Pason Systems Inc. reports third quarter operating results << Stock Exchange: TSX Symbol: PSI >>CALGARY, Nov. 4 /CNW/ - Pason Systems Inc. ("Pason" or "the Company") today announced its results for the three and nine-month period ended September 30, 2009.PERFORMANCE DATA ------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, ------------------------------------------------------------------------- 2009 2008 Change 2009 2008 Change ------------------------------------------------------------------------- (000s, except per share ($) ($) (%) ($) ($) (%) data) (unaudited) Revenue 28,422 80,478 (65) 104,848 207,911 (50) EBITDA(1) 8,261 45,698 (82) 33,031 112,468 (71) As a % of revenue 29.1 56.8 (49) 31.5 54.1 (42) Per share - basic 0.10 0.56 (82) 0.41 1.38 (70) Per share - diluted 0.10 0.55 (82) 0.41 1.37 (70) Funds flow from operations(1) 7,373 37,665 (80) 29,116 93,439 (69) Per share - basic 0.09 0.46 (80) 0.36 1.15 (69) Per share - diluted 0.09 0.46 (80) 0.36 1.14 (68) (Loss) Earnings (4,200) 21,357 - (7,990) 48,682 - Per share - basic (0.05) 0.26 - (0.10) 0.60 - Per share - diluted (0.05) 0.26 - (0.10) 0.59 - Capital expenditures 3,879 16,991 (77) 12,345 43,651 (72) Working capital 150,029 144,653 4 150,029 144,653 4 Total assets 367,147 378,483 (3) 367,147 378,483 (3) Shareholders' equity 320,669 334,836 (4) 320,669 334,836 (4) Common shares outstanding (No.) Basic 81,487 82,010 (1) 81,472 81,314 - Diluted 81,487 82,746 (2) 81,472 81,984 (1) Shares outstanding end of period 81,487 81,890 - 81,487 81,890 - ------------------------------------------------------------------------- ------------------------------------------------------------------------- (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 OPERATIONS REVIEWDue to continuing low levels of oilfield drilling activity, Pason recorded disappointing results in its 2009 third quarter, especially when compared to the third quarter of 2008, which was a Company record for any prior quarter. Revenue for the third quarter decreased 65% from the prior year to $28.4 million, cash flow was off 80% at $7.4 million, earnings fell from a profit of $21.4 million in the prior year to a loss of $4.2 million in the current quarter. This resulted in a loss of $0.05 per diluted share compared to earnings of $0.26 in 2008. Returning to profitability is proving to be a challenge with Canadian drilling days off 58% from the prior year contributing to a decline of 61% in Canadian revenue and even worse reductions in the U.S. with a drop of 51% in drilling days forcing significant price reductions and a 71% fall in revenue. However, slow progress returning to profitability is being made with each month in the quarter improving over the prior month. Sequentially, our loss for the quarter was less than half of the $8.7 million suffered in the second quarter. United States segment operating results showed a loss of $2.7 million, which was marginally improved over the prior quarter loss of $3.5 million but was off substantially from the record $21.5 million earned in 2008. Revenue per U.S. industry day was $150 compared to $251 in the prior year. Immediately after the quarter, Pason closed the purchase of Petron Industries for a price of US$18.0 million plus up to US$7.0 million in three years' time conditional on the development of a new revenue stream for offshore rigs. Combining Petron with Pason has proved immediately popular with U.S. customers as Petron's field service benefits from Pason's more efficient field service model and Pason's equipment is enhanced by Petron's recent leading edge software improvements in the field and on their data hub. Pason's market share in the U.S. (percentage of rigs with at least some Pason product) had fallen from a high last year of 62% to a low of 45% last spring. At the end of the third quarter this metric had improved to 53%. With the addition of Petron products and people, the Company expects to achieve a new high for market share early in the new year. We will not provide separate market share numbers for Pason and Petron products on rigs because we expect many rigs to have products from both companies contributing to improved revenue per rig totals. Petron's excellent marketing contacts can be levered to add many products that they did not formerly offer, but now can be supplied from Pason's product suite. For example, to Petron rigs with an EDR, pit volume totalizer and data hub, Pason can add total gas, automatic aiming satellite, hazardous gas, electronic choke and remote geology which results in higher revenue per rig than either company was previously able to achieve in the United States. The management teams from the two companies have made a conscious decision to focus initially on maximizing revenue while delaying work on generating synergy benefits until later. This strategic move is aimed at capitalizing on the current momentum and enthusiasm that both companies are experiencing with their respective field and marketing staffs. As a result, we expect a significant improvement in revenue in the fourth quarter with a corresponding margin improvement coming later. In Canada, our segment operating profit was $2.0 million for the quarter compared to $14.0 million recorded in 2008. Although a severe drop over the prior year, there was good sequential improvement from the loss of $4.8 million suffered in the second quarter of this year. Further, most of the quarter's profit came from the last month of the quarter indicating that there is momentum for continuing improving earnings. Our revenue per industry drilling day decreased to $674 for the quarter versus $761 a year ago. Our costs continue to slowly trend down, even as activity rises