Trading Symbol: "TESOF" on NASDAQ "TEO" on TSX CALGARY, March 16
/PRNewswire-FirstCall/ -- Tesco Corporation ("TESCO") today
reported record fourth quarter revenue of $76.9 million, surpassing
last quarter's record revenue. Revenue was up 69% from $45.6
million in the same quarter a year ago and increased 25% from third
quarter 2005 revenue of $61.6 million. For the quarter, TESCO
reported a net loss of $0.7 million ($0.02 per diluted share) after
giving effect to several one-time charges totaling $8.9 million.
These charges principally include bad debt expense recognized as a
result of a more rigorous bad debt accrual policy ($2.8 million), a
charge related to an adverse decision from the Mexican tax court
($2.4 million), rig refurbishment and mobilization costs that
should be recovered over the life of the rig leases ($1.7 million),
abandonment of an unused training facility ($0.8 million), an
inventory adjustment ($0.7 million), and a severance accrual for
terminated employees ($0.5 million). All of these charges are
non-cash except for the severance accrual. Additionally in the
quarter, a "gain on restructuring and other exceptional items" of
$4.2 million was recorded, which includes a gain on the sale of
rigs to Turnkey E&P Inc. ($9.8 million), a gain on the sale of
Drillers Technology Corp. common stock ($2.2 million) and a charge
for load path replacement parts which is described in more detail
below ($7.8 million). The loss for the quarter also included $1.9
million of foreign currency translation losses due to the
strengthening of the Canadian dollar. In the fourth quarter of
2004, TESCO reported a net loss of $7.3 million ($0.21 per diluted
share) which included restructuring and other exceptional charges
of $4.9 million. In the quarter ended September 30, 2005, the
Company reported net income of $1.9 million ($0.05 per diluted
share). Julio Quintana, TESCO's Chief Executive Officer commented,
"2005 was truly a milestone year for TESCO. We were able to
liquidate very low-return assets with the proceeds reinvested in
high-quality casing running assets. Major commercial and
operational successes were achieved in CASING DRILLING(R), and an
exciting new industry alliance validated the game-changing
technology of our Casing Drive System(TM). On the financial side of
the business, we entered into a new US$100 million credit facility.
2005 was the first profitable year since 2001 as TESCO moved from a
technology development company to one that is translating these
innovations to bottom line profitability. While we reported a loss
during the fourth quarter due to above mentioned charges, we are
very pleased with the accomplishments of 2005, including strong
revenue growth. I am particularly gratified our recent acquisitions
are already contributing meaningfully to the financial results.
Going forward we expect very strong demand for all of our
offerings, but especially for our proprietary and conventional
casing running services. It is clear that these acquisitions have
provided additional opportunities for us to expand those casing
services offerings to a larger client base." Top Drive revenue for
the fourth quarter of 2005 was $40.1 million, a 41% increase over
$28.5 million in the comparable prior year period. The primary
drivers leading to the increase in revenue included a 22% increase
in rental days, increased pricing on both rentals and units sold,
and higher after market sales and service revenue. Fourth quarter
2005 Top Drive revenue was essentially flat with third quarter 2005
revenue of $40.5 million. This was the result of a sequential
decrease in Top Drive sales from 12 to 7, offset by an increase in
Top Drive rentals. Significant new purchase orders were placed with
TESCO during the fourth quarter, resulting in a backlog of 62 Top
Drives compared to 28 units in backlog at September 30, 2005. Top
Drive operating income for the fourth quarter 2005 was $6.5 million
compared to $3.8 million in the fourth quarter 2004 and $11.5
million in the third quarter 2005. This sequential drop in
operating income was primarily the result of bad debt provisions
and the inventory adjustment previously mentioned. Casing Services
revenue in the fourth quarter of 2005 was $36.8 million, over
double the $17.1 million in revenue in the comparable quarter in
2004 and up 74% over the third quarter 2005 revenue of $21.1
million. The revenue growth was the result of an increasing
customer base and higher pricing, as well as $11.0 million in
additional revenue from the two acquisitions completed in November,
2005. Fourth quarter 2005 Casing Services operating income totaled
$3.0 million compared with $3.3 million in the fourth quarter of
2004 and $4.1 million in 2005's third quarter. In the quarter,
Casing Services incurred an expense of $1.7 million to bring leased
rigs to operating condition and for mobilization. These start up
costs are expected to be recovered over the term of the leases.
