Tesco Corporation Reports Q4 2008 and Record 2008 Results



    
    Trading Symbol:
    "TESO" on NASDAQ
    

    HOUSTON, TX, Feb. 26 /CNW/ - Tesco Corporation ("TESCO" or the "Company")
today reported net income for the quarter ended December 31, 2008 of $12.0
million, or $0.31 per diluted share. This compares to net income of $6.6
million, or $0.18 per diluted share, for the fourth quarter of 2007, and net
income of $17.6 million, or $0.46 per diluted share, for the third quarter of
2008.
    Revenue was $139.4 million for the quarter ended December 31, 2008,
compared to revenue of $124.4 million for the comparable period in 2007 and
$140.0 million in the third quarter of 2008.

    
                             Summary of Results
              (in millions of U.S. $, except per share amounts)
                             U.S. GAAP-Unaudited

                                                              Year Ended
                                  Quarter 4     Quarter 3     December 31,
                            ------------------- ---------  ------------------
                                2008      2007      2008      2008      2007
                            --------- --------- --------- --------- ---------
    Revenues                $  139.4  $  124.4  $  140.0  $  534.9  $  462.4

    Operating Income            16.9      13.3      25.4      75.7      48.5

    Net Income                  12.0       6.6      17.6      52.9      32.3

    EPS (diluted)           $   0.31  $   0.18  $   0.46  $   1.40  $   0.86

    Adjusted EBITDA(*)
     (as defined)           $   28.7  $   18.9  $   34.9  $  115.9  $   79.2

    (*)See explanation of Non-GAAP measure below
    

    Commentary

    Julio Quintana, TESCO's Chief Executive Officer, commented "We are very
pleased with our Q4 and full year 2008 results. While we expect 2009 to be a
challenging economic time, we are confident that our solid financial position
and focus on operating efficiencies will enable TESCO to endure an economic
downturn and prepare for the future. While our Q4 2008 margins were impacted
by the recent adverse market conditions, our overall financial performance
remained strong; 2008 was a record year for us in terms of revenues, operating
income and operating cash flows. We increased our revenues in all three of our
operating segments and reduced our outstanding debt by over $31 million. We
ended the year with a backlog of 65 Top Drive units. This is down from 77
units at September 30, but it represents about two quarters of production for
us. We are pleased with the performance of our employees and will count on
them to help us through the current economic downturn."

    
                             Segment Information
                           (in millions of U.S. $)
                                  Unaudited

                                                              Year Ended
                                  Quarter 4     Quarter 3     December 31,
                            ------------------- ---------  ------------------
                                2008      2007      2008      2008      2007
                            --------- --------- --------- --------- ---------
    Revenues:
    Top Drives:
      Sales                 $   43.1  $   33.9  $   46.0  $  164.1  $  127.6
      Aftermarket Support       17.1      15.5      17.0      65.3      51.9
      Rental                    29.8      28.3      27.7     112.0     109.7
                            --------- --------- --------- --------- ---------
                                90.0      77.7      90.7     341.4     289.2
                            --------- --------- --------- --------- ---------
    Tubular Services(*):
      Conventional              16.8      26.2      18.9      79.4      92.9
      Proprietary               26.2      14.2      23.9      87.1      65.7
                            --------- --------- --------- --------- ---------
                                43.0      40.4      42.8     166.5     158.6
    CASING DRILLING(TM)(*)       6.4       6.3       6.5      27.0      14.6
                            --------- --------- --------- --------- ---------
    Total Revenues          $  139.4    $124.4  $  140.0  $  534.9  $  462.4
                            --------- --------- --------- --------- ---------
                            --------- --------- --------- --------- ---------

    Operating Income(xx):
    ---------------------
      Top Drives            $   26.1  $   20.6  $   32.1  $  108.3  $   80.7
      Tubular Services           5.0       5.2       7.4      22.0      23.7
      CASING DRILLING(TM)       (3.4)     (2.2)     (3.1)    (12.6)    (14.1)
      Research and
       Engineering              (2.9)     (3.5)     (2.6)    (11.0)    (12.0)
      Corporate/Other           (7.9)     (6.8)     (8.4)    (31.0)    (29.8)
                            --------- --------- --------- --------- ---------
    Total Operating Income  $   16.9  $   13.3  $   25.4  $   75.7  $   48.5
                            --------- --------- --------- --------- ---------
                            --------- --------- --------- --------- ---------

    (*)    Effective December 31, 2008, we began reporting our CASING
           DRILLING(TM) operations as a distinct operating segment separate
           from our Tubular Services business and we have recast prior
           periods to be presented consistently with this structure.

