Pason Systems Inc. reports first quarter operating results

Stock Exchange: TSX

Symbol: PSI

CALGARY, May 4 /CNW/ - Pason Systems Inc. ("Pason" or "the Company") today announced its results for the three-month period ended March 31, 2010.

    
    PERFORMANCE DATA

    -------------------------------------------------------------------------
    Three Months Ended March 31,            2010          2009        Change
    -------------------------------------------------------------------------
    (000s, except per share data)             ($)           ($)           (%)
     (unaudited)

    Revenue                               56,384        54,175             4
    EBITDA(1)                             25,390        23,775             7
      As a % of revenue                     45.0          43.9             3
      Per share - basic                     0.31          0.29             7
      Per share - diluted                   0.31          0.29             7
    Funds flow from operations(1)         20,454        18,685             9
      Per share - basic                     0.25          0.23             9
      Per share - diluted                   0.25          0.23             9
    Earnings                               8,397         4,916            71
      Per share - basic                     0.10          0.06            67
      Per share - diluted                   0.10          0.06            67
    Capital expenditures                   4,319         5,711           (24)
    Working capital                      134,270       172,637           (22)
    Total assets                         372,707       425,646           (12)
    Shareholders' equity                 314,157       367,461           (15)
    Common shares outstanding (No.)
     (weighted average)
      Basic                               81,491        81,461             -
      Diluted                             81,491        81,461             -
    Shares outstanding end of period      81,500        81,467             -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) EBITDA is defined as earnings before interest expense, income taxes,
        stock-based compensation expense and depreciation and amortization
        expense. Funds flow from operations is defined as earnings adjusted
        for depreciation and amortization expense, stock-based compensation
        expense, future income taxes and other non-cash items impacting
        operations as presented in the Consolidated Statements of Cash Flows.
        These definitions are not recognized measures under Canadian
        generally accepted accounting principles, and accordingly, may not be
        comparable to measures used by other companies.

    PRESIDENT'S MESSAGE
    

The North American drilling recovery that began in late 2009 continued throughout the first quarter resulting in improved financial returns for Pason compared to 2009 when the drilling industry was in a rapid decline. Revenue increased 4% from the prior year to $56.4 million, funds flow from operations improved by 9% to $20.5 million and net earnings rose 71% to $8.4 million compared to $4.9 million in 2009. Earnings per diluted share were $0.10 compared to $0.06 in the first quarter of last year.

Pason's U.S. business unit continued its upward trend with March being the cross over month where rig count and profit finally exceeded the previous year's month for the first time in over a year. The average number of rigs employing at least some of Pason's equipment was approximately 800, over twice the levels of the 2009 low point. The U.S. unit's revenue was $24.9 million (although up 3% in U.S. currency) compared to $29.3 million recorded in 2009 but profit was somewhat improved at $4.4 million up 20% from the prior year. Product price increases that effectively return us to 2008 level pricing were made as of the beginning of March so that action had limited effect in the quarter. We were pleased that although industry drilling days were down 2% compared to the first quarter of the prior year our electronic drilling recorder days were up 27%. We accomplished this with a reduced field service staff so that margin per field tech was up a strong 20% indicating our operational leverage continues to improve. Revenue per U.S. drilling day was $206 versus $233 in the prior year. During the quarter we ceased manned geological services at the wellsite. These services were limited to the United States and were inherited when we entered the United States in 1997. We made this decision because we were unable to obtain a satisfactory markup on the costly wages required to hire contract geologists or mudloggers. We will continue to offer remote geological services such as log analysis and geo-steering from our command centre in Denver. We would expect going forward that our revenues and expenses for this product line will be greatly reduced but that our margin might actually increase.