Fourth quarter 2005 cost of sales and service increased to $63.2
million from $35.8 million in the fourth quarter of 2004 primarily
due to increased activity and acquisitions associated with the
Casing Services business. These costs were offset to some degree by
the devaluation of the US dollar against the Canadian dollar. Sales
and marketing expense increased in the fourth quarter of 2005 to
$4.9 million, an increase of $1.9 million over the same period in
2004 due primarily to an increase in bad debt expense. General and
administrative expenses also rose year-over-year because of the
addition of personnel, higher insurance, increased stock
compensation expense, increased consultancy and higher incentive
accruals. Lastly, research and engineering costs increased in the
fourth quarter of 2005 from the same period in 2004 primarily due
to increased product development activity in 2005 focusing on the
commercialization and enhancement of existing proprietary
technologies. Load Path Replacement Provision In December 2005,
TESCO released a Product Bulletin to its installed customer base
advising them of TESCO's plan to change out the load path parts of
certain equipment. This decision was a result of investigations
completed in late 2005 on certain components that experienced
operational problems. The investigations identified that although
TESCO followed API recommended practices in the manufacturing of
these parts, under certain conditions, the parts could fail.
Specifically, the material toughness of the steel did not in all
cases meet TESCO's engineering standards. TESCO intends to cover
the costs of the upgraded components, and in certain cases part or
all of the installation costs of such components depending on the
age of the equipment. As a result, during the fourth quarter of
2005, TESCO recorded a $7.8 million pre-tax provision for these
anticipated costs. Year Ended December 31, 2005 The Company
reported net income of $10.2 million ($0.29 per diluted share) for
the year ended December 31, 2005 compared to a net loss of $7.6
million ($0.22 per diluted share) in the year ended December 31,
2004. For 2005 TESCO realized foreign exchange losses totaling $2.9
million compared to $2.3 million in 2004. Revenue for 2005 was
$244.6 million, up 37% from $179.1 million in 2004. Top Drive
revenue for 2005 was $152.1 million, up 28% from $119.2 million in
2004. The year-to-year revenue increase of $32.9 million was driven
by a $17.5 million increase in the Top Drive rental business
resulting from a 15% increase in rental days and price
strengthening. Also contributing to the revenue growth was a $15.5
million increase in Top Drive sales resulting from the sale of 35
units in 2005 versus 22 units in 2004. Casing Services reported
revenue of $92.5 million for 2005, up 54% from $59.9 million in
2004, due mainly to higher utilization rates and increased pricing
for proprietary Casing Running services and CASING DRILLING(R)
operations and the new acquisitions. Operating income for 2005 was
$18.0 million, up almost three-fold compared to $6.5 million
reported for 2004. 2005 Top Drive operating income totaled $38.4
million, more than double the $18.9 million reported in 2004. 2005
Casing Services operating income totaled $15.6 million compared
with $8.5 million in 2004. Acquisitions and Other Matters In early
November 2005, the Company completed the purchase of the assets of
Tong Specialty (based in Lafayette, LA) and Cheyenne Services
(based in Houston, TX) for a combined all-cash purchase price of
approximately US$54 million. Both companies supply equipment and
personnel for the installation of tubing and casing in the U.S.,
the Gulf of Mexico and land drilling basins in Texas and Louisiana.