    (xx)   Operating income for the Top Drive, Tubular Services and CASING
           DRILLING(TM) segments reflect a change in methodology used to
           allocate indirect costs. Total Operating Income did not change.
           This change in methodology will be more fully described in Note 12
           of the Form 10-K to be filed for the year ended December 31, 2008.



                 Q4 2008 Financial and Operating Highlights


    Top Drives Segment
    ------------------

    -   Revenues from the Top Drive segment for Q4 2008 were $90.0 million,
        down slightly from the record revenues of $90.7 million in Q3 2008,
        primarily due to a decrease in used Top Drive sales. Top Drive sales
        for Q4 2008 included a record number of new units (37 new units sold
        and 1 from the rental fleet). This compares to 38 units sold in Q3
        2008 (32 new units sold and 6 from the rental fleet) and 29 units
        sold in Q4 2007 (20 new and 9 from the rental fleet).

    -   During Q4 2008, we built and delivered 8 units to our rental fleet
        (in addition to the 37 new third party units). Our rental fleet now
        stands at 126 units as of December 31, 2008 compared to 119 units at
        September 30, 2008 and 110 units at December 31, 2007.

    -   At December 31, 2008, Top Drive backlog was 65 units, with a total
        value of $57 million, versus 77 units at September 30, 2008, with a
        total value of $72 million. This compares to a backlog of 38 units at
        December 31, 2007 with a total value of $39 million.

    -   Operating days for the Top Drive rental fleet decreased to 5,808 for
        Q4 2008 compared to 6,014 in Q3 2008 and 5,978 in Q4 2007, primarily
        due to units being removed from our rental fleet in preparation for
        sale and the timing of new rental units being activated.

    -   Our Top Drive operating margins were 29% in Q4 2008 compared to 35%
        in Q3 2008 and 27% in Q4 2007. The margin decrease compared to Q3
        2008 is a result of fewer sales of used Top Drive units (1 in Q4 2008
        compared to 6 in Q3 2008) and costs incurred to prepare additional
        used units for sale, partially offset by increased rental margins.
        The increase from last year is primarily as a result of better
        margins in Top Drive sales and in our after-market sales and service
        business.

    Tubular Services Segment
    ------------------------

    -   Revenues from the Tubular Services segment for Q4 2008 were
        $43.0 million, an increase of $0.2 million from Q3 2008 primarily
        related to an increase in the number of proprietary jobs, but offset
        by a decline in our conventional revenues. We performed a record
        total of 540 proprietary casing running jobs in Q4 2008 compared to
        496 in Q3 2008 and 348 in Q4 2007. We remain focused on converting
        the market to running casing with our proprietary CDS(TM) technology.
        As demand for our proprietary services increases, we expect our
        conventional revenue base to continue to decline.

    -   Operating Income in our Tubular Services segment for Q4 2008 was
        $5.0 million, compared to $7.4 million in Q3 2008 and $5.2 million in
        Q4 2007. Q4 2008's operating income was unfavorably impacted by
        pricing pressures that squeezed revenues while costs increased due to
        increased labor and fuel prices associated with the increase in
        proprietary jobs performed.

    CASING DRILLING(TM) Segment
    ---------------------------

    -   CASING DRILLING(TM) revenue in Q4 2008 was $6.4 million, compared to
        $6.5 million in Q3 2008, and $6.3 million in Q4 2007. The slight
        decrease in Q4 2008 compared to Q3 2008 was primarily due to lower
        revenue in North America.

    -   Operating Loss in our CASING DRILLING(TM) segment for Q4 2008 was
        $3.4 million, compared to $3.1 million in Q3 2008 and $2.2 million in
        Q4 2007. Q4 2008's operating loss was impacted by increased costs
        associated with delivering CASING DRILLING(TM) services around the
        world and weaker than expected revenues, particularly in North
        America. Q4 2007 included income of $1.0 million for the cancellation
        of a job in the North Sea.

    Other Segments and Expenses
    ---------------------------

    -   Corporate costs for Q4 2008 were $7.9 million, compared to
        $8.4 million for Q3 2008. This decrease was primarily due to lower
        bonus accruals in Q4. Total Selling, General and Administrative costs
        in Q4 2008 amounted to $12.1 million compared to $12.6 million in Q3
        2008, also due to the lower bonus accruals recorded in Q4.

    -   Research and Engineering costs for Q4 2008 of $2.9 million were up
        $0.3 million from Q3, primarily due to patent applications made
        during Q4 2008.

    -   Other Income and Expense, excluding net interest expense, for Q4 2008
        totaled income of $1.4 million, compared to expense of $0.3 million
        for Q3 2008. Other Income for Q4 2008 included a gain of $1.1 million
        related to foreign exchange valuations. Other Expense for Q3 2008
        included a loss of $0.4 million related to foreign exchange
        valuations.