Canadian first quarter business unit profit also had a good lift to $14.8 million from $9.0 million in 2009. This was accomplished with lower prices than we benefited from in last year's first quarter. The improved margin came from significantly improved operating leverage. The surprisingly strong winter quarter and some market share recovery contributed to a 32% increase in EDR rental days which our field staff handled very effectively despite a reduction of 18% in field technicians from the prior year. This resulted in an improvement in margin per field tech of 57%. Revenue per Canadian industry day was $680 down from $768 achieved in last year's first quarter, due mainly to price decreases effective last spring. Our remote directional drilling facilitation product continued to gain positive reviews and traction and we would hope to start earning meaningful revenues from this product beginning in the third quarter.

As mentioned in our Annual Report, we are continuing to invest in water reclamation technology at Auxsol. We are constructing a portable plant for Eastern Colorado and a mobile plant for an as of yet undetermined location. Both plants will employ our electro coagulation water treatment process. The objective of the plants is to assess the water treatment technology under volume, gain a better understanding of market value and logistical challenges to the movement of the water.

Our International segment recorded profit of $0.7 million, up from a loss of $0.1 million in 2009. Results were very mixed across the many countries in this group. The best returns occurred in Australia where our revenue tripled year over year due to us taking over full control of the business and thus earning 100% of the revenue generated, plus continuing increases in our market penetration. Mexico was also up substantially year over year but the trend is clearly downward at this point due to a lack of drilling funding available to the national oil company, PEMEX. Most of the South American countries continue to lag behind their activity levels of two years ago. In the second quarter we will be shipping equipment to Oman to begin operations in a drilling market that has much to offer in a stable and active country. In further eastern hemisphere expansion we have formed a company in Singapore which will pursue retrofit instrumentation sales on offshore rigs in the Singapore shipyards plus land rentals in the region.

We are encouraged by oil prices resting solidly above $80 a barrel which will contribute to oil well drilling near historical highs in Canada. However, gas prices around $4 an mcf remain a concern. In the U.S. the rig count continues to climb but at a slower rate and there is some concern that much of the drilling is being directed at meeting lease commitments and might back off by the summer. As a result, we are very reluctant to add any further field service technicians and are concentrating on improving our field margins and leverage.

Our cash position at $106.2 million remains strong and the Board of Directors has set our first half dividend at $0.16 per share.

    
    On behalf of the Board of Directors,

    (signed)

    Jim Hill
    Chairman, President & Chief Executive Officer
    

May 4, 2010

    
    FIRST QUARTER CONFERENCE CALL AND ANNUAL GENERAL MEETING
    

Pason will be conducting a conference call for interested analysts, brokers, investors and media representatives to review its first quarter results at 9:00 a.m. (Calgary time) on Wednesday, May 5, 2010. The conference call dial-in number is 1-888-231-8191, conference ID No. 63691145. Seven-day replay: 1-800-642-1687 and enter 63691145.

Shareholders are also invited to attend the Company's Annual General Meeting on Monday, May 10, 2010 at 3:30 p.m. (Calgary time) in the offices of Pason Systems Inc., 6120 Third Street S.E., Calgary, Alberta.

Pason is a leading international provider of specialized rental and sold oilfield instrumentation systems for use on land and offshore rigs. The Company's tightly integrated package of products and services, including data acquisition, wellsite reporting software, remote communications and Internet information management tools, maximizes rig uptime and minimizes operating costs.

Pason's common shares trade on the Toronto Stock Exchange under the symbol PSI. Additional information, including the Company's Annual Report and Annual Information Form for the year ended December 31, 2009, is available on SEDAR at www.sedar.com or on the Company's website at www.pason.com.

Certain information regarding the Company contained herein may constitute forward-looking statements under applicable securities laws. Such statements are subject to known or unknown risks and uncertainties that may cause actual results to differ materially from those anticipated or implied in the forward-looking statements.

