derivatives, measured at fair value
        Derivative financial instruments           $       178   $     2,049
    

Short-term investments have been classified as held for trading and carried at fair value, based on quoted market prices with changes in those fair values recognized in net income.

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.

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 of September 30, 2009:

    
                                                                September 30,
                                                                     2009
                                                                -------------
    U.S. dollars sold for Canadian dollars
      Less than one year                                    US$       12,000
      Weighted-average rate                                           1.1748

    U.S. dollars sold for Euros
      Less than one year                                    US$        1,465
      Weighted-average rate                                           1.3442

    U.S. dollars sold for British Pounds
      Less than one year                                    US$        5,000
      Weighted-average rate                                           1.5509

    Euros sold for U.S. dollars
      Less than one year                                    Euro       2,150
      Weighted-average rate                                           1.4490

      One year to two years                                 Euro       2,200
      Weighted-average rate                                           1.4465

    Euros sold for British Pounds
      Less than one year                                    Euro         508
      Weighted-average rate                                           1.1760

    Euros sold for Norwegian Kroners
      Less than one year                                    Euro       1,681
      Weighted-average rate                                           8.7647
    

As of September 30, 2009, the Company had notional amounts of $30.3 million of forward contracts outstanding ($25.5 million as of December 31, 2008) with the fair value of the Company's net benefit from all foreign exchange forward contracts totaling $1.5 million ($1.5 million, net obligation, as of December 31, 2008).

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 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 September 30, 2009, fluctuations of +/- 5% in the Canadian dollar, relative to those foreign currencies, would impact the Company's consolidated revenue, operating income from continuing operations and income from continuing operations for the three months then ended by approximately $13.1 million, $3.9 million and $2.7 million, respectively, prior to hedging activities. In addition, such fluctuations would impact the Company's consolidated total assets, consolidated total liabilities and consolidated total shareholders' equity by $52.9 million, $19.9 million and $33.0 million, respectively. 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 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 Senior Notes in terms of Canadian dollars as well as the amount of interest expense 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 ("Net Investment"). On April 1, 2009, The Company de-designated USD$25.0 million of the hedge against the Net Investment. As a result, on April 1, 2009 the remaining balance of the Senior Notes of USD$50.0 million was hedged against the Net Investment. The de-designation gave rise to a $2.1 million foreign exchange gain during the second quarter of 2009, which was recognized in the consolidated statement of income. Foreign exchange gains and losses from the hedged portion of the Senior Notes are not included in the consolidated statement of income, but are shown in accumulated other comprehensive income. As of September 30, 2009, fluctuations of +/- 5% in the Canadian dollar, relative to the U.S. dollar, would impact the Company's accumulated other comprehensive income by $2.5 million 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 September 30, 2009:

    
                                              Fixed interest rate
                                             ---------------------
                                              Maturing   Maturing
                                   Floating  in one year  after
                                     rate      or less   one year     Total
                                  ---------- ---------- ---------- ----------
    Financial assets
      Cash and cash equivalents    $123,371   $      -   $      -   $123,371
      Long-term notes receivable      4,068                     -      4,068
                                  ---------- ---------- ---------- ----------
    Total                          $127,439   $      -   $      -   $127,439
                                  ---------- ---------- ---------- ----------
                                  ---------- ---------- ---------- ----------
    Financial liabilities
      Bank indebtedness            $      -   $      -   $      -   $      -
      Current portion of
       long-term debt                           27,015                27,015
      Long-term debt                      -          -     26,666     26,666
                                  ---------- ---------- ---------- ----------
    Total                          $      -   $ 27,015   $ 26,666   $ 53,681
                                  ---------- ---------- ---------- ----------
                                  ---------- ---------- ---------- ----------

                                  ---------- ---------- ----------
    Weighted-average fixed
     rate of debt                         -      5.11%      5.11%
                                  ---------- ---------- ----------
    

The Company's interest rate risk arises primarily from its floating rate bank indebtedness and long-term notes receivable 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 is subject to considerable concentration of credit risk since the majority of its customers operate within the global energy industry and are therefore affected to a large extent by the same macroeconomic conditions and risks. The Company manages this credit risk by assessing the credit quality of all 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. As at September 30, 2009, $11.6 million, or 5.1% of trade accounts receivable, were more than 90 days overdue, which is consistent with prior period aging analysis.