    Financial Condition
    -------------------

    -   At December 31, 2008, cash and cash equivalents decreased to
        $20.6 million from $23.1 million at December 31, 2007, while debt
        decreased during the same period by $31.2 million. Our net debt(1) of
        $29.0 million at December 31, 2008 represents a net debt to book
        capitalization of 8%(2). Net debt was $57.7 million at December 31,
        2007 and $45.6 million at September 30, 2008.

    -   Total capital expenditures were $21.6 million in Q4 2008. Total
        capital expenditures for 2008 were $79.3 million. The majority of our
        capital expenditures in 2008 have been directly related to our
        strategy to grow and revitalize our Top Drive rental fleet by selling
        older rental units and replacing them with newer, higher performance
        models as well as the continued expansion of our proprietary
        products. We project our total capital expenditures for 2009 to be
        approximately $40 to $50 million.



                   2008 Financial and Operating Highlights


    Top Drive Segment
    -----------------

    -   Top Drive sales for 2008 were 137 units (118 new and 19 from the
        rental fleet). This compares to 122 units sold in 2007 (102 new and
        20 from the rental fleet).

    -   Operating days for the Top Drive rental fleet increased to 23,171 in
        2008 compared to 23,086 in 2007. This increase was primarily due to
        an increase in the number of rental units in our fleet, offset by
        down time as units were removed from the rental fleet in preparation
        for sale prior to new rental units being mobilized and added to the
        rental fleet.

    -   Our Top Drive Operating Income increased to $108.3 million, an
        increase of $27.6 million as compared to 2007, primarily due to
        increased sales and after-market support activities.

    Tubular Services Segment
    ------------------------

    -   Tubular Services revenues were $166.5 million for 2008, an increase
        of $7.9 million over 2007, primarily due to increased revenues from
        our proprietary services, offset by a decline in conventional
        services as we shift our focus to our proprietary product offerings.

    -   For 2008, we completed 1,971 proprietary casing running jobs compared
        to 1,406 in 2007, an increase of 40%.

    -   Operating Income for 2008 from Tubular Services was $22.0 million, a
        decrease of $1.7 million from 2007, primarily due to the combination
        of competition and inflationary pressures for labor, fuel and
        insurance which negatively impacted margins.

    CASING DRILLING(TM) Segment
    ---------------------------

    -   CASING DRILLING(TM) revenues for 2008 were $27.0 million, an increase
        of $12.4 million or 85%, from $14.6 million in 2007. This growth was
        related to significantly increased demand for our CASING DRILLING(TM)
        services in Latin America and the Middle East, as well as North
        America.

    -   Operating Loss in our CASING DRILLING(TM) business for 2008 was
        $12.6 million, compared to a loss of $14.1 million in 2007. As we
        continue to build a global market for this business and gain critical
        mass, we expect our margins to continue to improve.

    Other Segments and Expenses
    ---------------------------

    -   Corporate and Other costs for 2008 totaled $31.0 million compared to
        $29.8 million in 2007. This increase was primarily due to increased
        incentive accruals related to improved financial performance,
        increased salary expenses and increased legal expenses due to the
        status of certain ongoing litigation.

    -   Research and Engineering expenses for 2008 totaled $11.0 million,
        down from $12.0 million in 2007. However, we continue to invest in
        our CASING DRILLING(TM) and other proprietary technologies.

    -   Our effective tax rate for 2008 was 27% compared to 24% in 2007. The
        2008 effective tax rate was higher due to changes in the values of
        our deferred tax assets in Canada.

    ----------------
    (1) Net debt is calculated by subtracting cash and cash equivalents from
        the sum of long term debt plus the current portion of long term debt.

    (2) Net debt to book capitalization is calculated by dividing net debt by
        the sum of net debt plus shareholders' equity.
    

    Conference Call

    The Company will conduct a conference call to discuss its results for the
fourth quarter of 2008 and year-end results tomorrow (Friday, February 27,
2009) 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 time of the
call. The conference ID for this call is 85911359. The conference call and all
questions and answers will be recorded and made available until March 27,
2009. To listen to the recording call (800) 642-1687 or (706) 645-9291 and
enter conference ID 85911359. The conference call will be webcast live as well
as for on-demand listening at the Company's web site, 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
Company'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 natural gas.



