Trading Symbol: "TESOF" on NASDAQ "TEO" on TSX HOUSTON, March 8
/PRNewswire-FirstCall/ -- Tesco Corporation ("TESCO" or the
"Company") today reported record net income for the quarter ended
December 31, 2006 of $10.2 million, or $0.28 per diluted share,
compared to a net loss of $1.5 million, or $(0.04) per diluted
share, for the fourth quarter of 2005 and net income of $8.5
million, or $0.23 per diluted share, for the third quarter of 2006
(as restated). Revenue, also the strongest in the Company's
history, was $114.3 million for the quarterly period ended December
31, 2006 compared to revenue of $65.6 million for the comparable
period in 2005 and $101.5 million in the third quarter of 2006.
Both the Top Drive and Casing Services business segments reported
strong year-over-year and sequential quarterly gains in revenue.
Summary of Results (in millions of U.S.$, except per share amounts
and percentages) U.S. GAAP - Unaudited Quarter 4 Quarter 3 Twelve
Months --------- --------- ------------- 2006 2005 2006(x) 2006
2005 --------- --------- --------- --------- --------- Revenues $
114.3 $ 65.6 $ 101.5 $ 386.2 $ 202.7
-------------------------------------------------
------------------------------------------------- Operating Income
(loss) 18.7 1.1 14.4 60.5 17.7
-------------------------------------------------
------------------------------------------------- Net Income (loss)
10.2 (1.5) 8.5 30.5 7.0
-------------------------------------------------
------------------------------------------------- EPS (diluted) $
0.28 $ (0.04) $ 0.23 $ 0.83 $ 0.20
-------------------------------------------------
------------------------------------------------- EBITDA (as
defined)(xx) $ 26.1 $ 6.1 $ 22.8 $ 85.4 $ 35.6
------------------------------------------------- (x) As restated,
as more fully described in "Additional Disclosures" below. (xx) As
defined to consist of net income (loss) before net interest
expense, depreciation and amortization, non-cash stock compensation
expense and other non-cash items: See "Non-GAAP Measures" below.
Commentary Julio Quintana, TESCO's Chief Executive Officer,
commented "2006 represented a watershed year in the Company's
history. We achieved a 91% year-on-year growth in revenues as well
as record earnings. Favorable market conditions combined with our
ability to increase our capacity to deliver Top Drives to the
market translated into a bottom line performance across Top Drive
sales, after market and Top Drive rentals. Last year also marked a
major movement by the Company in all phases of the Casing Services
business (a combination of CASING DRILLING(R) and Tubular
Services). We built a substantial position as a world class casing
running company on the back of our proprietary automated CDS(TM)
technology and still see running room in this offering. We have
introduced our Multi Control Line Running System (MCLRS(TM)) into
the market with excellent reception and expect future growth from
these technologies. On the CASING DRILLING(R) front, we saw
substantial revenue increases in our service component of this
technology, moved our offering into a higher end offshore market
and have seen a major shift in interest by our clients. The Casing
Services segment is beginning to provide substantial bottom line
value to the Company. In 2007, we also look forward to leveraging
our Top Drive "franchise" in light of continuing favorable market
conditions as well as advancing our proprietary casing running
technologies and expanding our market position in CASING
DRILLING(R)." Segment Information Unaudited--millions of U.S.$
Quarter 4 Quarter 3 Twelve Months --------- --------- -------------
2006 2005 2006(x) 2006 2005 --------- --------- --------- ---------
--------- Revenues:
------------------------------------------------- Top Drives:
------------------------------------------------- Sales and
aftermarket $ 38.9 $ 13.5 $ 32.9 $ 117.3 $ 51.3
------------------------------------------------- Rental 27.9 20.7
25.6 101.9 74.5 --------- --------- --------- --------- ---------
------------------------------------------------- 66.8 34.2 58.5
219.2 125.8 -------------------------------------------------
Casing Services: 47.6 31.4 43.0 167.0 77.0 --------- ---------