The following is an analysis of the change in the allowance for doubtful accounts for the nine months ended September 30, 2009 and 2008:

    
                                                      Nine Months Ended
                                                         September 30,
                                                  ---------------------------
                                                      2009           2008
                                                  ------------- -------------
    Balance, beginning of period                   $     6,237   $     4,165
    Bad debt expense                                     2,599        (1,015)
    Write-offs of bad debts                             (1,203)           (3)
    Recovery of previously written-off amounts            (413)            -
    Impact of change in foreign exchange rates            (131)          345
                                                  ------------- -------------
    Balance, end of period                         $     7,089   $     3,492
                                                  ------------- -------------
                                                  ------------- -------------
    

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 September 30, 2009, the Company has cash and cash equivalents totaling $123.4 million ($78.9 million as of December 31, 2008) and has unutilized lines of credit available to use of $186.0 million ($198.0 million as of December 31, 2008). The following are the contractual maturities of the Company's financial liabilities as of September 30, 2009:

    

                       Less than    1 - 2      3 - 4
                         1 Year     Years      Years    Thereafter   Total
                       ------------------------------------------------------
    Accounts payable
     and accrued
     liabilities        $127,790   $  5,149   $    377        297   $133,613
    Asset retirement
     obligations          16,457        944      1,263      6,701     25,365
    Bank indebtedness          -          -          -          -          -
    Long-term debt        27,015     26,666          -          -     53,681
    Obligations under
     capital leases          111        580        226         18        935
    Interest on
     obligations under
     capital leases           13         66         37          7        123
    Interest on financial
     instruments           2,408      1,032          -          -      3,440
    Derivative financial
     instruments             139         39          -          -        178
                       ------------------------------------------------------
    Total               $173,933   $ 34,476   $  1,903   $  7,023   $217,335
                       ------------------------------------------------------
                       ------------------------------------------------------
    

16. 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 of September 30, 2009, total managed capital was $822.6 million ($839.2 million as of December 31, 2008), comprised of shareholders equity of $768.9 million ($732.5 million as of December 31, 2008), long-term debt of $26.7 million ($60.6 million as of December 31, 2008), current portion of long- term debt of $27.0 million ($30.7 million as of December 31, 2008) and bank indebtedness of $nil ($15.4 million as of December 31, 2008).

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 equivalents, 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 1. The Company's capital structure at September 30, 2009 was within the parameters established by these agreements.

17. 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 and nine months ended September 30, 2009 and 2008, and goodwill and total assets as of those dates by segment are as follows:

    
                           Three Months Ended           Nine Months Ended
                              September 30,               September 30,
                      --------------------------- ---------------------------
                           2009          2008          2009          2008
                                      Restated -                  Restated -
                                        note 1                      note 1
                      ------------- ------------- ------------- -------------
    Revenue
      Pipeline and
       Pipe Services   $   273,262   $   323,347   $   837,101   $   838,125
      Petrochemical
       and Industrial       29,916        34,246        89,334       108,968
      Intersegment
       Eliminations           (366)         (344)       (3,368)       (1,369)
                      ------------- ------------- ------------- -------------
                       $   302,812   $   357,249   $   923,067   $   945,724
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------
    Income (loss) from
     operations
      Pipeline and
       Pipe Services   $    53,433   $    52,971   $   168,932   $   119,339
      Petrochemical
       and Industrial        2,092         5,170         4,625        16,561
      Financial and
       Corporate            (5,553)       (5,826)      (19,973)      (15,477)
                      ------------- ------------- ------------- -------------
                       $    49,972   $    52,315   $   153,584   $   120,423
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------
    Goodwill
      Pipeline and
       Pipe Services                               $   199,553   $   194,039
      Petrochemical
       and Industrial                                   18,759        18,032
                                                  ------------- -------------
                                                   $   218,312   $   212,071
                                                  ------------- -------------
                                                  ------------- -------------
    Total assets
      Pipeline and
       Pipe Services                               $ 1,335,312   $ 1,237,465
      Petrochemical
       and Industrial                                   75,848        81,907
      Financial and
       Corporate                                       858,835       881,982
      Elimination                                   (1,133,368)   (1,069,813)
                                                  ------------- -------------
                                                   $ 1,136,627   $ 1,131,541
                                                  ------------- -------------
                                                  ------------- -------------
    