    
           Non-GAAP Measures - Adjusted EBITDA (as defined below)

                                                              Year Ended
    (in millions of U.S. $)       Quarter 4     Quarter 3     December 31,
    ----------------------- ------------------- ---------  ------------------
                                2008      2007      2008      2008      2007
                            --------- --------- --------- --------- ---------
    Net Income              $   12.0  $    6.6  $   17.6  $   52.9  $   32.3
    Income Taxes                 5.3       2.2       6.4      19.3      10.2
    Depreciation and
     Amortization                8.7       6.9       8.4      33.2      27.0
    Net Interest Expense         1.0       1.4       1.1       4.2       3.2
    Stock Compensation
     Expense - Non-Cash          1.7       1.8       1.4       6.3       6.5
                            --------- --------- --------- --------- ---------
    Adjusted EBITDA         $   28.7  $   18.9  $   34.9  $  115.9  $   79.2
                            --------- --------- --------- --------- ---------
                            --------- --------- --------- --------- ---------
    

    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. EBITDA 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 our 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, us
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 we do not undertake any obligation
to update 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),
risks, including litigation, 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.
    Copies of our Canadian public filings are available at www.tescocorp.com
and on SEDAR at www.sedar.com. Our U.S. public filings are available at
www.sec.gov and at www.tescocorp.com.
    The risks included here are not exhaustive. Refer to "Part I, Item 1A -
Risk Factors" in our annual report on Form 10-K to be filed for the year ended
December 31, 2008 and "Part II, Item 1A - Risk Factors" in our quarterly
report on Form 10-Q for the quarter ended September 30, 2008, for further
discussion regarding our exposure to risks. Additionally, new risk factors
emerge from time to time and it is not possible for us to predict all such
factors, nor to assess the impact such factors might have on our business or
the extent to which any factor or combination of factors may cause actual
results to differ materially from those contained in any forward looking
statements. Given these risks and uncertainties, investors should not place
undue reliance on forward-looking statements as a prediction of actual
results.



    
                              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          Year Ended
                                    December 31,            December 31,
                              ----------------------- -----------------------
                                    2008        2007        2008        2007
                              ----------- ----------- ----------- -----------
                                                (unaudited)

    REVENUE                   $    139.4  $    124.4  $    534.9  $    462.4

    OPERATING EXPENSES
    Cost of Sales and
     Services                      107.5        96.8       399.2       357.9
    Selling, General and
     Administrative                 12.1        10.8        49.0        44.0
    Research and Engineering         2.9         3.5        11.0        12.0
                              ----------- ----------- ----------- -----------
                                   122.5       111.1       459.2       413.9
                              ----------- ----------- ----------- -----------
      OPERATING INCOME              16.9        13.3        75.7        48.5
    Interest Expense, net            1.0         1.4         4.2         3.1
    Other (Income) Expense,
     net                            (1.4)        3.1        (0.7)        2.9
                              ----------- ----------- ----------- -----------
      INCOME BEFORE INCOME
       TAXES                        17.3         8.8        72.2        42.5
    Income taxes                     5.3         2.2        19.3        10.2
                              ----------- ----------- ----------- -----------

                              ----------- ----------- ----------- -----------
      NET INCOME              $     12.0  $      6.6  $     52.9  $     32.3
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------

    Earnings per share:
      Basic                   $     0.32  $     0.18  $     1.42  $     0.88
      Diluted                 $     0.31  $     0.18  $     1.40  $     0.86

    Weighted average number
     of shares:
      Basic                   37,508,940  36,842,042  37,221,495  36,604,338
      Diluted                 38,130,859  37,474,760  37,832,554  37,403,932



              COMPARATIVE CONDENSED CONSOLIDATED BALANCE SHEETS

                                December    December
                                   31,         31,
                                  2008        2007
                              ----------- -----------
                                    (unaudited)
    ASSETS
      Cash and Cash
       Equivalents            $     20.6  $     23.1
      Accounts Receivable, net      97.7        87.9
      Inventories                   96.0       117.4
      Other Current Assets          24.6        24.8
                              ----------- -----------
        Current Assets             238.9       253.2
      Property, Plant and
       Equipment, net              209.0       169.8
      Goodwill                      28.7        29.8
      Other Assets                  16.6        20.1
                              ----------- -----------
                              $    493.2  $    472.9
                              ----------- -----------
                              ----------- -----------
    LIABILITIES AND
     SHAREHOLDERS' EQUITY
      Current Maturities of
       Long Term Debt         $     10.2  $     10.0
      Accounts Payable              38.9        49.7
      Accrued and Other
       Current Liabilities          44.5        31.1
                              ----------- -----------
        Current Liabilities         93.6        90.8
      Long Term Debt                39.4        70.8
      Deferred Income Taxes          8.2         6.4
      Shareholders' Equity         352.0       304.9
                              ----------- -----------
                              $    493.2  $    472.9
                              ----------- -----------
                              ----------- -----------
    


    %SEDAR: 00002774E




For further information:

For further information: Julio Quintana, (713) 359-7000; Bob Kayl, (713)
359-7000, Tesco Corporation

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