    
    CONSOLIDATED BALANCE SHEETS

    -------------------------------------------------------------------------
    As at                                             March 31,  December 31,
                                                          2010          2009
    -------------------------------------------------------------------------
    (000s) (unaudited)                                      ($)           ($)

    Assets
    Current
      Cash                                             106,214       109,849
      Accounts receivable                               53,347        39,102
      Prepaid expenses                                   1,240         1,416
      Income taxes recoverable                               -         2,928
      Future income tax assets                           8,823         9,037
    -------------------------------------------------------------------------
                                                       169,624       162,332
    Capital assets                                     160,503       170,678
    Intangible assets (Note 3)                          22,129        19,557
    Future income tax asset                             14,656        14,558
    Goodwill                                             5,795         5,972
    -------------------------------------------------------------------------
                                                       372,707       373,097
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities
    Current
      Accounts payable and accrued liabilities          32,725        29,780
      Income taxes payable                                 842             -
      Current portion of stock-based compensation
       liability                                         1,787         1,320
      Dividend payable                                       -        11,408
    -------------------------------------------------------------------------
                                                        35,354        42,508
    Stock-based compensation liability                   1,266           906
    Future income tax liabilities                       21,930        21,348
    -------------------------------------------------------------------------
                                                        58,550        64,762
    -------------------------------------------------------------------------
    Shareholders' Equity (Note 2)
    Share capital                                       72,037        71,864
    Contributed surplus                                 14,435        14,029
    Accumulated other comprehensive loss               (25,805)      (22,651)
    Retained earnings                                  253,490       245,093
    -------------------------------------------------------------------------
                                                       314,157       308,335
    -------------------------------------------------------------------------
                                                       372,707       373,097
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements.



    CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

    -------------------------------------------------------------------------
    Three Months Ended March 31,                          2010          2009
    -------------------------------------------------------------------------
    (000s, except per share data) (unaudited)               ($)           ($)

    Revenue
      Equipment rentals                                 54,474        51,896
      Geological services                                1,251         2,043
      Instrumentation sales                                558             -
      Interest                                             101           236
    -------------------------------------------------------------------------
                                                        56,384        54,175
    -------------------------------------------------------------------------
    Expenses
      Rental services                                   22,282        22,003
      Geological services                                1,073         1,999
      Cost of instrumentation sales                        178             -
      Manufacturing and distribution                       211            78
      Research and development                           3,849         3,333
      Corporate services                                 1,850         1,669
      Local administration                               1,602         1,514
      Stock-based compensation                           1,308           378
      Depreciation and amortization                     11,348        16,091
    -------------------------------------------------------------------------
                                                        43,701        47,065
    -------------------------------------------------------------------------
    Earnings before the under noted item                12,683         7,110
    Other income                                            51           196
    -------------------------------------------------------------------------
    Earnings before income taxes                        12,734         7,306
    -------------------------------------------------------------------------
    Income tax expense (recovery)
      Current                                            3,986         4,419
      Future                                               351        (2,029)
    -------------------------------------------------------------------------
                                                         4,337         2,390
    -------------------------------------------------------------------------
    Earnings                                             8,397         4,916
    Retained earnings, beginning of period             245,093       271,788
    -------------------------------------------------------------------------
    Retained earnings, end of period                   253,490       276,704
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings per share
      Basic                                               0.10          0.06
      Diluted                                             0.10          0.06
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements.



    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

    -------------------------------------------------------------------------
    Three Months Ended March 31,                          2010          2009
    -------------------------------------------------------------------------
    (000s) (unaudited)                                      ($)           ($)

    Earnings                                             8,397         4,916
    Other comprehensive (loss) income, net of tax
      Foreign currency translation adjustment           (3,154)        4,871
    -------------------------------------------------------------------------
    Total comprehensive income                           5,243         9,787
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements.



    CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

    -------------------------------------------------------------------------
    Three Months Ended March 31,                          2010          2009
    -------------------------------------------------------------------------
    (000s) (unaudited)                                      ($)           ($)

    Accumulated other comprehensive (loss) income,
     beginning of period                               (22,651)        2,450
    Other comprehensive (loss) income, net of tax
      Foreign currency translation adjustment           (3,154)        4,871
    -------------------------------------------------------------------------
    Accumulated other comprehensive (loss) income,
     end of period                                     (25,805)        7,321
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements.