18. 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:

    
                           Three Months Ended           Nine Months Ended
                              September 30,               September 30,
                      --------------------------- ---------------------------
                           2009          2008          2009          2008
                                      Restated -                  Restated -
                                        note 1                      note 1
                      ------------- ------------- ------------- -------------
    Revenue            $    13,160   $    44,728   $    47,737   $    82,693
    Operating and
     other expenses         12,403        30,738        38,522        62,077
    Net income before
     income taxes              757        13,990         9,215        20,616
    Provision for taxes        390         4,172         2,161         5,393
                      ------------- ------------- ------------- -------------
    Net income         $       367   $     9,818   $     7,054   $    15,223
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------
    Cash provided by
     (used in):
      Operating
       activities      $    (1,821)  $     6,297   $    12,676   $    11,701
      Investing
       activities      $      (528)  $      (486)  $    (2,360)  $    (4,285)
      Financing
       activities      $       701   $    (4,448)  $    (7,778)  $    (7,320)

    Current assets                                 $    30,056   $    40,310
    Property, plant and equipment, net             $    13,131   $    14,133
    Goodwill                                       $     4,900   $     4,681
    Current liabilities                            $    15,479   $    25,327
    Long-term Liabilities                          $     1,290   $       571
    

19. Earnings per share

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

    
                           Three Months Ended           Nine Months Ended
                              September 30,               September 30,
                      --------------------------- ---------------------------
                           2009          2008          2009          2008
                                      Restated -                  Restated -
                                        note 1                      note 1
                      ------------- ------------- ------------- -------------
    Basic
      Class A           57,403,761    57,834,682    57,379,823    57,943,554
      Class B           13,060,209    13,077,909    13,060,209    13,077,909
                      ------------- ------------- ------------- -------------
    Total               70,463,970    70,912,591    70,440,032    71,021,463
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Dilutive effect of
     stock options
      Class A              593,600       701,861       343,848       728,059
      Class B                    -             -             -             -
                      ------------- ------------- ------------- -------------
    Total                  593,600       701,861       343,848       728,059
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Diluted
      Class A           57,997,361    58,536,543    57,723,671    58,671,613
      Class B           13,060,209    13,077,909    13,060,209    13,077,909
                      ------------- ------------- ------------- -------------
    Total               71,057,570    71,614,452    70,783,880    71,749,522
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------
    

20. Recent accounting pronouncements

On February 13, 2008, The Accounting Standards Board ("AcSB") confirmed that the use of International Financial Reporting Standards ("IFRS") will be required in Canada for publicly accountable profit-oriented enterprises for fiscal years beginning on or after January 1, 2011 and the Company will be required to report using IFRS beginning on this date. The Company has begun the process of evaluating the effect of and the planning for the transition to IFRS. The impact of the ultimate adoption of IFRS on the Company has not yet been finalized.

In January 2009, the AcSB issued the following new Handbook sections: 1582 - Business Combinations, 1601 - Consolidations, and 1602 - Non- Controlling Interests. These standards are effective January 1, 2011. The Company has not yet determined the impact of the adoption of these standards on its consolidated financial statements.

21. Comparative figures

Comparative figures have been reclassified from statements previously stated to conform to the presentation of the current year consolidated financial statements, and to show the effects of retrospective application of a new accounting policy (see note 1).

SOURCE ShawCor Ltd.

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

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ShawCor Ltd.

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