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Pason Reports Fourth Quarter and Year End 2012 Results(Canada Newswire Via Acquire Media NewsEdge) CALGARY, Feb. 21, 2013 /CNW/ - Pason Systems Inc. (PSI.TO) announced today its 2012 fourth quarter and year end results. Performance Data Three Months Ended December 31, Years Ended December 31, 2012 2011 (reclassified) Change 2012 2011 (reclassified) Change (CDN 000s, except per share data) ($) ($) (%) ($) ($) (%) Revenue (1)90,995 100,933 (10) 386,514 346,158 12 EBITDA (2)8,286 47,920 (83) 151,753 171,661 (12) As a % of revenue 9.1 47.5 (81) 39.3 49.6 (21) Per share - basic 0.10 0.59 (83) 1.85 2.10 (12) Per share - diluted 0.10 0.58 (83) 1.84 2.08 (12) Funds flow from operations (2)36,278 42,089 (14) 158,948 145,358 9 Per share - basic 0.44 0.51 (14) 1.94 1.78 9 Per share - diluted 0.44 0.51 (14) 1.92 1.76 9 (Loss) earnings (13,703) 31,702 N/A 39,884 86,223 (54) Per share - basic (0.17) 0.39 N/A 0.49 1.05 (54) Per share - diluted (0.17) 0.38 N/A 0.48 1.04 (54) Capital expenditures 13,602 21,927 (38) 69,780 78,357 (11) Working capital 163,371 126,605 29 163,371 126,605 29 Total assets 488,378 455,901 7 488,378 455,901 7 Total long-term debt -- -- -- -- -- -- Total equity 368,696 367,269 -- 368,696 367,269 -- Market capitalization 1,407,141 982,848 43 1,407,141 982,848 43 Cash dividends declared 0.24 0.20 20 0.46 0.38 21 Common shares outstanding (#) Basic 82,035 81,903 -- 81,968 81,851 -- Diluted 83,056 82,077 2 82,679 82,572 2 Shares outstanding end of period (#) 82,049 81,904 -- 82,049 81,904 -- (1) Data transmission expenses have been reclassified from revenue to rental service expense. All comparative figures have been restated accordingly. This change has no impact on reported EBITDA, funds flow from operations or earnings. (2) 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, impairment losses, stock-based compensation expense, deferred 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 International Financial Reporting Standards, and accordingly, may not be comparable to measures used by other companies. President's Message Drilling days and active rig counts in North America were lower in the fourth quarter of 2012 than in the fourth quarter of the previous year, with the decline in Canadian activity being steeper than in the United States. International markets continued their steady activity increase. Strong revenue growth in the International markets was more than offset by a decline in revenue in both the United States and Canada. As a result, total revenue decreased 10% to $91.0 million in the fourth quarter of 2012. For the full year, however, revenue increased 12% to $386.5 million. All product categories generated revenue growth above drilling industry activity during the quarter with the exception of the Pit Volume Totalizer and Communications. As in previous quarters, the Software segment demonstrated the highest year-over-year growth rate at 33%, followed by the Hazardous Gas Alarm at 30% and the Gas Analyzer at 8%. These three product categories also led growth for the full year, with 68% for Software, 40% for Hazardous Gas Alarm and 28% for Gas Analyzer. Funds flow from operations decreased 14% to $36.3 million for the fourth quarter, however for the full year it grew 9% to $158.9 million. EBITDA for the quarter dropped by 83% to $8.3 million. EBITDA, as a percentage of revenue, was 9% in the fourth quarter compared to 47% in the fourth quarter of the previous year, and 39% versus 50% for the full year. The Company generated a net loss for the quarter of $13.7 million, or $0.17 per share, compared to net earnings of $31.7 million, or $0.39 per share, in the fourth quarter of 2011. Fourth quarter net earnings were negatively impacted by a number of significant factors: A non-cash accrual of an additional $32.5 million for the liability related to the ongoing patent litigation. Management continues to be confident in its defenses in the three cases, namely that the asserted claims of the 142 patent are not valid, and/or the Company does not infringe on any valid claims. Nevertheless, in light of the cumulative effect of the progress on these cases in 2012, including the appeal of the Colorado case, the fact that the Texas case has been filed, the reopening of the Canadian case, and a recent mediation that did not result in a voluntary resolution, the Company decided to accrue, in accordance with accounting guidelines, this additional amount; A $9.8 million increase in stock-based compensation due to an increase in the Company's stock price; A non-cash impairment loss of $4.7 million charged against our Torque and Tension Sub program. While interest in sold systems has been robust, progress on the rental side has been slow. The impairment relates primarily to certain peripheral equipment that is required for the rental fleet but not for sold systems; A final non-cash impairment loss of $0.6 million charged against the US water treatment business as we sold our plant in Colorado; A $1.7 million increase in R&D costs as we completed the hiring of staff to support our Electronic Drilling Recorder (EDR) evolution project. Capital expenditures for the quarter were $13.6 million, down from $21.9 million the previous year, as the North American roll-out of the new Gas Analyzer was completed over the summer. For the full year, capital expenditures were $69.8 million compared to $78.4 million in 2011. On December 31, our cash position stood at $157.9 million and our working capital stood at $163.4 million. We are increasing our quarterly dividend by 8% to $0.13 per share. The Pason Board of Directors previously made the decision to adopt a quarterly dividend policy starting in 2013. United States The US segment includes our US rental business, 3PS Inc., our Austin-based equipment manufacturer, and the water treatment business, which we shut down during 2012. Drilling activity in the United States continued its downward trend. While industry days were down 11% in the fourth quarter 2012 compared to the fourth quarter of 2011, revenue in the US segment was down 10% to $49.0 million. For the full year, revenue was up 18% to $223.1 million. On average, 936 US land rigs were operating Pason equipment during the fourth quarter of 2012, compared to 1,089 in the same period of 2011. Our EDR market share for the fourth quarter of 2012 was 54%, compared to 55% in the third quarter. Revenue growth above industry day growth was achieved through higher product penetration and a price increase at the beginning of 2012, resulting in a 13% increase in average daily revenue per rig from US$507 in the fourth quarter of 2011 to US$574 in 2012. The Software, Gas Analyzer, and Hazardous Gas Alarm products again achieved above-average revenue growth. Operating costs decreased 18% and depreciation and amortization increased by 39%. As a result, our US business unit was able to generate an operating profit of $23.2 million in the fourth quarter, a decrease of 13% over 2011. For the full year, operating profit increased 18% to $104.9 million. Canada Drilling activity in Canada was significantly lower in the fourth quarter of 2012 than in the previous year, with industry days down 24%. Our Canadian business unit was able to partially offset this significant reduction in activity levels through new product adoption and more products on each rig. Revenue for the fourth quarter was down 19% to $32.0 million. On average, 308 Canadian land rigs were operating Pason equipment compared to 443 the year before. EDR market share was 92% compared to 91% in the previous quarter. For the