    CONSOLIDATED STATEMENTS OF CASH FLOWS

    -------------------------------------------------------------------------
    Three Months Ended March 31,                          2010          2009
    -------------------------------------------------------------------------
    (000s) (unaudited)                                      ($)           ($)

    Cash flows related to the following activities:
    Operating
      Earnings                                           8,397         4,916
      Adjustments for non-cash items:
        Depreciation and amortization                   11,348        16,091
        Stock-based compensation                           522          (320)
        Future income taxes                                351        (2,029)
        Unrealized foreign exchange (gain) loss           (164)           27
    -------------------------------------------------------------------------
                                                        20,454        18,685
      Changes in non-cash working capital               (4,152)       31,010
    -------------------------------------------------------------------------
                                                        16,302        49,695
    -------------------------------------------------------------------------
    Financing
      Issue of common shares under the stock
       option plan                                         154           105
      Purchase of stock options                              -          (163)
      Payment of dividends                             (11,408)       (9,777)
    -------------------------------------------------------------------------
                                                       (11,254)       (9,835)
    -------------------------------------------------------------------------
    Investing
      Additions to capital assets                       (3,357)       (4,854)
      Deferred development costs, net of
       investment tax credits received                    (962)         (857)
      Purchase of Australian distribution rights
       (Note 3)                                         (2,829)            -
      Proceeds on disposal of capital assets                12           124
      Changes in non-cash working capital                 (367)       (2,066)
    -------------------------------------------------------------------------
                                                        (7,503)       (7,653)
    -------------------------------------------------------------------------
    Effect of exchange rate changes on cash             (1,180)          656
    -------------------------------------------------------------------------
    Net (decrease) increase in cash and cash
     equivalents                                        (3,635)       32,863
    Cash and cash equivalents, beginning of period     109,849       100,610
    -------------------------------------------------------------------------
    Cash and cash equivalents, end of period           106,214       133,473
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Represented by:
      Cash and cash equivalents                        106,214       133,473
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements.



    NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

    Three Months Ended March 31, 2010 and 2009

    (000s, except per share data) (unaudited)

    1.  SIGNIFICANT ACCOUNTING POLICIES

        These interim consolidated financial statements have been prepared in
        accordance with the same accounting policies and methods of
        computation as those outlined in the annual audited financial
        statements. These interim consolidated financial statements do not
        include all disclosures normally provided in annual financial
        statements and should be read in conjunction with the Company's
        audited annual financial statements for the year ended December 31,
        2009.

        Future Changes in Accounting Policies

          a. The Canadian Institute of Chartered Accountants ("CICA") issued
             Section 1582 "Business Combinations" which replaces section 1581
             "Business Combinations". The new Section establishes standards
             for the accounting for business combinations and provides the
             Canadian equivalent to the International Financial Reporting
             Standards ("IFRS") practice. The Section applies prospectively
             to business combinations for which the acquisition date is on or
             after October 1, 2011 and allows for earlier application. CICA
             Section 1601, "Consolidated Financial Statements" and Section
             1602 "Non-Controlling Interests" were also issued replacing
             Section 1600, "Consolidated Financial Statements". These
             sections establish standards for the preparation of consolidated
             financial statements and accounting for non-controlling
             interests in a subsidiary subsequent to a business combination.
             The sections are equivalent to the corresponding provisions of
             the IFRS standard. The Sections apply to interim and annual
             consolidated financial statements relating to fiscal years
             beginning on or after October 2011 and allow for earlier
             adoption. The Company is currently evaluating the impact of the
             adoption of these new Standards on its consolidated financial
             statements.

          b. Canada's Accounting Standards Board ratified a plan that will
             result in GAAP being converged with IFRS by 2011. Management has
             completed its detailed assessment and design phase. In this
             area, the Company has focused primarily on the areas with the
             highest potential impact to the Company, including capital
             assets, impairment of assets and stock based compensation.
             Measurement of the impact on the Company's consolidated
             financial statements is ongoing.

