Trading Symbol: "TESOF" on NASDAQ "TEO" on TSX HOUSTON, TX, March
28 /PRNewswire-FirstCall/ -- Tesco Corporation ("TESCO" or the
"Company") today announced the filing of its first Annual Report on
Form 10-K with the Securities and Exchange Commission as a U.S.
domestic filer; the Company had previously reported as a foreign
private issuer. The Annual Report on Form 10-K includes final
audited financial statements. As previously announced, the
Company's net income for the year ended December 31, 2006 was $30.5
million and diluted earnings per share was $0.83. Background
---------- The Company had previously reported that it delayed its
filing of the Form 10-K because of its discovery of certain errors
that would require it to restate its financial statements for the
second and third fiscal quarters of 2006, its becoming subject to
the reporting and disclosure requirements under the Securities
Exchange Act and related rules beginning January 1, 2007, the
identification of certain material weaknesses in internal controls
over financial reporting, and its adjustment to reflect the results
of a self-initiated review of its past stock option granting
practices and related accounting. As a result of final adjustments
made in connection with the preparation of its financial statements
included in the Form 10-K, there were several adjustments to
financial information that had been previously reported or
announced in the Company's earnings release of March 8, 2007. These
restatements and adjustments did not change the full year 2006 net
income or earnings per share. Some of the more significant changes
include the following: - Net Income for the year ended December 31,
2005 was $8.1 million, as opposed to $7.0 million as previously
reported. The revised earnings per share (fully diluted) was $0.23
(as opposed to $0.20 as previously reported). This difference
relates to a correction in the application of foreign currency
rates. - Reclassification of the 2005 $8.4 million gain on the sale
of operating assets from Corporate/Unallocated to the Casing
Services segment, and - Other reclassifications within operating
income for certain segments. Also, as previously announced, the
Company made adjustments to its unaudited quarterly results for the
second, third and fourth quarters of 2006 and filed restatements of
its quarterly information for the second and third quarters. As
revised, net income for the second quarter 2006 was $2.6 million on
a U.S. GAAP basis, not $3.0 million. A corresponding adjustment was
made with respect to the fourth quarter, so that net income for the
fourth quarter was $10.5 million on a U.S. GAAP basis as opposed to
$10.2 million ($0.29 per share on a fully diluted basis as opposed
to $0.28 per share). Third quarter 2006 reported net income of $8.5
million, on a U.S. GAAP basis, is the same as previously reported
in the March 8, 2007 earnings release. Other adjustments are
described in the section titled "Additional Disclosures." Because
of various adjustments described above, the restatements for the
second and third quarters of 2006 and other adjustments made during
the course of preparing the final audited financial statements
included in its Form 10-K, the Company has decided to revise and
reissue its March 8, 2007 earnings release and to withdraw the
prior release in order to provide investors, analysts and other
interested persons with a composite report based on the Company's
audited financial information. All information included below is on
a U.S. GAAP basis. Updated Financial Information Summary of Results
(in millions of U.S. $, except per share amounts and percentages)
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) 19.3
1.1 14.6 60.9 17.7 Net Income (loss) 10.5 (1.2) 8.5 30.5 8.1 EPS
(diluted) $ 0.29 $ (0.04) $ 0.23 $ 0.83 $ 0.23 EBITDA (as
defined)(xx) $ 26.4 $ 6.4 $ 22.2 $ 85.0 $ 36.7 (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.
Segment Information (in 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 $ 22.7 $(1.9)(1) $ 17.1 $ 64.8 $
23.5(1) Casing Services 7.7 10.5(2) 6.3 28.4 19.0(2) Research and
Engineering (2.2) (0.6) (1.2) (6.0) (3.9) Corporate/Unallocated
(8.9) (6.9) (7.6) (26.4) (20.9) --------- --------- ---------
--------- --------- Total Operating Income $ 19.3 $ 1.1 $ 14.6 $
60.9 $ 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. (1) Includes a $6.6 million charge related to
the Company's Top Drive "Load Path" replacement program (2)
Includes an $8.4 million gain from the sale of drilling rigs
Financial and Operating Highlights - Year over year (2006 vs.
2005): - A 90% increase in Revenue. - A 244% increase in Operating
Income. - A 276% increase in Net Income. - A 129% increase in Top
Drive sales and aftermarket support revenue. - A 37% increase in
Top Drive rental revenue. - A 175% 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 117% increase in Casing Services
revenue. - A 49% increase in Casing Services operating income. 2005
operating income includes an $8.4 million gain from the sale of
rigs. - 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 steerable 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%(2). - Total capital expenditures in 2006 amounted to $46.2
million. We have budgeted capital expenditures in 2007 close to $50
million. - Selling, General and Administrative (SG&A) costs for
Q4 2006 amounted to $12.1 million which compares to $10.9 million
for Q4 2005. For all of 2006, SG&A totaled $36.1 million
compared to $28.1 million for 2005. This represents a drop in
SG&A as a percent of revenue from 14% to 9%. 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
$2.2 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 43%. 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 the year ended 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 are 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 $0.8 million recorded to retained
earnings as of such date, as the cumulative amount of these errors
would be material to the year prior to the adoption of Staff
Accounting Bulletin # 108. - In 2006, we also identified errors in
recording stock compensation, depreciation expense, research and
engineering costs and in posting from sub accounts to our general
ledger that resulted in a material misstatement of our previously
reported results for the second and third quarters of 2006.