--------- --------- ---------
------------------------------------------------- Total Revenues $
114.3 $ 65.6 $ 101.5 $ 386.2 $ 202.7 --------- --------- ---------
--------- ---------
-------------------------------------------------
------------------------------------------------- Operating
Income(xx): Top Drives $ 22.9 $ (1.1) $ 17.7 $ 70.6 $ 25.0
------------------------------------------------- Casing Services
8.3 2.6 8.3 31.7 12.8
------------------------------------------------- Research and
Engineering (2.7) (0.6) (1.2) (6.0) (3.9)
-------------------------------------------------
Corporate/Unallocated (9.8) 0.2 (10.4) (35.8) (16.2) ---------
--------- --------- --------- ---------
------------------------------------------------- Total Operating
Income $ 18.7 $ 1.1 $ 14.4 $ 60.5 $ 17.7 --------- ---------
--------- --------- ---------
------------------------------------------------- (x) As restated,
as more fully described in "Additional Disclosure" below. (xx) The
Company is reporting its Research and Engineering Expenses(R&E)
as a separate reportable segment. Previously R&E was included
in the Corporate and Unallocated reporting segment. All prior
periods have been reclassified to be consistent with these
reportable segments. Financial and Operating Highlights - Year on
year: - A 91% increase in Revenue. - A 240% increase in Operating
Income. - A 335% increase in Net Income. - A 131% increase in Top
Drive sales and aftermarket support revenue. - A 36% increase in
Top Drive rental revenue. - A 138% increase in Top Drive operating
income. 2005 Top Drive operating income includes a $6.6 million
charge to Cost of Sales and Services related to its Top Drive "Load
Path" replacement program. - A 116% increase in Casing Services
revenue. - A 183% increase in Casing Services operating income. -
Top Drive sales for Q4 2006 were 30 units (29 new and 1 from the
rental fleet). This compares to 26 units sold in Q3 2006 and 7 sold
in Q4 2005. - At December 31, 2006, Top Drive backlog amounted to
68 units versus 80 units at September 30, 2006. Based on current
production levels, our capacity to deliver Top Drives, assuming
sustained market demand and orders, is expected to be about 30
units per quarter in 2007. - The utilization of the Company's Top
Drive rental fleet increased to 23,873 operating days for 2006
compared to 21,713 operating days for 2005. Additionally, we
continued to see an increase in our average rental revenues per
operating day. Our rental fleet today stands at 115 units. - The
growth in TESCO's Casing Services revenues for the quarter and the
year ended December 31, 2006 reflect the impact of the two
acquisitions made in November 2005 as well as organic growth
associated with the Company's automated proprietary Casing Drive
System(TM). Our 2006 proprietary Casing Running revenues more than
doubled as compared to 2005 and we experienced a 10% increase in Q4
2006 revenues as compared to Q3 2006. - In January 2007, we
announced the successful deployment of our CASING DRILLING(R)
technology to drill the first ever offshore well utilizing industry
standard rotary drillable systems. We believe this technology will
generate serious industry interest and represents an important
strategic initiative for TESCO's future. - By the end of 2006, we
had drilled our 300th well and over 2 million feet with our
proprietary CASING DRILLING(R) technology. - At December 31, 2006,
cash and cash equivalents totaled $14.9 million while debt totaled
$44.5 million. This represents a net debt to book capitalization of
11%(1). - Total capital expenditures in 2006 amounted to $45.7
million. We have budgeted capital expenditures in 2007 close to $50
million. - Selling, General and Administrative (SG&A) costs for
Q4 2006 amounted to $12.2 million which compares to $10.9 million
for Q4 2005. For all of 2006, SG&A totaled $37.2 million
compared to $28.1 million for 2005. This represents a drop in
SG&A as a percent of revenue from 14% to 10%. The increase in
SG&A for the 4th quarter of 2006 compared to the same quarter
in 2005 primarily relates to expanded sales and marketing expenses
associated with both the growth in the business as well as the
acquisitions associated with our Casing Services segment in 2005.