    2.  SHARE CAPITAL

        Authorized

        Unlimited number of common shares
        Unlimited number of preferred shares, issuable in series

        Issued

        Common shares
        ---------------------------------------------------------------------
                                                        Shares        Amount
        ---------------------------------------------------------------------
                                                          (No.)           ($)
        Balance, December 31, 2009                      81,487        71,864
          Exercise of stock options                         13           154
          Contributed surplus adjustment on
           exercise of stock options                         -            19
        ---------------------------------------------------------------------
        Balance, March 31, 2010                         81,500        72,037
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Stock Option Plan

        At March 31, 2010, 6,380 stock options were outstanding for common
        shares at exercise prices ranging from $10.99 to $17.11 per share,
        expiring between 2010 and 2015 as follows:

        ---------------------------------------------------------------------
                                             2010                2009
        ---------------------------------------------------------------------
                                                Weighted            Weighted
                                                 Average             Average
                                         Share  Exercise     Share  Exercise
                                       Options     Price   Options     Price
        ---------------------------------------------------------------------
                                          (No.)       ($)     (No.)       ($)

        Outstanding, beginning of
         period                          6,540     12.05     6,753     12.88
          Granted                            -         -        50     12.31
          Exercised                        (16)    12.07       (44)     9.37
          Forfeited                       (144)    11.74      (942)    13.75
        ---------------------------------------------------------------------
        Outstanding, end of period       6,380     12.06     5,817     12.76
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Exercisable, end of period       2,652     12.84     1,772     13.82
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Available for grant, end of
         period                          1,770               2,330
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        All options are issued at market price and vest over three years. The
        following table summarizes the life of options issued:

        ---------------------------------------------------------------------
        Date of Issuance                                               Years
        ---------------------------------------------------------------------

        November 2006 through October 2008                              3.50
        November 2008 and thereafter                                    5.00

        The following table summarizes information about stock options
        outstanding at March 31, 2010:

        ---------------------------------------------------------------------
                           Options Outstanding           Options Exercisable
        ---------------------------------------------------------------------
                                   Weighted
                                    Average   Weighted              Weighted
             Range of   Options   Remaining    Average    Exercis-   Average
             Exercise      Out- Contractual   Exercise       able   Exercise
               Prices  standing        Life      Price    (Vested)     Price
        ---------------------------------------------------------------------
                   ($)     (No.)     (Years)        ($)      (No.)        ($)

        10.99 - 11.79     1,715        4.67      10.99          -          -
        11.80 - 12.00     2,155        3.66      11.80        747      11.80
        12.01 - 13.00     1,750        1.24      12.18      1,164      12.18
        13.01 - 17.11       760        0.26      14.92        741      14.91
        ---------------------------------------------------------------------
                          6,380        2.86      12.06      2,652      12.84
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The total number of options outstanding must not exceed 10% of the
        total common shares outstanding.

        All stock options granted to employees and directors were accounted
        for using the fair value method estimated on the date of grant using
        the Black-Scholes option pricing model. This method was in effect
        until the shareholders approved adjustments to the stock option plan
        on October 23, 2008. As of this date, stock options have been
        accounted for using a combination of both the fair value and
        intrinsic value methods.

        Contributed Surplus

        Amounts recorded to contributed surplus are as follows:

        ---------------------------------------------------------------------
        Three Months Ended March 31,                      2010          2009
        ---------------------------------------------------------------------
                                                            ($)           ($)

        Balance, beginning of period                    14,029         8,834
          Stock-based compensation expense                 432           880
          Stock options exercised                          (19)          (21)
            Intrinsic value adjustment                      (7)        2,100
        ---------------------------------------------------------------------
        Balance, end of period                          14,435        11,793
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Restricted Share Unit ("RSU") Plan

        In November of 2008, the Company introduced an RSU program for
        employees and directors. At March 31, 2010, 611 (2009 - 602) RSUs
        were outstanding. All RSU's vest over three years and will result in
        a cash payment to holders based upon the corresponding future market
        value of the Company's common shares. Stock-based compensation
        expense arising from the RSU plan of $786 (2009 - $698) was recorded
        in the Consolidated Statements of Operations and the corresponding
        liability is recorded in the March 31, 2010 Consolidated Balance
        Sheets.