full year, revenue was down 2% to $125.7 million. Average daily revenue generated on each rig with a Pason product installed grew 16% to $1,120 in the fourth quarter of 2012 from $963 in 2011. As in the United States, the Software, Gas Analyzer, and Hazardous Gas Alarm products showed above average growth rates during the period. Operating costs decreased by 18% and depreciation and amortization decreased by 9%. As a result, our Canadian business unit was able to generate an operating profit of $16.9 million for the quarter, compared to $22.1 million for the same period in 2011, a decrease of 23%. For the full year, operating profit increased 5% to $62.5 million. International Our International business unit, which includes our businesses in Latin America, Australia, and offshore, had another excellent quarter. Revenue increased 45% to $9.9 million for the quarter. This represents 11% of Pason's total revenue. We realized gains in all major international markets with notable gains in Argentina, Brazil, Australia, and Mexico. For the full year, revenue was up 32% to a record $37.7 million. Operating costs were down 11% and depreciation and amortization decreased by 35%. As a result, the International business unit was able to generate a quarterly operating profit of $1.3 million, up from a loss of $3.9 million the previous year. For the full year, an operating profit of $5.8 million was realized compared to a loss of $1.5 million in 2011. Outlook There is significant uncertainty regarding the outlook for North American drilling activity in 2013 at this point in time. Many operating companies have started reducing CAPEX budgets. The natural gas glut generated by unconventional plays does limit gas-directed drilling activity, challenging our ability to significantly grow revenue in the short term. As with every year, the timing of spring break-up in Canada will be a key driver of first quarter 2013 results. We expect the International business unit to continue to realize robust profitable growth this year. Our capital expenditure budget for the next 12 months is $84.3 million, $57.5 million of which is directed towards equipment that can generate incremental revenue or save operating costs, $13.0 million for maintenance capital, and $13.8 million for capitalized R&D. Our cash-generating capacity, a cash position at $157.9 million, and working capital of $163.4 million are strong enough to comfortably cover new business development, planned equipment upgrades, our dividend, and any probable adverse outcome in the patent litigation. As the industry leader in field services, with outstanding technical support, a competitive product suite, and a promising R&D project pipeline, Pason is well positioned to weather a period of lower North American drilling activity and to capitalize on growth opportunities. (Signed) Marcel Kessler President and Chief Executive Officer February 21, 2013 Management's Discussion and Analysis The following discussion and analysis has been prepared by management as of February 21, 2013 and is a review of the financial condition and results of operations of Pason Systems Inc. (Pason or the Company) based on International Financial Reporting Standards (IFRS) and should be read in conjunction with the consolidated financial statements and accompanying notes. Certain information regarding the Company contained herein may constitute forward-looking statements under applicable securities laws. Such statements are subject to known or unknown risks and uncertainties that may cause actual results to differ materially from those anticipated or implied in the forward-looking statements. All financial measures presented in this report are expressed in Canadian dollars unless otherwise indicated. Overview of the 2012 Fourth Quarter Three Months Ended December 31, Years Ended December 31, 2012 2011 (reclassified) 2010 (reclassified) 2012 2011 (reclassified) 2010 (reclassified) (000s, except per share data) ($) ($) ($) ($) ($) ($) Revenue (1)90,995 100,933 76,390 386,514 346,158 260,397 EBITDA (2)8,286 47,920 29,359 151,753 171,661 110,867 As a % of revenue 9.1 47.5 38.4 39.3 49.6 42.6 Per share - basic 0.10 0.59 0.36 1.85 2.10 1.36 Per share - diluted 0.10 0.58 0.36 1.84 2.08 1.36 Funds flow from operations (2)36,278 42,089 27,899 158,948 145,358 93,973 Per share - basic 0.44 0.51 0.34 1.94 1.78 1.15 Per share - diluted 0.44 0.51 0.34 1.92 1.76 1.15 (Loss) earnings (13,703) 31,702 10,525 39,884 86,223 36,474 Per share - basic (0.17) 0.39 0.13 0.49 1.05 0.45 Per share - diluted (0.17) 0.38 0.13 0.48 1.04 0.45 Total assets488,378 455,901 402,082 488,378 455,901 402,082 Total long-term debt-- -- -- -- -- -- (1) Data transmission expenses have been reclassified from revenue to rental service expense. All comparative figures have been restated accordingly. This change has no impact on reported EBITDA, funds flow from operations or earnings. (2) EBITDA is defined as earnings before interest expense, income taxes, stock-based compensation expense, and depreciation and amortization expense. Funds flow from operations is defined as earnings adjusted for depreciation and amortization expense, impairment losses, stock-based compensation expense, deferred income taxes and other non-cash items impacting operations as presented in the Consolidated Statements of Cash Flows. These definitions are not recognized measures under International Financial Reporting Standards, and accordingly, may not be comparable to measures used by other companies. Overall Performance Three Months Ended December 31, Years Ended December 31, 2012 2011 (reclassified) Change 2012 2011 (reclassified) Change (000s) ($) ($) (%) ($) ($) (%) Revenue Electronic Drilling Recorder (1)38,448 42,905 (10) 159,607 145,771 9 Pit Volume Totalizer 14,100 16,888 (17) 59,220 58,591 1 Communications (1)(2)7,533 9,196 (18) 32,227 32,209 -- Software (2)6,188 4,662 33 24,916 14,798 68 Automatic Driller 9,410 11,520 (18) 40,399 39,395 3 Gas Analyzer/Total Gas System 6,898 6,413 8 27,304 21,306 28 Hazardous Gas Alarm System 1,932 1,490 30 7,345 5,258 40 Mobilization 3,098 2,481 25 12,265 9,523 29 Other (2)3,388 5,378 (37) 23,231 19,307 20 Total revenue90,995 100,933 (10) 386,514 346,158 12 (1) Data transmission expenses have been reclassified from revenue to rental service expense. All comparative figures have been restated accordingly. (2) 2011 revenue associated with the Company's software applications has been reclassified from Communications to Software. Change in Accounting Classification In the fourth quarter of 2012, the Company changed the way it records expenses associated with data transmission costs. Previously, the Company recorded these costs as a reduction in revenue. Effective for 2012, these costs have been reclassified to rental services expense. This change, which does not impact EBITDA or net income, was applied retroactively, with all comparative figures being restated accordingly. All revenue and operating cost figures, as well as key metrics based upon revenue, in the following Management and Discussion and Analysis, have been calculated based upon this new presentation. The impact of this reclassification on the 2011 comparative figures presented above is as follows: Three Months Ended December 31, 2011 Year Ended December 31,2011 Reported Previously Disclosed Change Reported Previously Disclosed Change (000s) ($) ($) ($) ($) ($) ($) Revenue Electronic Drilling Recorder (1)42,905 40,079 2,826 145,771 134,935 10,836 Communications (1)(2)9,196 8,711 485 32,209 30,407 1,802 Total revenue100,933 97,622 3,311 346,158 333,520 12,638 Canada Three Months