In addition, we incurred increased legal, accounting and compliance
costs (including, Section 404 of the Sarbanes Oxley Act) associated
with our transition from a foreign private issuer to a domestic
reporting issuer under the Securities Exchange Act of 1934. -
Research and Engineering (R&E) costs for Q4 2006 amounted to
$2.7 million which compares to $0.6 million for Q4 2005. For all of
2006, R&E totaled $6.0 million compared to $3.9 million for
2005. This increase in R&E was due to additional product
development activity focusing on the commercialization and
enhancement of existing proprietary technologies in Casing Services
and the development of a new generation of Top Drive units. The
Company plans to increase R&E spending 80% in 2007 primarily to
further expand our commercialization and enhancement of existing
proprietary technologies in Casing Services. - The Company's
effective tax rate for Q4 2006 was 44%. This effective tax rate was
primarily impacted by reserves recorded against certain foreign tax
credit carry forwards. The Company expects its effective tax rate
in 2007 to be in the range of 35-40%. (1) This ratio is calculated
by dividing financial debt, less cash by the sum of financial debt,
net of cash plus shareholders' equity. Additional Disclosures As a
result of our transition from a foreign private issuer to a
domestic reporting issuer under the Securities Exchange Act of
1934, we became subject to the reporting and disclosure
requirements under the Securities Exchange Act and related rules.
We also conducted an evaluation of our internal controls over
financial reporting as of December 31, 2006 in accordance with
Section 404 of the Sarbanes Oxley Act. In addition, as part of the
transition process, our board of directors and management conducted
a self-initiated review of our past stock option granting practices
and related accounting. We note that our review of our stock option
practices did not uncover any evidence of fraud or manipulative
intent. During the course of preparing our initial annual report on
Form 10-K for December 31, 2006 (including the financial statements
to be filed therewith), the related evaluation of internal
controls, and the review of our stock option practices and
accounting, we made the following determinations (all of which will
be more thoroughly described in our annual report on Form 10-K for
December 31, 2006): - For years prior to 2006, we identified
certain errors totaling $0.8 million; specifically, additional
stock compensation expense ($0.5 million), depreciation expense
($0.5 million), billings ($0.1 million), a reduction in accrued
cost of sales and services ($0.1 million) and related tax effects
of these items ($0.2 million). Applying SEC Staff Accounting
Bulletin # 99, we determined that the errors did not result in a
material misstatement with respect to any of the prior periods that
would be impacted by their correction, either individually or in
the aggregate. As these adjustments are not material to any of the
years prior to 2006, we have elected to apply the guidance in Staff
Accounting Bulletin # 108 by adjusting the carrying values of
assets and liabilities as of January 1, 2006 with an offsetting
adjustment of $0.8 million recorded to retained earnings as of such
date, as the cumulative amount of these errors would be material to
the year prior to the adoption of Staff Accounting Bulletin # 108.