        Stock-based Compensation Expense and Liability

        The stock option and RSU plans can be summarized as follows:

        ---------------------------------------------------------------------
        Three Months Ended March 31,                      2010          2009
        ---------------------------------------------------------------------
                                                            ($)           ($)

        Stock options                                      522          (320)
        RSUs                                               786           698
        ---------------------------------------------------------------------
        Stock-based compensation expense                 1,308           378
        ---------------------------------------------------------------------

        ---------------------------------------------------------------------
                                                      March 31,  December 31,
        As at                                             2010          2009
        ---------------------------------------------------------------------
                                                            ($)           ($)

        Stock options                                       84            32
        RSUs                                             1,703         1,288
        ---------------------------------------------------------------------
        Current portion of stock-based compensation
         liability                                       1,787         1,320
        ---------------------------------------------------------------------

        Stock options                                       70            27
        RSUs                                             1,196           879
        ---------------------------------------------------------------------
        Long-term portion of stock-based
         compensation liability                          1,266           906
        ---------------------------------------------------------------------
        Total stock-based compensation liability         3,053         2,226
        ---------------------------------------------------------------------

        Purchase of Common Shares

        On March 22, 2010, the Company received regulatory approval to renew
        its normal course issuer bid program. The Company did not purchase
        any shares during the first quarter of either 2010 or 2009. The
        Company is authorized to purchase and cancel up to 4,000 common
        shares before the bid terminates on March 23, 2011. The daily
        purchase limit is 26 common shares.

    3.  RE-PURCHASE OF AUSTRALIAN DISTRIBUTION RIGHTS

        In January of 2010, the Company re-purchased its Australian
        distribution rights for US$2,750 from its former partner. This amount
        was recorded in intangible assets on the Company's Consolidated
        Balance Sheets.

    4.  CONTINGENCIES

        Since late 2003, the Company has defended its position in patent
        infringement lawsuits in Canada and the United States regarding the
        Company's automatic driller. Trial on the U.S. lawsuit concluded on
        November 6, 2008. The jury determined Pason's automatic driller
        infringed three claims of the patent at issue, denied the Company's
        claim that the patent was invalid, and awarded damages in the amount
        of US$14,300. The Company accrued this amount in the 2008
        consolidated financial statements. On April 30, 2009, the trial judge
        denied Pason's motion to reverse the jury verdict and the alternative
        motion for a new trial, approved the jury's damages award of
        US$14,300, plus interest and court costs, and certified the matter
        for appeal. The judge denied the plaintiff's request for enhanced
        damages based on willful infringement and refused the plaintiff's
        motion for a permanent injunction that would have prevented the
        rental of Pason's automatic driller in the United States.

        The Company subsequently filed an appeal with the Federal Circuit
        Appeals Court and posted a bond suspending any enforcement of the
        verdict while the appeal was pending. The plaintiff filed a motion
        with the Federal Circuit Appeals Court arguing that the trial court
        was premature in certifying the judgment as final and appealable
        without resolving Pason's claim that the patent holder was guilty of
        inequitable conduct in its prosecution of the patent. The Federal
        Circuit Appeals Court agreed, dismissed the appeal, and remanded the
        case to the trial court. Further trial proceedings at the trial court
        level are currently stayed in deference to the re-examination
        proceedings described below.