Ended December 31, Years Ended December 31, 2012 2011 Change 2012 2011 Change (%) (%) EDR rental days (#) 28,300 40,800 (31) 115,800 141,200 (18) PVT rental days (#) 27,900 37,900 (26) 114,100 135,400 (16) United States Three Months Ended December 31, Years Ended December 31, 2012 2011 Change 2012 2011 Change (%) (%) EDR rental days (#) 86,100 100,200 (14) 378,800 381,700 (1) PVT rental days (#) 62,100 70,100 (11) 267,800 264,200 1 Electronic Drilling Recorder The Pason Electronic Drilling Recorder (EDR) remains the Company's primary product. The EDR provides a complete system of drilling data acquisition, data networking, and drilling management tools and reports at both the wellsite and customer offices. The EDR is the base product from which all other wellsite instrumentation products are linked. By linking these products, a number of otherwise redundant elements such as data processing, display, storage, and networking are eliminated. This ensures greater reliability and a more robust system of instrumentation for the customer. Revenue generated from the EDR declined 10% for the fourth quarter of 2012 compared to the same period in 2011; however, for the year ended December 2012, EDR revenue increased 9% over 2011 levels. The decrease in the fourth quarter is attributable to a decrease in rig activity in both the United States (US) and Canadian markets, offset by an increase in the Company's International markets. The year to date increase in revenue is due to previous price increases, continued demand by customers for EDR peripheral devices in all of its markets, and a strong increase in International rentals, reduced by an 18% drop in EDR days in Canada. During 2012, the Pason EDR was installed on 93% of all active land rigs in Canada and 56% of the land rigs in the US. Pit Volume Totalizer The Pit Volume Totalizer (PVT) is Pason's proprietary solution for the detection and early warning of "kicks" that are caused by hydrocarbons entering the wellbore under high-pressure and expanding as they migrate to the surface. PVT revenue for both the quarter and year to date were impacted by an increase in product penetration in all of the Company's markets as well as changes to rig activity and price increases previously described above. During the 2012 fiscal year, the PVT was installed on 99% of rigs with a Pason EDR in Canada and 71% in the US, compared to 96% and 69%, respectively, in 2011. Communications Pason's communications rental revenue is derived from the Company's automatic aiming satellite system. This system provides high-speed wellsite communications for email and web application management tools. Pason displays all data in standard forms on its DataHub web application, although if customers require greater analysis or desire to have the information transferred to another supplier's database, data is available for export from the Pason DataHub using WITSML (a specification for transferring data amongst oilfield service companies, drilling contractors, and operators). The Company continues to complement its satellite equipment with High Speed Packet Access (HSPA), a high-speed wireless ground system that requires lower capital cost, less service, and lower cost per Internet kilobyte, benefiting company margins. In Canada, HSPA has been installed on all rigs, and the majority of the rigs running will benefit from the investment in HSPA given the growth in cellular coverage. In the US, field coverage tests for HSPA are continuing with positive results. Software The Pason DataHub is the Company's data management system that collects, stores, and displays drilling data, reports, and real-time information from drilling operations. DataHub provides access to data through a number of innovative applications or services including: Enhanced Live Rig View (eLRV), which provides advanced data viewing, directional drilling, and 3D visualization of drilling data in real-time via a web browser. Mobile Viewer and Pason Mobile, which allow users to access their data on mobile devices including iPhone, iPad, and BlackBerry. WITSML, which provides seamless data sharing with third-party applications enhancing the value of data hosted by Pason. Additional specialized software. During the 2012 year, 98% of the Company's Canadian customers and 87% of customers in the US were using all or a portion of the functionality of the DataHub, compared to 94% and 76%, respectively, in 2011. The 2012 revenue generated from customers using the applications included with the DataHub rose 68% over comparable 2011 levels, even though rig activity was relatively flat in the US and down significantly in Canada. Gas Analyzer and Total Gas System The Pason Gas Analyzer, which has replaced the Total Gas System (TGAS) in the Company's major markets, measures the total hydrocarbon gases (C1 through C41) exiting the wellbore, and then calculates the lag time to show the formation depth where the gases were produced. The new Gas Analyzer increases the functionality that was found in the TGAS product to include the actual composition of the gas, much like a gas chromatograph, and further calculates geologic ratios from the gas composition to assist in indicating the type of gas, natural gas liquid, or oil in the formation. For the twelve months ended December 2012, the Gas Analyzer generated $21.3 million of revenue compared to $6.0 million for TGAS. The Company has now completed the deployment of the Gas Analyzer in both Canada and the US and is realizing increased product penetration as compared to TGAS in both markets. For 2012, both of these systems combined were installed on 52% of Canadian and 19% of US land rigs operating with a Pason EDR system. The combined market penetration of both products in Canada is an increase of approximately 9% over 2011 levels while the US has seen an increase of 2%. The roll out of the Gas Analyzer in the International markets started in 2012, and will accelerate in 2013. Automatic Driller Pason's Automatic Driller (AutoDriller) is used to maintain constant weight on the drill bit while a well is being drilled. During 2012, Pason's AutoDriller was installed on 78% of Canadian and 49% of US land rigs operating with a Pason EDR system, compared to 78% and 47%, respectively, in 2011. Hazardous Gas Alarm System The Pason Hazardous Gas Alarm System (HGAS) monitors lower explosive limit (LEL) gases and displays the readings on the EDR. If a hazardous rig atmosphere is detected, the system reacts immediately, sounding an alarm and flashing a strobe light. The Hazardous Gas Alarm System was installed on 21% of Canadian rigs in 2012, up from 18% for the same period in 2011, and 9% of US land rigs operating with a Pason EDR system, an increase from 6% in 2011. This increase in product penetration, along with price increases in particular markets, led to an increase in revenue of 30% for the fourth quarter of 2012 over 2011 levels, and an increase of 40% for the full year. _______________________1C4 also includes nC5 Discussion of Operations United States Operations Three Months Ended December 31, Years Ended December 31, 2012 2011 (reclassified) Change 2012 2011 (reclassified) Change (000s) ($) ($) (%) ($) ($) (%) Revenue Electronic Drilling Recorder (1)22,552 25,154 (10) 97,816 89,634 9 Pit Volume Totalizer 7,685 8,959 (14) 33,459 32,623 3 Communications (1)(2)3,112 3,931 (21) 14,367 13,916 3 Software (2)4,075 2,266 80 16,741 7,761 116 Automatic Driller 5,073 6,230 (19) 23,222 21,900 6 Gas Analyzer/Total Gas System 2,667 2,134 25 11,312 7,906 43 Hazardous Gas Alarm System 800 565 42 3,169 1,620 96 Mobilization 2,299 1,924 