modestly, resulting in improving margins. International segment operating profit was up to $2.1 million compared to $1.2 million in 2008. Surging gains in activity in Mexico are being temporarily offset by the costs of transporting new equipment to that country, which Pason expenses, and by continuing lower activity levels in South America. At the end of the third quarter Pason had 92 active rigs in Mexico generating gross revenue of triple what was recorded in the prior year. Revenue growth may level off somewhat in 2010, but it will provide an opportunity for more efficiencies and improved margins. There are also expected to be some growth opportunities from the Petron purchase, but not as strong a synergy as is being felt in the United States. OUTLOOK Despite oil prices currently around $80 a barrel and gas prices up from the summer lows, most industry analysts are not expecting a meaningful increase in drilling before the end of next year. We are not simply waiting for that turnaround but are actively attempting to develop the assets brought to us in the Petron purchase. Once the two companies' field service structures and products are combined, we feel we will be able to demonstrate a compelling product improvement to customers in 2010. In addition, we will build on new business areas that Petron carried out in a minor way due to financial restrictions. We will be setting up new business units for the eastern hemisphere (rental and sold products), offshore products and rig control products. We are excited by the potential challenges that these three new opportunities will provide and believe we have sufficient management expertise to develop them in concert with rebuilding our profitability in our current activities in Canada, United States and Latin America. After closing the Petron purchase we had $116.2 million in cash and continue to build on that total ensuring we have sufficient resources to fund the new business units. On behalf of the Board of Directors, (signed) Jim Hill President & Chief Executive Officer November 4, 2009 THIRD QUARTER CONFERENCE CALLPason will be conducting a conference call for interested analysts, brokers, investors and media representatives to review its third quarter results at 9:00 a.m. (Calgary time) on Thursday, November 5, 2009. The conference call dial-in number is 1-888-231-8191. Seven-day replay: 1-800-678-0453 and enter 31209629 followed by the number sign. Pason Systems Inc. is the world's largest provider of rental oilfield instrumentation systems that are designed and manufactured for use on land-based drilling and service rigs. Pason offers a tightly integrated package of complex services, including data acquisition, wellsite reporting software, remote communications and Internet information management tools. Pason now offers offshore instrumentation rentals and sold instrumentation systems. Pason's common shares trade on the Toronto Stock Exchange under the symbol PSI. Additional information, including the Company's Annual Report and Annual Information Form for the year ended December 31, 2008, is available on SEDAR at www.sedar.com or visit the Company's website at www.pason.com. Certain information regarding the Company contained herein may constitute forward-looking statements under applicable securities laws. Such statements are subject to known or unknown risks and uncertainties that may cause actual results to differ materially from those anticipated or implied in the forward-looking statements.
CONSOLIDATED BALANCE SHEETS
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As at September 30, December 31,
2009 2008
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(000s) (unaudited) ($) ($)
Assets
Current
Cash and cash equivalents 135,515 100,610
Accounts receivable 28,774 78,568
Prepaid expenses 1,593 2,023
Income taxes recoverable 3,218 12,539
Future income tax assets 9,617 9,153
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178,717 202,893
Investment 2,453 2,802
Capital assets 167,558 207,342
Deferred development costs 10,953 8,979
Future income tax assets 7,466 5,000
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367,147 427,016
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Liabilities
Current
Accounts payable and accrued liabilities 26,158 38,123
Current portion of stock-based
compensation liability 2,530 2,656
Dividend payable - 9,777
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28,688 50,556
Stock-based compensation liability 2,283 1,475
Future income tax liabilities 15,507 20,396
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46,478 72,427
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Shareholders' Equity (Note 2)
Share capital 71,850 71,517
Contributed surplus 13,035 8,834
Accumulated other comprehensive (loss) income (18,237) 2,450
Retained earnings 254,021 271,788
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320,669 354,589
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367,147 427,016
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See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
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Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
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(000s, except per share data) ($) ($) ($) ($)
(unaudited)
Revenue
Equipment rentals 27,146 75,809 99,778 196,404
Geological services 1,215 4,303 4,695 10,586
Interest 61 366 375 921
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28,422 80,478 104,848 207,911
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Expenses
Rental services 13,053 25,871 48,401 67,979
Geological services 1,236 2,601 4,587 7,050
Manufacturing and
distribution 188 702 372 2,819