        Upon application by the Company, the United States Patent and
        Trademark Office ("USPTO") determined in August 2009 that prior art
        not previously considered in the prosecution of the patent at issue
        raised substantial new questions of patentability. In December 2009,
        the USPTO issued an initial office action determining as a
        preliminary matter that several claims of the '142 Patent were
        invalid, including the three claims previously litigated in the U.S.
        case. In February 2010, the USPTO issued a "Final Rejection". In the
        Final Rejection, the USPTO rejected two claims of the '142 Patent but
        also confirmed two others. In response, the plaintiff moved to amend
        the two rejected claims to overcome the rejection. On March 27, 2010,
        the examiner allowed the plaintiff's amendment and issued a Notice of
        Intent to Issue Re-examination Certificate. Once the Re-examination
        Certificate is issued, this will conclude the re-examination
        proceeding. The matter will then be returned to the trial court for
        further proceedings on Pason's inequitable conduct claims and the
        plaintiff's request for an injunction.

        If the Company does not prevail on its inequitable conduct defense
        and claim, it intends to renew its appeal on all issues.

        In the Canadian case, which is scheduled to come to trial in January
        2011, management's assessment of the outcome continues to be that the
        asserted claims of the patent are not valid, and/or the Company does
        not infringe on any valid claims, and as a result, the Canadian
        litigation is not expected to have a significant adverse impact on
        the Company's financial position or operations. The outcome of the
        U.S. case does not bind a Canadian court. Accordingly, no amount has
        been accrued for any potential loss under the Canadian case in the
        consolidated financial statements at March 31, 2010.

    5.  SEGMENTED INFORMATION

        The Company operates in three geographic segments: Canada, the United
        States and internationally (Latin America, Offshore and the Eastern
        Hemisphere). The amounts related to each segment are as follows:

        ---------------------------------------------------------------------
                                                  United     Inter-
                                        Canada    States  national     Total
        ---------------------------------------------------------------------
                                            ($)       ($)       ($)       ($)

        Three Months Ended
         March 31, 2010
        Revenue                         26,604    24,922     4,858    56,384
        Operating costs                  6,768    15,375     2,992    25,135
        Depreciation and amortization    5,022     5,176     1,150    11,348
        ---------------------------------------------------------------------
        Segment operating profit        14,814     4,371       716    19,901
        -----------------------------------------------------------
        -----------------------------------------------------------
        Research and development                                       3,849
        Stock-based compensation                                       1,308
        Corporate services                                             1,850
        Manufacturing and distribution                                   211
        Other income                                                     (51)
        Income taxes                                                   4,337
                                                                   ----------
        Earnings                                                       8,397
                                                                   ----------
                                                                   ----------
        Total assets                   188,711   129,896    54,100   372,707
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Capital expenditures             1,958     1,182     1,179     4,319
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Three Months Ended March 31,
         2009
        Revenue                         22,334    29,290     2,551    54,175
        Operating costs                  7,408    16,452     1,656    25,516
        Depreciation and amortization    5,921     9,209       961    16,091
        ---------------------------------------------------------------------
        Segment operating profit (loss)  9,005     3,629       (66)   12,568
        -----------------------------------------------------------
        -----------------------------------------------------------
        Research and development                                       3,333
        Stock-based compensation                                         378
        Corporate services                                             1,669
        Manufacturing and distribution                                    78
        Other income                                                    (196)
        Income taxes                                                   2,390
                                                                   ----------
        Earnings                                                       4,916
                                                                   ----------
                                                                   ----------
        Total assets                   200,456   206,777    18,413   425,646
        ---------------------------------------------------------------------
        Capital expenditures               805     2,580     2,326     5,711
        ---------------------------------------------------------------------
    

SOURCE Pason Systems Inc.

For further information: For further information: Pason Systems Inc.: Jim Hill, Chairman, President and CEO, Phone: (403) 301-3401, Fax: (403) 301-3499, E-mail: jim.hill@pason.com; Jim Glasspoole, Chief Financial Officer, Phone: (403) 692-3840, Fax: (403) 301-3411, E-mail: jim.glasspoole@pason.com


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