19 9,233 6,939 33 Other (2)746 3,147 (76) 13,735 6,992 96 Total revenue49,009 54,310 (10) 223,054 189,291 18 Operating costs18,073 21,988 (18) 85,811 78,105 10 Depreciation and amortization7,713 5,538 39 32,381 22,535 44 Segment operating profit23,223 26,784 (13) 104,862 88,651 18 (1) Data transmission expenses have been reclassified from revenue to rental service expense. All comparative figures have been restated accordingly. (2) 2011 revenue associated with the Company's software applications has been reclassified from Communications to Software. The impact of the accounting reclassification of data transmission costs from revenue to operating costs previously discussed had the following impact on the 2011 comparative figures presented above: Three Months Ended December 31, 2011 Year Ended December 31,2011 Reported Previously Disclosed Change Reported Previously Disclosed Change (000s) ($) ($) ($) ($) ($) ($) Revenue Electronic Drilling Recorder (1)25,154 23,685 1,469 89,634 84,040 5,594 Communications (1)(2)3,931 3,834 97 13,916 13,609 307 Total revenue54,310 52,744 1,566 189,291 183,390 5,901 Operating costs 21,988 20,422 1,566 78,105 72,204 5,901 Revenue per EDR day517 495 22 484 473 11 Revenue per Industry day 289 280 9 278 266 12 US segment revenue decreased by 10% in the fourth quarter of 2012 over the 2011 comparable period (7% decrease when measured in US dollars). Rental service revenue decreased 6% for the quarter (USD 3%) while the remaining difference is a result of a drop in sales at 3PS, Inc. and a drop in revenue from Auxsol. For the full year 2012, US segment revenue increased by 18% (USD 17%), which includes $7.8 million of sales by 3PS, Inc., included in Other revenue. As expected, the number of US drilling days were down approximately 11% in the fourth quarter of 2012 versus the fourth quarter of 2011 due to a pullback in drilling for both natural gas and oil. However, revenue from the rental of instrumentation compared very favourably to the drop in activity, with a decrease of only 6% (USD 3%) over 2011 levels. On a year to date basis, rental instrumentation revenue increased 15% (USD 14%) over 2011 levels, compared to only a very modest increase in industry days of 2%. Revenue was impacted by the following factors: More products on each rig, new product adoption, and better pricing. Revenue was increased by additional product penetration on each rig, primarily with gains in EDR peripheral devices, AutoDriller rentals, customer acceptance of the Company's Enhanced Live Rig View (eLRV) real-time data software, and increased adoption of the Gas Analyzer compared to the previous TGAS system. Mobilization income, which represents the cost recovery of the labour incurred by the Company for a field technician visit to a rig, was up 33% for the full year due to an increased number of "rig ups" and "rig downs" as a result of higher rig turnover compared to 2011. In addition, prices on specific products increased at the beginning of 2012. These factors combined resulted in an increase in revenue per EDR day in the fourth quarter of 2012 over 2011 levels of $51 (USD $67). On a year to date basis revenue per EDR day increased 16% or $77 (USD $73). A decrease in EDR rental days of 14% for the three months ended December 2012, over the same time period in 2011, and a small drop of 1% on a year to date basis over 2011 levels. This compares to a drop in industry days of 11% and an increase in industry days of 1% for the similar time period. The factors explained above resulted in the US segment being able to realize revenue per EDR day during the fourth quarter of 2012 of $568 (USD $574) compared to $517 (USD $507) during the same time period in 2011. For the full year of 2012, revenue per EDR day was $561 (USD $562) compared to $484 (USD $489) in 2011. Revenue per industry day for the fourth quarter of the year was $305 (USD $308) compared to $289 (USD $283) in 2011. Year to date figures were $314 (USD $314) compared to 2011 amounts of $278 (USD $281). The majority of the increase in "Other" revenue relates to the Company realizing an entire year of sales of 3PS,Inc. compared to only approximately five months in 2011. Segment profit, as a percentage of revenue, was 47% for the fourth quarter of 2012 and 47% year to date, compared to 49% and 47% for the respective periods in 2011. The US business unit was able to maintain its operating margin year over year, even with a significant increase in depreciation and amortization costs, by leveraging its fixed cost structure while at the same time continuing to control variable costs and implementing changes to operations to adapt to changing market conditions. The 2012 segment profit percentage was impacted by the following factors (all amounts in $CDN): Field technician-related costs and repair costs in the fourth quarter of 2012 compared to 2011 increased approximately $0.3 million. On a year to date basis, these costs increased by approximately $2.7 million. This increased consists of a 7% increase in field costs (attributed to an increase in health care-related costs and other field technician-related costs), offset by a reduction in repair costs of $1.0 million (associated with the phased out TGAS system). As disclosed in prior quarters, the US business unit made a concerted effort in 2012 to strengthen its sales presence. This led to an increase in sales and marketing costs of $1.5 million for the twelve months ended December, 2012 over 2011 amounts. Fourth quarter 2012 depreciation and amortization expense was up $2.2 million compared to the same period in 2011. On a year to date basis, these costs were up $9.8 million, due in large part to The accelerated depreciation on the Company's original EDR system as a result of the EDR evolution project, which will make obsolete a portion of the Company's base EDR system, A full twelve months depreciation on 3PS, Inc. assets, Depreciation on the new Gas Analyzer system, and Depreciation costs relating to the vehicle fleet as vehicles are now purchased rather than leased. Legal fees associated with the Automatic Driller lawsuit decreased $0.3 million in the fourth quarter of 2012 and $0.9 million for the year compared to the respective 2011 periods. Year-to-date 2012 figures include a full year's results of 3PS, Inc., which generates a lower margin than the US rental business. Canadian Operations Three Months Ended December 31, Years Ended December 31, 2012 2011 (reclassified) Change 2012 2011 (reclassified) Change (000s) ($) ($) (%) ($) ($) (%) Revenue Electronic Drilling Recorder (1)11,864 14,715 (19) 46,632 46,163 1 Pit Volume Totalizer 4,929 6,445 (24) 19,921 21,649 (8) Communications (1)(2)4,308 5,443 (21) 17,323 18,193 (5) Software (2)1,938 2,303 (16) 7,662 6,721 14 Automatic Driller 3,368 4,678 (28) 13,500 15,175 (11) Gas Analyzer/Total Gas System 3,357 3,405 (1) 12,303 11,252 9 Hazardous Gas Alarm System 609 682 (11) 2,443 2,603 (6) Mobilization 178 198 (10) 638 781 (18) Other (2)1,488 1,893 (21) 5,316 5,795 (8) Total revenue32,039 39,762 (19) 125,738 128,332 (2) Operating costs8,858 10,788 (18) 36,291 42,616 (15) Depreciation and amortization 6,246 6,897 (9) 26,964 25,934 4 Segment operating profit16,935 22,077 (23) 62,483 59,782 5 (1) Data transmission expenses have been reclassified from revenue to rental service expense. All comparative figures have been restated accordingly. (2) 2011 revenue associated with the Company's software applications has been reclassified from Communications to Software. The impact of the accounting reclassification of data transmission costs from revenue to operating costs