These acquired assets have been combined with the Company's
existing tubular services operations in the U.S. and provide growth
opportunities for the Company's proprietary tubular service
technology. Revenue from these acquisitions, included in the 2005
results, totaled approximately $11.0 million and contributed
approximately $2.1 to operating income. Also in November 2005, the
Company announced that it had entered into a non-exclusive alliance
with Transocean Inc., the world's largest offshore drilling
contractor, to provide TESCO's proprietary CDS(TM) on Transocean's
rigs. Transocean will jointly market TESCO's CDS(TM) to exploration
and production companies on a global basis. During the fourth
quarter, TESCO completed the sale of four CASING DRILLING(R) rigs
to Turnkey E&P Inc. (Turnkey) and received $40.9 million and
one million share purchase warrants at the time of closing. These
warrants allow the Company, over the next two years, to acquire one
million shares of Turnkey common stock at $6.00 per share. TESCO
also closed the sale of its investment in Driller's Technology
Corp. in the fourth quarter and received proceeds of $10.0 million
upon completion of the sale. The proceeds from these transactions
were utilized to reduce debt. Balance Sheet In late 2005, TESCO
entered into a new US$100 million credit facility to fund its two
Casing Services acquisitions and provide working capital support.
Proceeds from the sale of its Driller's Technology stock as well as
its drilling rig assets during the fourth quarter were used to pay
down a portion of the credit facility used for the acquisitions. At
December 31, 2005, cash and cash equivalents totaled $41.3 million,
up from $18.9 million at December 31, 2004. Total debt at the end
of 2005 was $48.1 million, up from $17.9 million at the end of
2004. Net debt totaled $6.8 million at year end 2005. Capital
expenditures totaled $5.1 million in the fourth quarter and $16.9
million in the full year 2005, excluding acquisitions. Commentary
Quintana said, "Our new alliance with Transocean, in which we will
work together to provide a value added package that incorporates
services and personnel from both companies, will deliver improved
performance and safety at the wellsite. We are particularly pleased
that Transocean, the largest worldwide offshore drilling rig
operator, has chosen our CDS(TM) and our personnel to be a part of
this alliance. We appreciate the confidence shown in our ability to
significantly enhance drilling efficiency and safety for their
customers. Another significant drilling contractor, Helmerich and
Payne, placed an order for 26 of our EMI Top Drives in the fourth
quarter. This order is in addition to the 15 Top Drive units that
were sold to Helmerich and Payne during 2005. Finally, in the first
quarter of 2006 we were awarded a CASING DRILLING(R) contract to
drill in the North Sea with our proprietary technology. This
represents a major step toward moving this critical growth
technology into the high end market; I am excited about our 2006
business prospects." Conference Call The Company will conduct a
conference call to discuss its results for the fourth quarter and
full year 2005 today at 11:00 a.m. CST. Individuals who wish to
participate in the conference call should dial US/Canada (866)
433-0163 or International (706) 679-3976. The conference ID for
this call is 5944781. The conference call will also be webcast live
as well as for on-demand listening at the Company's web site,
http://www.tescocorp.com/. Listeners may access the call through
the "Conference Calls" link in the Investor Relations section of
the site. Tesco Corporation is a global leader in the design,
manufacture and service of technology based solutions for the
upstream energy industry. The Corporation's mandate 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. FORWARD-LOOKING STATEMENTS This
presentation contains statements that may constitute "forward-
looking statements" within the meaning of the US Private Securities
Litigation Reform Act of 1995. These statements include, among
others, statements regarding expectations of future revenues,
activities, capital expenditures and earnings and technical