- In 2006, we also identified errors in recording stock
compensation and depreciation expense and in posting from sub
accounts to our general ledger that resulted in a material
misstatement of our previously reported results for the second and
third quarters of 2006. Accordingly, we are filing restated
financial statements with securities regulatory authorities in
Canada and furnishing such statements pursuant to amended Form 6Ks
that will be filed with the Securities and Exchange Commission. The
stock compensation and depreciation errors mentioned above also
impacted the first quarter of 2006; however, the Company determined
that the net impact was not material to the previously reported
amounts and therefore will not be amending such financial
statements previously reported on a Form 6K. A summary of these
adjustments, as related to Q2 and Q3 2006 are reconciled below: (in
millions of U.S.$) Reconciliation Reconciliation to Q2 2006 to Q3
2006 (after tax) (after tax) -------------- -------------- Net
income, as previously reported- Canadian GAAP $ 3.1 $ 9.3 Stock
Compensation adjustment (0.2) (0.3) Under-accrued expenses (0.3)
(0.7) Depreciation corrections and other errors (0.1) (0.1)
-------------- -------------- Adjusted net income-Canadian GAAP $
2.5 $ 8.2 Conversion to U.S. GAAP 0.5 0.3 Net income on a U.S. GAAP
basis $ 3.0 $ 8.5 -------------- -------------- - Based upon our
testing performed to date, we have identified certain material
weaknesses in internal controls in the Company's U.S. Casing
Services business unit. These include a material weakness related
to the Company's monitoring of reporting controls over this
business unit; including, the timely preparation of bank account
reconciliations; the preparation, review and approval of journal
entries; the review of key spreadsheets and certain controls over
fixed assets that will be more fully described in our annual report
on Form 10-K for the year ended December 31, 2006. Our management
has concluded that these weaknesses, at this business unit,
constitute material weaknesses. A material weakness is a control
deficiency, or combination of control deficiencies, that results in
more than a remote likelihood that a material misstatement of the
annual or interim financial statements will not be prevented or
detected. Management, with the oversight of the Audit Committee has
begun to address these control deficiencies and is committed to
correcting these deficiencies expeditiously. However, as a result,
management has concluded that our internal control over financial
reporting was not effective as of December 31, 2006. Financial
Reporting Last year, TESCO, an Alberta corporation, determined that
it no longer qualified for foreign private issuer status related to
periodic reporting of its financial results with the U.S.
Securities and Exchange Commission. As a result, TESCO is preparing
and filing a Form 10-K annual report beginning with the year ended
December 31, 2006 and will file quarterly Form 10-Qs for quarterly
periods thereafter. In addition, at December 31, 2006 TESCO is
reporting results in accordance with U.S. GAAP. Conference Call The
Company will conduct a conference call to discuss its results for
the fourth quarter of 2006 today (Thursday, March 8, 2007) at 10:00
a.m. CST. Individuals who wish to participate in the conference
call should dial US/Canada (866) 433-0163 or International (706)
679-3976 approximately five to ten minutes prior to the scheduled
start of the call. The conference ID for this call is 1949511. The
conference call will also be webcast live and available for replay
at the Company web site, http://www.tescocorp.com/. Listeners may
access the call through the "Conference Calls" link in the Investor
Relations section of the site. The conference call and all
questions and answers will be recorded and made available until
March 22, 2007. To listen to the recording, call (800) 642-1687 or
(706) 645-9291 and enter conference ID 1949511. Tesco Corporation
is a global leader in the design, manufacture and service of
technology based solutions for the upstream energy industry. The
Corporation's strategy is to change the way people drill wells by
delivering safer and more efficient solutions that add real value
by reducing the costs of drilling for and producing oil and gas.
Non-GAAP Measures- EBITDA (as defined below) (in millions of U.S.
$) Quarter 4 Quarter 3 Twelve Months --------- ---------
------------- 2006 2005 2006(x) 2006 2005 --------- ---------
--------- --------- --------- Net Income (loss) $ 10.2 $ (1.5) $
8.5 $ 30.5 $ 7.0 -------------------------------------------------
Income Taxes 8.0 (0.1) 5.2 23.3 6.3
------------------------------------------------- Depreciation and
Amortization 5.6 5.4 6.7 23.3 17.3
------------------------------------------------- Net Interest
expense 0.8 1.3 0.7 2.8 1.4
------------------------------------------------- Stock
Compensation Expense- non-cash 1.5 1.0 1.7 5.7 3.6
------------------------------------------------- Cumulative Change
in accounting method - - - (0.2) -
------------------------------------------------- EBITDA $ 26.1 $
6.1 $ 22.8 $ 85.4 $ 35.6
------------------------------------------------- (x) As restated,
as more fully described in "Additional Disclosures" above. Our
management evaluates Company performance based on non-GAAP
measures, of which a primary performance measure is EBITDA. EBITDA
consists of earnings (net income or loss) available to common
stockholders before interest expense, income tax expense, non-cash
stock compensation, non-cash impairments, depreciation and
amortization and other non-cash items. This measure may not be
comparable to similarly titled measures employed by other companies
and is not a measure of performance calculated in accordance with