previously discussed had the following impact on the 2011 comparative figures presented above: Three Months Ended December 31, 2011 Year Ended December 31,2011 Reported Previously Disclosed Change Reported Previously Disclosed Change (000s) ($) ($) ($) ($) ($) ($) Revenue Electronic Drilling Recorder (1)14,715 13,464 1,251 46,163 41,130 5,033 Communications (1)(2)5,443 5,055 388 18,193 16,698 1,495 Total revenue39,762 38,123 1,639 128,332 121,804 6,528 Operating costs 10,788 9,149 1,639 42,616 36,088 6,528 Revenue per EDR day963 923 40 897 850 47 Revenue per Industry day 968 927 41 872 827 45 Canadian segment revenue decreased 19% for the three months ended December 2012, compared to the fourth quarter of 2011. This decrease is a result of a 24% decrease in the number of Canadian drilling industry days from 2011 levels. On a year to date basis, revenue decreased only 2% when compared to a decline in the number of Canadian drilling days of 14%. EDR rental days declined 31% in the fourth quarter of 2012 over the fourth quarter of 2011. On a year to date basis, EDR rental days declined by 18% over 2011 levels. The Canadian business unit was able to lessen the impact of the significant reduction in activity levels in Canada, due to current weak oil and natural gas prices and uncertainty around future pricing, through better pricing, new product adoption, and more products on each rig. The business unit increased pricing on most of its key products in the fourth quarter of 2011 and this combined with increased market penetration of the Gas Analyzer and Hazardous Gas Alarm System, customer acceptance of the Company's Enhanced Live Rig View (eLRV) real-time data software, and more products on each rig, primarily with gains in EDR peripheral devices, lessened the impact of the significant drop in the number of wells being drilled. The factors above combined to result in: An increase in revenue per EDR day during the fourth quarter of 2012 compared to 2011 of 16% ($157) to $1,120. For 2012, revenue per EDR day increased by $177 to $1,073. Fourth quarter revenue per industry day of $1,025 in 2012 compared to $968 in 2011. For the entire year, revenue per industry day increased 14% to $997. The segment profit for the fourth quarter of 2012 of $16.9 million is a decrease of $5.1 million over the 2011 amount. Factors impacting the fourth quarter results include: The weak drilling activity in the Western Canadian Sedimentary Basin (WCSB), together with a slight decrease in the Company's market share, resulted in 12,500 fewer EDR days during the fourth quarter of 2012 compared to 2011, resulting in much lower revenue. A decrease in the loss on the disposal of assets of $0.8 million, which is included in depreciation and amortization, offset by an increase in amortization costs relating to capitalized research and development costs, as a result of the deployment of new software applications to customers. A decrease in most repair cost categories due to a drop in drilling activity, combined with a reduction in costs associated with the new Gas Analyzer as compared to the TGAS system. In the fourth quarter of 2011, $1.3 million of legal fees were incurred, mostly relating to the Automatic Driller litigation. These costs were minimal in the fourth quarter of 2012. The segment profit, as a percent of revenue, was 50% for the year ended December 2012, compared to 47% for 2011. Factors impacting the year results include: An increase in depreciation and amortization charges relating to the accelerated depreciation on the Company's EDR systems, the depreciation on the new Gas Analyzer system and increased amortization of previously deferred research and development costs. These increases were offset by a reduction in depreciation relating to the previously disposed water treatment business and a decline in the loss relating to the scrapping of obsolete equipment. An increase in field costs of $1.2 million, which is mostly attributable to the expansion of the work force. This was deemed necessary given the shift in drilling activity in the WCSB, anticipation of additional product opportunities, and an adjustment to the field technician shift schedule. A decrease in repair costs of $2.8 million, mostly attributable to the roll out of the new Gas Analyzer, resulting in a decline in repair costs for this category, combined with a decline in other repair costs due to lower drilling activity. In 2011, the Canadian business unit incurred $4.5 million in legal costs, mostly related with the Automatic Driller litigation. Total legal expense for 2012 was approximately $0.7 million. $1.5 million of net expenses relating to the water treatment business were recorded in the 2011. This business unit was disposed of in the fourth quarter of 2011. International Operations Three Months Ended December 31, Years Ended December 31, 2012 2011 (reclassified) Change 2012 2011 (reclassified) Change (000s) ($) ($) (%) ($) ($) (%) Revenue Electronic Drilling Recorder (1)4,032 3,036 33 15,159 9,974 52 Pit Volume Totalizer 1,486 1,484 -- 5,840 4,319 35 Communications (1)(2)113 (178) N/A 537 100 437 Software (2)175 93 88 513 316 62 Automatic Driller 969 612 58 3,677 2,320 58 Gas Analyzer/Total Gas System 874 874 -- 3,689 2,148 72 Hazardous Gas Alarm System 523 243 115 1,733 1,035 67 Mobilization 621 359 73 2,394 1,803 33 Other (2)1,154 338 241 4,180 6,520 (36) Total revenue9,947 6,861 45 37,722 28,535 32 Operating costs6,152 6,897 (11) 23,073 19,967 16 Depreciation and amortization2,518 3,903 (35) 8,868 10,096 (12) Segment operating profit (loss)1,277 (3,939) N/A 5,781 (1,528) N/A (1) Data transmission expenses have been reclassified from revenue to rental service expense. All comparative figures have been restated accordingly. (2) 2011 revenue associated with the Company's software applications has been reclassified from Communications to Software. The impact of the accounting reclassification of data transmission costs from revenue to operating costs previously discussed had the following impact on the 2011 comparative figures presented above: Three Months Ended December 31, 2011 Year Ended December 31,2011 Reported Previously Disclosed Change Reported Previously Disclosed Change (000s) ($) ($) ($) ($) ($) ($) Revenue Electronic Drilling Recorder (1)3,036 2,930 106 9,974 9,765 209 Communications (1)(2)(178) (178) -- 100 100 -- Total revenue6,861 6,755 106 28,535 28,326 209 Operating costs 6,897 6,791 106 19,967 19,758 209 Revenue in the International operations improved 45% in the fourth quarter of 2012 from the same period in 2011. On a year-over-year basis, revenue increased approximately $9.2 million or 32% over 2011 amounts. The Company realized gains in all of its major markets, with notable gains in both revenue and segment profit in Argentina, Brazil, Australia, and Mexico. Operating profit increased by $5.2 million for the fourth quarter of 2012 and by $7.3 million for the twelve months ending December 31, over 2011 results. A number of factors influenced these results: Increased market share combined with price increases in Argentina contributed to significant gains in both revenue and operating profit. Year over year operating profit has increased $1.9 million. Triple-digit revenue growth in Brazil as a result of an increase in the number of rigs deploying the Company's equipment, resulting in an increase in the year to date revenue of $2.1 million and an increase in operating profit of $2.0 million over 2011 levels. An increase in drilling activity in both Mexico and Australia has led to these two business units realizing increases in operating profit from 