Research and development 2,990 2,414 9,404 9,366
Corporate services 1,518 1,675 4,532 4,570
Local administration 984 1,591 3,447 4,741
Stock-based compensation 3,188 1,304 5,190 3,976
Interest - 18 1 189
Depreciation and
amortization 11,692 13,707 42,129 39,380
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34,849 49,883 118,063 140,070
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(Loss) earnings before the
under noted items (6,427) 30,595 (13,215) 67,841
Other expenses (income) 192 (74) 1,074 (1,082)
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(Loss) earnings before
income taxes (6,619) 30,669 (14,289) 68,923
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Income taxes
Current (258) 8,015 1,348 18,840
Future (2,161) 1,297 (7,647) 1,401
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(2,419) 9,312 (6,299) 20,241
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(Loss) earnings (4,200) 21,357 (7,990) 48,682
Retained earnings, beginning
of period 258,221 257,737 271,788 238,599
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Dividends (Note 6) - - (9,777) (8,187)
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Purchase of common shares
(Note 2) - (4,019) - (4,019)
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Retained earnings, end
of period 254,021 275,075 254,021 275,075
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(Loss) earnings per share
Basic (0.05) 0.26 (0.10) 0.60
Diluted (0.05) 0.26 (0.10) 0.59
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See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
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Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
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(000s) (unaudited) ($) ($) ($) ($)
(Loss) earnings (4,200) 21,357 (7,990) 48,682
Other comprehensive (loss)
income, net of tax
Foreign currency
translation adjustment (12,613) 2,212 (20,687) 7,371
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Total comprehensive (loss)
income (16,813) 23,569 (28,677) 56,053
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See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
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Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
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(000s) (unaudited) ($) ($) ($) ($)
Accumulated other
comprehensive (loss) income,
beginning of period (5,624) (24,551) 2,450 (29,710)
Other comprehensive (loss)
income, net of tax
Foreign currency
translation adjustment (12,613) 2,212 (20,687) 7,371
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Accumulated other
comprehensive loss,
end of period (18,237) (22,339) (18,237) (22,339)
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See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
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Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
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(000s) (unaudited) ($) ($) ($) ($)
Cash flows related to the
following activities:
Operating
(Loss) earnings (4,200) 21,357 (7,990) 48,682
Adjustments for non-cash
items:
Depreciation and
amortization 11,692 13,707 42,129 39,380
Stock-based compensation 1,488 1,304 1,990 3,976
Future income taxes (2,161) 1,297 (7,647) 1,401
Unrealized foreign
exchange loss 554 - 634 -
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7,373 37,665 29,116 93,439
Changes in non-cash
working capital (7,508) (2,155) 50,237 17,571
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(135) 35,510 79,353 111,010
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Financing
Issue of common shares under
the stock option plan 101 2,195 266 16,546
Purchase of stock options (22) - (240) -
Purchase of common shares
(Note 2) - (4,269) - (4,269)
Payment of dividends (9,777) (8,187) (19,554) (15,009)
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(9,698) (10,261) (19,528) (2,732)
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Investing
Additions to capital assets (2,844) (16,378) (9,699) (41,944)
Deferred development costs,
net of investment tax
credits received (1,035) (613) (2,646) (1,707)
Proceeds on disposal of
capital assets 159 42 534 224
Proceeds on sale of
investment - - - 4,003
Changes in non-cash
working capital (1,072) 668 (6,295) (3,405)
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(4,792) (16,281) (18,106) (42,829)
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Effect of exchange rate
changes on cash (3,995) 2,459 (6,814) 3,508
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Net (decrease) increase in
cash and cash equivalents (18,620) 11,427 34,905 68,957
Cash and cash equivalents,
beginning of period 154,135 80,689 100,610 23,159
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Cash and cash equivalents,
end of period 135,515 92,116 135,515 92,116
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Represented by:
Cash and short-term
investments 135,515 92,116 135,515 92,116
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See accompanying notes to the consolidated financial statements.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Ended September 30, 2009 and 2008
(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, 2008.
Significant Accounting Changes
a. Beginning in the first quarter of 2009, the Company adopted the new
Section 3064 "Goodwill and Intangible Assets" standard issued by the
Canadian Institute of Chartered Accountants ("CICA"). The new
standard establishes guidelines for the recognition, measurement,
presentation and disclosure of research and development ("R&D")
costs. This resulted in no significant impact on the Company's
financial statements.