GAAP. They should not be considered in isolation or as substitutes
for operating income, net income or loss, cash flows provided by
operating, investing and financing activities, or other income or
cash flow statement data prepared in accordance with GAAP. We
believe EBITDA is useful to an investor in evaluating our operating
performance because: - it is widely used by investors in our
industry to measure a company's operating performance without
regard to items such as net interest expense, depreciation and
amortization, which can vary substantially from company to company
depending upon accounting methods and book value of assets,
financing methods, capital structure and the method by which assets
were acquired; - it helps investors more meaningfully evaluate and
compare the results of our operations from period to period by
removing the impact of our capital structure (primarily interest)
and asset base (primarily depreciation and amortization) and
actions that do not affect liquidity (stock compensation expense)
from our operating results; and - it helps investors identify items
that are within our operational control. Depreciation and
amortization charges, while a component of operating income, are
fixed at the time of the asset purchase in accordance with the
depreciable lives of the related asset and as such are not a
directly controllable period operating charge. Our management uses
EBITDA: - as a measure of operating performance because it assists
us in comparing our performance on a consistent basis as it removes
the impact of our capital structure and asset base from our
operating results; - as one method we use to evaluate potential
acquisitions; - in presentations to our Board of Directors to
enable them to have the same consistent measurement basis of
operating performance used by management; - to assess compliance
with financial ratios and covenants included in our credit
agreements; and - in communications with investors, analysts,
lenders, and others concerning our financial performance. Caution
Regarding Forward-Looking Information; Risk Factors This press
release contains forward-looking statements within the meaning of
Canadian and United States securities laws, including the United
States Private Securities Litigation Reform Act of 1995. From time
to time, our public filings, press releases and other
communications (such as conference calls and presentations) will
contain forward-looking statements. Forward-looking information is
often, but not always identified by the use of words such as
"anticipate", "believe", "expect", "plan", "intend", "forecast",
"target", "project", "may", "will", "should", "could", "estimate",
"predict" or similar words suggesting future outcomes or language
suggesting an outlook. Forward-looking statements in this press
release include, but are not limited to, statements with respect to
expectations of TESCO's prospects, future revenues, earnings,
activities and technical results. Forward-looking statements and
information are based on current beliefs as well as assumptions
made by, and information currently available to, TESCO concerning
anticipated financial performance, business prospects, strategies
and regulatory developments. Although management considers these
assumptions to be reasonable based on information currently
available to it, they may prove to be incorrect. The
forward-looking statements in this press release are made as of the
date it was issued and TESCO does not undertake any obligation to
up date publicly or to revise any of the included forward-looking
statements, whether as a result of new information, future events
or otherwise, except as required by applicable law. By their very
nature, forward-looking statements involve inherent risks and
uncertainties, both general and specific, and risks that outcomes
implied by forward-looking statements will not be achieved. We
caution readers not to place undue reliance on these statements as
a number of important factors could cause the actual results to
differ materially from the beliefs, plans, objectives, expectations
and anticipations, estimates and intentions expressed in such
forward-looking statements. These risks and uncertainties include,
but are not limited to, the impact of changes in oil and natural
gas prices and worldwide and domestic economic conditions on
drilling activity and demand for and pricing of our products and
services, other risks inherent in the drilling services industry
(e.g. operational risks, potential delays or changes in customers'
exploration or development projects or capital expenditures, the
uncertainty of estimates and projections relating to levels of
rental activities, uncertainty of estimates and projections of
costs and expenses, risks in conducting foreign operations, the
consolidation of our customers, and intense competition in our
industry), and risks associated with our intellectual property and
with the performance of our technology. These risks and
uncertainties may cause our actual results, levels of activity,
performance or achievements to be materially different from those
expressed or implied by any forward-looking statements. When
relying on our forward-looking statements to make decisions,
investors and others should carefully consider the foregoing
factors and other uncertainties and potential events. Further
information regarding these factors may be found in TESCO's most
recent annual information form and in TESCO's most recent
consolidated financial statements, management information circular,
quarterly reports, management's discussion and analysis, material
change reports and news releases and in TESCO's Annual Report on
Form 10-K for the year ended December 31, 2006 and in TESCO's
Annual Report on Form 40-F for the year ended December 31, 2005.