results. These statements are based on current expectations that
involve a number of risks and uncertainties, which could cause
actual results to differ from those anticipated. These risks
include, but are not limited to: the background risks of the
drilling services industry (e.g. operational risks; potential
delays or changes in plans with respect to 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 (e.g. political and fiscal
instability) and exchange rate fluctuations); uncertainty and risks
in technical results and performance of technology; and other
uncertainties. CONSOLIDATED BALANCE SHEETS (Thousands of Canadian
Dollars) As at December 31, ------------------------- 2005 2004
------------ ------------ ASSETS CURRENT ASSETS Cash and cash
equivalents $41,268 $18,879 Accounts receivable - trade 65,597
37,917 - prepaid and other 15,131 3,023 Income taxes recoverable
1,872 4,074 Inventories 46,710 33,999 Future income taxes 6,163
6,071 ------------ ------------ Total Current Assets 176,741
103,963 Property, plant and equipment 127,937 127,043 Property held
for sale - 1,027 Investments 2,486 7,830 Goodwill 19,686 11,106
Future income taxes 11,122 15,636 Intangible and other assets
18,029 12,127 ------------ ------------ Total Assets $356,001
$278,732 ------------ ------------ ------------ ------------
LIABILITIES CURRENT LIABILITIES Current portion of long term debt
and capital lease $496 $3,095 Bank borrowings - 12,036 Accounts
payable and accrued liabilities 61,346 29,543 ------------
------------ Total Current Liabilities 61,842 44,674 Capital Lease
- Long term debt and capital lease 47,631 2,808 Future income taxes
5,521 12,271 ------------ ------------ Total Liabilities $114,994
$59,753 ------------ ------------ Contingencies SHAREHOLDERS'
EQUITY Share capital 165,516 157,237 Contributed surplus 8,304
4,741 Retained earnings 67,187 57,001 ------------ ------------
Total Shareholders' Equity 241,007 218,979 ------------
------------ Total Liabilities & Shareholders' Equity $356,001
$278,732 ------------ ------------ ------------ ------------
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (Thousands
of Canadian Dollars except per share information) Quarter ended
Year ended December 31, December 31, -------------------------
------------------------- 2005 2004 2005 2004 ------------
------------ ------------ ------------ REVENUE $76,938 $45,546
$244,613 $179,061 EXPENSES Cost of Sales and Services 63,230 35,708
184,282 144,585 Research and Engineering 973 632 5,701 4,389 Sales
and Marketing 4,934 2,982 10,666 8,444 General and Administrative
8,800 4,211 25,965 15,168 ------------ ------------ ------------
------------ 77,937 43,533 226,614 172,586 ------------
------------ ------------ ------------ Operating income (999) 2,013
17,999 6,475 Other expense 3,568 2,235 4,790 6,227 ------------
------------ ------------ ------------ Income (loss) from
operations before restructuring and other exceptional items (4,567)
(222) 13,209 248 ------------ ------------ ------------
------------ (Gain) loss on restructuring and other exceptional
items (4,181) 4,851 (4,865) 4,851 ------------ ------------
------------ ------------ Income (loss) before income taxes (386)
(5,073) 18,074 (4,603) ------------ ------------ ------------
------------ Income taxes Current 4,856 (324) 10,216 5,424 Future
(4,512) 2,476 (2,328) (2,458) ------------ ------------
------------ ------------ 344 2,152 7,888 2,966 ------------
------------ ------------ ------------ Net income (loss) (730)
(7,225) 10,186 (7,569) Retained earnings, beginning of period
67,917 64,226 57,001 64,570 ------------ ------------ ------------
------------ Retained earnings, end of period $67,187 $57,001
$67,187 $57,001 Earnings per share: Basic ($0.02) ($0.21) $0.29
($0.22) Diluted ($0.02) ($0.21) $0.29 ($0.22) Weighted average
number of shares: Basic 35,293,313 34,932,680 35,171,938 34,778,463
Diluted 35,293,313 34,932,680 35,627,217 34,778,463 DATASOURCE:
Tesco Corporation CONTACT: Mike Kearney at (713) 849-5900, Tesco
Corporation; To request a free copy of this organization's annual
report, please go to http://www.newswire.ca/ and click on Tools for
Investors.
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