2011 levels of $2.2 million and $2.1 million, respectively. The Company's International segment includes our Offshore business unit which generated a triple digit increase in its rental revenue for the twelve months ended December, 2012 over the same period in 2011. These gains are as a result of the deployment of Pason hardware onto offshore drilling rigs in the Gulf of Mexico and internationally. Depreciation expense is down in large part due to a decrease in capital expenditures as a result of a concerted effort to increase the utilization of equipment within this market. Consolidated Results Three Months Ended December 31, Years Ended December 31, 2012 2011 Change 2012 2011 Change (000s) ($) ($) (%) ($) ($) (%) Other expenses Research and development 7,033 5,371 31 22,467 17,366 29 Corporate services 4,326 3,816 13 15,723 12,975 21 Stock-based compensation 7,237 (2,561) N/A 23,792 1,309 1,718 Other Litigation provision 32,500 -- N/A 37,913 -- N/A Foreign exchange loss (gain) 10 690 (99) 4,573 (2,713) N/A Impairment loss 5,282 2,780 90 7,918 4,580 73 Other 475 683 (30) 992 1,601 (38) 56,863 10,779 527 113,378 35,118 223 Q4 2012 versus Q4 2011 The active rig count in both the US and Canadian markets declined from the fourth quarter of 2011, with the Canadian drop in activity much more severe than the US decline. The International market saw an increase in drilling days. The increased revenue and profitability in the International markets were not sufficient to offset the drop in operating results in both Canada and the US. Revenue decreased 10%, while EBITDA dropped by 83% and funds flow from operations was down 14%. The company incurred a net loss of $13.7 million or $0.17 per share compared to net earnings of $31.7 million or $0.39 per share in the fourth quarter of 2011. The fourth quarter consolidated results, when compared to 2011 figures, were impacted by the following significant items: A non-cash accrual of an additional $32.5 million for the liability related to the ongoing patent litigation. Management continues to be confident in its defenses in the three cases, namely that the asserted claims of the 142 patent are not valid, and/or the Company does not infringe on any valid claims. Nevertheless, in light of the cumulative effect of the progress on these cases in 2012, including the appeal of the Colorado case, the fact that the Texas case has been filed, the reopening of the Canadian case, and a recent mediation that did not result in a voluntary resolution, the Company decided to accrue, in accordance with accounting guidelines, this additional amount; Increase in research and development costs in the fourth quarter of 2012 of $1.7 million as the Company completed the hiring of additional staff to support the EDR evolution project and other product developments. Stock-based compensation increased by $9.8 million compared to the fourth quarter of 2011 due to an increase in the Company's stock price, which impacts the valuation under the Black-Scholes pricing model. The Company's stock price increased approximately 5% during the fourth quarter of 2012 compared to a decline in the corresponding period in 2011. During the fourth quarter of 2012, the Company recorded a non-cash impairment loss of $4.7 million against its Torque and Tension Sub (TTS) program, and an additional $0.6 million against the US water treatment business. In 2012, the Company initiated the roll-out of the (TTS), and initial field trials were promising; the TTS was able to provide measurements that were more accurate than indirect readings. However, due to a number of complications, including deployment issues and sales and marketing challenges due to the fact that the TTS is different than the Company's traditional products, customer acceptance and the resulting revenue was lower than the Company initially anticipated. As a result, the Company made the decision in the fourth quarter of 2012 to alter its business model. Management made the decision to supplement the rental model by providing its customers the option of sold units and at the same time identified new markets within the oil and gas industry. The Canadian and US business units will continue to rent these assets while 3PS, Inc. will offer to sell the units to a wider range of customers. The Company believes that this change in strategy, which expands the customer base and allows for more options to the customer, will result in an increase in demand from current levels. As a result of this change the Company identified raw materials that are no longer required and that some of the TTS accessories are obsolete, which led the Company to record the non-cash impairment loss. In the fourth quarter of 2011, a non-cash impairment loss of $2.8 million was recorded against the US water treatment business. Decrease in the foreign exchange loss recorded in the fourth quarter of 2012 of $0.5 million An increase in corporate service costs of $0.9 million due in most part to staff restructuring costs. Q4 2012 versus Q3 2012 Revenue was lower in the fourth quarter of 2012 versus the third quarter by $5.3 million. The Canadian business unit realized an increase in revenue of $1.7 million but this was offset by a drop of $4.5 million in the US rental market. The Canadian business unit realized a profit of $16.9 million for the three months ended December 2012 compared to a $14.6 million profit in the third quarter. The US business unit profit declined from a profit of $27.0 million in the previous quarter to a profit of $23.2 million in the current quarter, due to a drop in drilling days. The following items also impacted the comparison to the 2012 third quarter results: Increase in the litigation accrual described above of $32.5 million. An increase in research and development costs of $1.7 million. During the third quarter of 2012, the Company recorded a non-cash impairment loss of $2.6 million on its US water treatment assets. During the fourth quarter of 2012, the Company recorded a non-cash impairment loss of $4.7 million against its Torque and Tension Sub program and an additional $0.6 million on the US water treatment asset. An increase in corporate service costs of $0.9 million due in most part to staff restructuring costs. An increase in stock-based compensation expense of $1.8 million. A decrease in foreign exchange loss of $1.5 million. Summary of Quarterly Results Three Months Ended Mar 31, 2011 Jun 30, 2011 Sep 30, 2011 Dec 31, 2011 Mar 31, 2012 Jun 30, 2012 Sep 30, 2012 Dec 31, 2012 (000s, except per share data) ($) ($) ($) ($) ($) ($) ($) ($)Revenue (1) 88,218 65,546 91,461 100,933 115,145 84,112 96,262 90,995EBITDA (2) 44,729 25,850 53,162 47,920 64,146 31,656 47,665 8,286 Per share - basic 0.55 0.31 0.65 0.59 0.78 0.39 0.58 0.10 Per share - diluted 0.55 0.30 0.64 0.58 0.78 0.38 0.58 0.10Funds flow from operations (2) 39,082 22,917 41,270 42,089 51,707 30,132 40,831 36,278 Per share - basic 0.48 0.28 0.50 0.51 0.63 0.37 0.50 0.44 Per share - diluted 0.48 0.27 0.50 0.51 0.63 0.37 0.50 0.44Earnings (loss) (3) 17,757 8,217 28,547 31,702 29,073 6,772 17,742 (13,703) Per share - basic 0.22 0.10 0.35 0.39 0.35 0.08 0.22 (0.17) Per share - diluted 0.22 0.09 0.35 0.39 0.35 0.08 0.21 (0.17) (1) Data transmission expenses have been reclassified from revenue to rental service expense. All comparative figures have been restated accordingly. This change has no impact on reported EBITDA, funds flow from operations or earnings. (2) 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, impairment losses, stock-based compensation expense, deferred 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 