Copies of TESCO's Canadian public filings are available at
http://www.tescocorp.com/ and on SEDAR at http://www.sedar.com/.
TESCO's U.S. public filings are available at http://www.sec.gov/
and at http://www.tescocorp.com/. TESCO CORPORATION (Millions of
U.S. Dollars, except share and per share information) COMPARATIVE
CONDENSED CONSOLIDATED STATEMENTS OF INCOME For the For the Three
Months Twelve Months Ended December 31, Ended December 31,
---------------------- ----------------------- 2006 2005 2006 2005
---------- ---------- ---------- ----------- (unaudited) REVENUE $
114.3 $ 65.6 $ 386.2 $ 202.7 COST OF SALES AND SERVICES 80.7 61.3
282.5 161.9 ---------- ---------- ---------- ----------- Direct
Profit 33.6 4.3 103.7 40.8 OPERATING EXPENSES Selling, General and
Administrative 12.2 10.9 37.2 28.1 Research and Engineering 2.7 0.6
6.0 3.9 Gain on Sales of Operating Assets - (8.4) - (8.9)
---------- ---------- ---------- ----------- 14.9 3.2 43.1 23.1
---------- ---------- ---------- ----------- OPERATING INCOME 18.7
1.1 60.5 17.7 Interest Expense, net 0.8 1.3 2.8 1.4 Other (Income)
Expense, net (0.3) 1.4 4.1 3.0 ---------- ---------- ----------
----------- INCOME BEFORE INCOME TAXES 18.2 (1.6) 53.6 13.3 Income
taxes 8.0 (0.1) 23.3 6.3 ---------- ---------- ----------
----------- NET INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING
CHANGE 10.2 (1.5) 30.3 7.0 Cumulative Effect of Accounting Change,
net - - 0.2 - ---------- ---------- ---------- ----------- NET
INCOME $ 10.2 $ (1.5) $ 30.5 $ 7.0 ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------- Earnings
per share: Basic $ 0.28 ($0.04) $ 0.85 $ 0.20 Diluted $ 0.28
($0.04) $ 0.83 $ 0.20 Weighted average number of shares: Basic
35,995,353 35,294,639 35,847,266 35,173,264 Diluted 36,545,812
35,294,639 36,593,409 35,628,543 COMPARATIVE CONDENSED CONSOLIDATED
BALANCE SHEETS December 31, ----------------------- 2006 2005
---------- ----------- (unaudited) ASSETS Cash and Cash Equivalents
$ 14.9 $ 35.4 Accounts Receivables, net 80.3 56.3 Inventories 85.4
40.1 Other Current Assets 14.3 18.4 ---------- ----------- Current
Assets 194.9 150.2 Property, Plant and Equipment, net 131.8 109.7
Goodwill 16.6 16.9 Other Assets 24.8 25.3 ---------- ----------- $
368.1 $ 302.1 ---------- ----------- ---------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY Current Maturities of Long
Term Debt $ 10.0 $ 0.4 Accounts Payable 27.8 23.0 Accrued and Other
Current Liabilities 49.3 29.6 ---------- ----------- Current
Liabilities 87.1 53.0 Long Term Debt 34.5 40.9 Deferred Income
Taxes 5.9 4.7 Shareholders' Equity 240.6 203.5 ----------
----------- $ 368.1 $ 302.1 ---------- ----------- ----------
----------- DATASOURCE: Tesco Corporation CONTACT: Julio Quintana,
(713) 359-7000, Anthony Tripodo, (713) 359-7000, Tesco Corporation
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