Accordingly, we have filed restated financial statements with
securities regulatory authorities in Canada and furnished such
statements pursuant to amended Form 6Ks that are filed with the
Securities and Exchange Commission. Certain of these errors
mentioned above also impacted the first quarter of 2006; however,
the Company determined that the net impact was not material to the
previously reported amounts and therefore has not amended such
financial statements previously reported on a Form 6K. A summary of
these adjustments, as related to Q2 and Q3 2006 are reconciled
below: (in millions of U.S.$) 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) Research & Engineering adjustment (0.3) -
Depreciation corrections and other errors (0.1) (0.1)
-------------- -------------- Adjusted net income-Canadian GAAP $
2.2 $ 8.2 Conversion to U.S. GAAP 0.4 0.3 --------------
-------------- Net income on a U.S. GAAP basis $ 2.6 $ 8.5
-------------- -------------- -------------- -------------- - Based
upon our testing, we identified certain material weaknesses in
internal controls and concluded that the Company did not maintain
an effective control environment at and over its U.S. Casing
Services business unit. These material weaknesses are more fully
described in our annual report on Form 10-K for the year ended
December 31, 2006. 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. As
a result, management has concluded that our internal control over
financial reporting was not effective as of December 31, 2006.
Management, with the oversight of the Audit Committee, has begun to
address these control deficiencies and is committed to correcting
these deficiencies expeditiously. 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) $ 10.5 $ (1.2) $ 8.5 $ 30.5 $ 8.1 Income Taxes 8.1 - 5.2
23.3 6.3 Depreciation and Amortization 5.4 5.4 6.0 22.5 17.3 Net
Interest expense 0.9 1.2 0.8 3.2 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 $ 26.4 $ 6.4 $ 22.2 $ 85.0 $
36.7 (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 Ended Twelve Months Ended ----------------------
----------------------- 2006 2005 2006 2005 ---------- ----------
---------- ----------- REVENUE $ 114.3 $ 65.6 $ 386.2 $ 202.7
OPERATING EXPENSES Cost of Sales and Services 80.7 61.4 283.2 161.9
Selling, General and Administrative 12.1 10.9 36.1 28.1 Research
and Engineering 2.2 0.6 6.0 3.9 Gain on Sales of Operating Assets -
(8.4) - (8.9) ---------- ---------- ---------- ----------- 95.0
64.5 325.3 185.0 ---------- ---------- ---------- -----------
OPERATING INCOME 19.3 1.1 60.9 17.7 Interest Expense, net 0.9 1.2
3.2 1.4 Other (Income) Expense, net (0.2) 1.1 4.1 1.9 ----------
---------- ---------- ----------- INCOME BEFORE INCOME TAXES 18.7
(1.2) 53.6 14.4 Income taxes 8.1 - 23.3 6.3 ---------- ----------
---------- ----------- NET INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 10.5 (1.2) 30.3 8.1 Cumulative Effect of
Accounting Change, net - - 0.2 - ---------- ---------- ----------
----------- NET INCOME $ 10.5 $ (1.2) $ 30.5 $ 8.1 ----------
---------- ---------- ----------- ---------- ---------- ----------
----------- Earnings per share: Basic $ 0.29 ($0.04) $ 0.85 $ 0.23
Diluted $ 0.29 ($0.04) $ 0.83 $ 0.23 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 ---------- ----------- ASSETS Cash and Cash Equivalents $
14.9 $ 35.4 Accounts Receivables, net 80.5 56.3 Inventories 85.4
40.1 Other Current Assets 18.1 17.8 ---------- ----------- Current
Assets 198.9 149.6 Property, Plant and Equipment, net 132.4 109.7
Goodwill 16.6 16.9 Other Assets 24.3 34.1 ---------- ----------- $
372.2 $ 310.3 ---------- ----------- ---------- -----------
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 40.8 Deferred Income
Taxes 11.2 13.0 Shareholders' Equity 239.4 203.5 ----------
----------- $ 372.2 $ 310.3 ---------- ----------- ----------
----------- DATASOURCE: Tesco Corporation CONTACT: Julio Quintana,
(713) 359-7000; Anthony Tripodo, (713) 359-7000, Tesco Corporation
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