International Financial Reporting Standards, and accordingly, may not be comparable to measures used by other companies. (3) Earnings for the quarters ended March 31, June 30, and September 30, 2012 have been reduced to correct a non-cash error in the statement of operations related to stock-based compensation of $400, $1,700, and $1,600 respectively. Per share amounts have been recalculated accordingly. Three Months Ended Mar 31, 2011 Jun 30, 2011 Sep 30, 2011 Dec 31, 2011 Mar 31, 2012 Jun 30, 2012 Sep 30, 2012 Dec 31, 2012 (000s) ($) ($) ($) ($) ($) ($) ($) ($) Income (loss) before taxes (3) 26,337 11,833 39,474 34,143 40,329 10,425 24,422 (15,428) Depreciation and amortization 12,945 14,247 15,035 16,338 16,897 16,987 17,852 16,477 Stock-based compensation (3) 5,447 (230) (1,347) (2,561) 6,920 4,244 5,391 7,237EBITDA (2) 44,729 25,850 53,162 47,920 64,146 31,656 47,665 8,286 Variations in Pason's quarterly financial results are due in part to the seasonality of the oil and gas service industry in Canada, which is somewhat offset by the less seasonal nature of US and International operations. The first quarter is generally the strongest quarter for the Company due to strong activity in Canada when location access is best during the winter. The second quarter is always the slowest due to spring break up in Canada when many areas are not accessible due to ground conditions, and therefore, do not permit the movement of heavy equipment. Activity generally increases in the third quarter, depending on the year, as ground conditions have often improved and location access becomes available; however, a rainy summer can have a significant adverse effect on drilling activity. By the fourth quarter, often the Company's second strongest quarter, access to most areas in Canada become available with ground freezing. Consequently, the performance of the Company may not be comparable quarter to consecutive quarter and should be considered on the basis of results for the whole year, or by comparing results in a quarter with results in the same quarter for the previous year. Fourth Quarter & Year End Conference Call Pason will be conducting a conference call for interested analysts, brokers, investors and media representatives to review its fourth quarter and year-end results at 9:00 a.m. (MST) on Friday, February 22, 2013. The conference call dial-in number is 1-888-231-8191 or 1-647-427-7450. You can access the seven-day replay by dialing 1-855-859-2056 or 1-416-849-0833, using password 85698063. Pason Systems Inc. is a leading provider of instrumentation systems to land-based and offshore drilling rigs worldwide. The company's rental solutions, which include data acquisition, wellsite reporting, remote communications, and web-based information management, maximize rig uptime, improve work efficiency, and minimize operating costs. Pason's common shares trade on the Toronto Stock Exchange under the symbol PSI.TO. Additional information, including the Company's Annual Report and Annual Information Form for the year ended December 31, 2012, is available on SEDAR at www.sedar.com or on the Company's website at www.pason.com. Shareholders are also invited to attend the Company's Annual General Meeting on Thursday, May 2, 2013, at 3:30 pm at the offices of Pason Systems Inc., 6120 Third Street SE, Calgary, Alberta. Consolidated Financial Statements Consolidated Balance Sheets As at December 31, 2012 December 31,2011 (CDN 000s) (unaudited) ($) ($) Assets Current Cash and cash equivalents 157,944 104,993 Trade and other receivables 84,506 102,321 Prepaid expenses 2,920 1,970 Total current assets 245,370 209,284 Non-current Property, plant and equipment 174,651 183,007 Intangible assets 59,593 58,071 Deferred tax assets 8,764 5,539 Total non-current assets 243,008 246,617 Total assets 488,378 455,901 Liabilities and equity Current Trade payables and accruals 25,674 40,668 Litigation provision 19,533 14,543 Income taxes payable 3,313 5,318 Stock-based compensation liability 13,788 5,770 Dividend payable 19,691 16,380 Total current liabilities 81,999 82,679 Non-current Stock-based compensation liability 2,583 1,030 Deferred tax liabilities 2,600 4,923 Litigation provision 32,500 -- Total non-current liabilities 37,683 5,953 Equity Share capital 79,393 77,613 Employee benefits reserve 12,927 12,927 Foreign currency translation reserve (8,348) (5,835) Retained earnings 284,724 282,564 Total equity 368,696 367,269 Total liabilities and equity 488,378 455,901 Consolidated Statements of Operations Three Months EndedDecember 31, Years EndedDecember 31, 2012 2011 (reclassified) 2012 2011 (reclassified) (CDN 000s, except per share data) (unaudited) ($) ($) ($) ($) Revenue Equipment rentals and other 90,995 100,933 386,514 346,158 Operating expenses Rental services 28,652 33,503 125,269 119,342 Local administration 4,431 6,170 19,906 21,346 Depreciation and amortization 16,477 16,338 68,213 58,565 49,560 56,011 213,388 199,253 Operating profit 41,435 44,922 173,126 146,905 Other expenses Research and development 7,033 5,371 22,467 17,366 Corporate services 4,326 3,816 15,723 12,975 Stock-based compensation (recovery) 7,237 (2,561) 23,792 1,309 Other expenses 38,267 4,153 51,396 3,468 56,863 10,779 113,378 35,118 (Loss) income before income taxes (15,428) 34,143 59,748 111,787 Income taxes (1,725) 2,441 19,864 25,564 Net (loss) income (13,703) 31,702 39,884 86,223 (Loss) earnings per share Basic (0.17) 0.39 0.49 1.05 Diluted (0.17) 0.38 0.48 1.04 Change in Accounting Classification In the fourth quarter of 2012, the Company changed the way in which it records expenses associated with data transmission costs. Previously, the Company recorded these costs as a reduction in revenue. Effective for 2012, these costs have been reclassified to rental services expense. This change, which does not impact EBITDA or net income, was applied retroactively, with all comparative figures being restated accordingly. Consolidated Statements of Other Comprehensive Income Three Months EndedDecember 31,Years EndedDecember 31, 2012 2011 2012 2011 (CDN 000s) (unaudited) ($) ($) ($) ($) Net (loss) income (13,703) 31,702 39,884 86,223 Other comprehensive income (loss) Foreign currency translation adjustment 2,681 (6,049) (2,513) 213 Total comprehensive income (11,022) 25,653 37,371 86,436 Consolidated Statements of Changes in Equity Share Capital Employee Benefits Reserve Foreign Currency Translation Reserve Retained Earnings Total Equity (CDN 000s) (unaudited) ($) ($) ($) ($) ($) Balance at December 31, 2010 75,040 13,228 (6,048) 227,464 309,684 Net income -- -- -- 86,223 86,223 Dividends -- -- -- (31,123) (31,123) Other comprehensive income -- -- 213 -- 213 Exercise of stock options 2,265 -- -- -- 2,265 Options exercised that were previously expensed 308 (308) -- -- -- Stock-based compensation -- 7 -- -- 7 Balance at December 31, 2011 77,61312,927(5,835)282,564367,269 Net income -- -- -- 39,884 39,884 Dividends -- -- -- (37,724) (37,724) Other comprehensive loss -- -- (2,513) -- (2,513) Exercise of stock options 1,780 -- -- -- 1,780 Balance at December 31, 2012 79,39312,927(8,348)284,724368,696 Consolidated Statements of Cash Flows Three Months EndedDecember 31,Years EndedDecember 31, 2012 2011 2012 2011 (CDN 000s) (unaudited) ($) ($) ($) ($) Cash flows from operating activities Net (loss) income (13,703) 31,702 39,884 86,223 Adjustment for non-cash items: Depreciation and amortization 16,477 16,338 68,213 58,565 Litigation provision 32,500 -- 32,500 -- Impairment loss 5,282 2,780 7,918 4,580 Stock-based compensation (recovery) 5,541 (3,048) 16,067 (2,112) Deferred income taxes (8,223) (6,660) (6,019) 1,329 Unrealized foreign exchange (gain) loss (1,596) 977 385 (3,227) Funds flow from operations 36,278 42,089 158,948 145,358 Movements in non-cash working capital Decrease (increase) in trade and other receivables 7,391 (6,376) 16,376 (19,896) Decrease (increase) in prepaid expenses 1,853 2,481 (994) (446) Increase in income taxes payable 3,513 3,448 18,072 13,819 (Decrease) increase in trade payables, accruals and provisions (10,076) (221) (7,101) 5,444 (Decrease) increase in stock-based compensation liability (3,564) (3,524) 2,312 (732) Effects of exchange rate changes 2,808 (46) 1,778 832 Changes in non-cash working capital 1,925 (4,238) 30,443 (979) Cash generated from operating activities 38,203 37,851 189,391 144,379 Income tax paid (3,988) (1,400) (20,213) (18,050) Net cash from operating activities 34,215 36,451 169,178 126,329 Cash flows (used in) from financing activities Proceeds from issuance of common shares 558 33 1,780 2,265 Purchase of stock options (3,532) (89) (8,772) (3,355) Payment of dividends -- -- (34,413) (28,631) Net cash used in financing activities (2,974) (56) (41,405) (29,721) Cash flows (used in) from investing activities Additions to property, plant and equipment (10,173) (20,647) (58,640) (71,382) Additions to intangibles (414) (184) (1,644) (184) Deferred development costs (3,429) (1,280) (11,140) (6,975) Proceeds on disposal of property, plant and equipment 586 505 586 505 Acquisitions, net of cash acquired -- (841) -- (24,410) Changes in non-cash working capital (35) 2,249 (2,646) (520) Net cash used in investing activities (13,465) (20,198) (73,484) (102,966) Effect of exchange rate on cash and cash equivalents 356 (1,096) (1,338) 951 Net increase (decrease) in cash and cash equivalents 18,132 15,101 52,951 (5,407) Cash and cash equivalents, beginning of period 139,812 89,892 104,993 110,400 Cash and cash equivalents, end of period 157,944 104,993 157,944 104,993 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: Three Months Ended December 31, 2012 CanadaUnited StatesInternationalTotal (unaudited) ($)($)($)($) Revenue 32,03949,0099,94790,995 Operating costs 8,85818,0736,15233,083 Depreciation and amortization 6,2467,7132,51816,477 Segment operating profit 16,93523,2231,27741,435 Research and development 7,033 Corporate services 4,326 Stock-based compensation 7,237 Other expenses 38,267 Income taxes (recovery) (1,725) Net loss (13,703) Capital expenditures and acquisitions 5,0065,9262,67013,602 Goodwill --18,4142,60021,014 Intangible assets 25,5839,7113,28538,579 Segment assets 182,458241,39164,529488,378 Segment liabilities 96,78013,1209,782119,682 Three Months Ended December 31, 2011 Revenue 39,762 54,310 6,861 100,933 Operating costs 10,788 21,988 6,897 39,673 Depreciation and amortization 6,897 5,538 3,903 16,338 Segment operating profit (loss) 22,077 26,784 (3,939) 44,922 Research and development 5,371 Corporate services 3,816 Stock-based compensation (recovery) (2,561) Other expenses 4,153 Income taxes 2,441 Net income 31,702 Capital expenditures and acquisitions 9,245 11,844 838 21,927 Goodwill -- 18,823 2,600 21,423 Intangible assets 20,188 11,890 4,570 36,648 Segment assets 149,453 243,423 63,025 455,901 Segment liabilities 64,194 15,433 9,005 88,632 Year Ended December 31, 2012 CanadaUnited StatesInternationalTotal (unaudited) ($)($)($)($) Revenue 125,738223,05437,722 386,514 Operating costs 36,29185,81123,073145,175 Depreciation and amortization 26,96432,3818,86868,213 Segment operating profit 62,483104,8625,781173,126 Research and development 22,467 Corporate services 15,723 Stock-based compensation 23,792 Other expenses 51,396 Income taxes 19,864 Net income 39,884 Capital expenditures and acquisitions 25,68237,8507,89271,424 Goodwill --18,4142,60021,014 Intangible assets 25,5839,7113,28538,579 Segment assets 182,458241,39164,529488,378 Segment liabilities 96,78013,1209,782119,682 Year Ended December 31, 2011 Revenue 128,332 189,291 28,535 346,158 Operating costs 42,616 78,105 19,967 140,688 Depreciation and amortization 25,934 22,535 10,096 58,565 Segment operating profit (loss) 59,782 88,651 (1,528) 146,905 Research and development 17,366 Corporate services 12,975 Stock-based compensation 1,309 Other expenses 3,468 Income taxes 25,564 Net income 86,223 Capital expenditures and acquisitions 29,488 64,249 9,214 102,951 Goodwill -- 18,823 2,600 21,423 Intangible assets 20,188 11,890 4,570 36,648 Segment assets 149,453 243,423 63,025 455,901 Segment liabilities 64,194 15,433 9,005 88,632 Pason Systems Inc. Pason Systems Inc. is a leading provider of instrumentation systems to land-based and offshore drilling rigs worldwide. The company's rental solutions, which include data acquisition, wellsite reporting, remote communications, and web-based information management, maximize rig uptime, improve work efficiency, and minimize operating costs. Pason's common shares trade on the Toronto Stock Exchange under the symbol PSI.TO. Certain information regarding the Company contained herein may constitute forward-looking information under applicable securities law. The words "anticipate", "expect", "believe", "may", "should", "will", "estimate", "project", "outlook", "forecast" or other similar words are used to identify such forward-looking information and statements. Forward-looking statements in this document may include statements, express or implied regarding the anticipated business prospects and financial performance of Pason; expectations or projections about future strategies and goals for growth and expansion; expected and future cash flows and revenues; and expected impact of future commitments. These forward-looking statements are based upon various underlying factors and assumptions, including the state of the economy and the oil and gas exploration and production business, in particular; the Company's business prospects and opportunities; and estimates of the financial and operational performance of Pason. Forward-looking information and 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 information and statements. Risk factors that could cause actual results or events to differ materially from current expectations include, among others, the ability of Pason to successfully implement its strategic initiatives and whether such strategic initiatives will yield the expected benefits, the operating performance of Pason's assets and businesses, the price of energy commodities, competitive factors in the energy industry, changes in laws and regulations affecting Pason's businesses, technological developments, and general economic conditions. Readers are cautioned not to place undue reliance on forward-looking statements as there can be no assurance that the plans, intentions or expectations upon which they are placed will occur. Such forward looking statements, although considered reasonable by management as of the date hereof, may prove to be incorrect and actual results may differ materially from those anticipated. Forward-looking statements contained in this press release are expressly qualified by this cautionary statement. Additional information on risks and uncertainties and other factors that could affect Pason's operations or financial results are included in Pason's reports on file with the Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com or through Pason's website www.pason.com). Furthermore, any forward looking statements contained in this news release are made as of the date of this news release, and Pason does 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 expressly required by securities law. |