Future Changes in Accounting Policies
a. The CICA issued Section 1601 "Consolidated Financial Statements".
This new section will be applicable to financial statements relating
to the Company's interim and fiscal year beginning on or after
January 1, 2011. Early adoption is permitted. This section
establishes standards for the preparation of consolidated financial
statements. The Company has not yet determined the impact of the
adoption of this new Section on the Consolidated Financial
Statements.
b. Canada's Accounting Standards Board ratified a plan that will result
in Canadian generally accepted accounting principles ("GAAP") being
converged with International Financial Reporting Standards ("IFRS")
by 2011. Management has completed its initial assessment phase and
highlighted areas where its current Canadian accounting practices
differ from IFRS. 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
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Shares Amount
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(No.) ($)
Balance, December 31, 2008 81,456 71,517
Exercise of stock options 31 266
Contributed surplus adjustment on exercise
of stock options - 67
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Balance, September 30, 2009 81,487 71,850
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The basic and diluted weighted average number of common shares
outstanding for the three and nine months ended September 30, 2009 were
81,487 and 81,472, respectively.
Stock Option Plan
At September 30, 2009, 5,068 stock options were outstanding for common
shares at exercise prices ranging from $11.80 to $17.10 per share,
expiring between 2009 and 2014 as follows:
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Nine Months Ended September 30, 2009 2008
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Weighted Weighted
Average Average
Share Exercise Share Exercise
Options Price Options Price
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(No.) ($) (No.) ($)
Outstanding, beginning
of period 6,753 12.88 6,908 11.91
Granted 50 12.31 32 15.39
Exercised (91) 8.24 (1,845) 8.97
Forfeited (1,644) 14.01 (340) 14.11
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Outstanding, end of period 5,068 12.58 4,755 12.92
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Exercisable, end of period 1,290 13.82 1,646 12.41
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Available for grant, end
of period 3,081 3,434
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All options are issued at market price and vest over three years. The
following table summarizes the life of options issued:
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Date of Issuance Years
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Prior to November 2004 5.00
November 2004 through October 2006 3.17
November 2006 through October 2008 3.50
November 2008 and thereafter 5.00
The following table summarizes information about stock options
outstanding at September 30, 2009:
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Options Outstanding Options Exercisable
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Weighted
Average
Remaining Weighted Weighted
Contra- Average Average
Range of Options ctual Exercise Exercisable Exercise
Exercise Prices Outstanding Life Price (Vested) Price
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($) (No.) (Years) ($) (No.) ($)
11.80 - 12.00 2,264 4.16 11.80 - 11.80
12.01 - 13.00 1,823 1.74 12.18 598 12.18
13.01 - 17.10 981 0.64 15.13 692 15.23
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5,068 2.61 12.58 1,290 13.82
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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:
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Nine Months Ended September 30, 2009 2008
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($) ($)
Balance, beginning of period 8,834 10,323
Stock-based compensation expense 2,468 3,976
Stock options exercised (67) (3,152)
Intrinsic value adjustment 1,800 -
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Balance, end of period 13,035 11,147
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Restricted Share Unit ("RSU") Plan
In November of 2008, the Company introduced an RSU program for employees
and directors. At September 30, 2009, 579 RSUs were outstanding. All RSUs
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 is
recorded in the Consolidated Statements of Operations and the
corresponding liability is recorded in the Consolidated Balance Sheets.
Stock-based Compensation Expense and Liability
Stock-based compensation expense can be summarized as follows:
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Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
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($) ($) ($) ($)
Stock options 1,488 1,304 1,990 3,976
RSUs 1,700 - 3,200 -
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Stock-based compensation expense 3,188 1,304 5,190 3,976
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Stock-based compensation liability can be summarized as follows:
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As at September 30, 2009 2008
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($) ($)
Stock options 570 -
RSUs 1,960 -
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Current portion of stock-based compensation liability 2,530 -
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Stock options 586 -
RSUs 1,697 -
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Long-term portion of stock-based compensation
liability 2,283 -
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Total stock-based compensation liability 4,813 -
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Purchase of Common Shares
On March 20, 2009, the Company received regulatory approval to renew its
normal course issuer bid program. The Company did not purchase any shares
during the three and nine months ended September 30, 2009. During the
third quarter of 2008, the Company purchased 301 common shares at an
average price of $14.19 per share and cancelled them. This resulted in
share capital being reduced by $250 and the remaining $4,019 was charged
to retained earnings. The Company is authorized to purchase and cancel up
to 4,000 common shares before the bid terminates on March 23, 2010. The
daily purchase limit is 40 common shares.
3. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Financial Instruments
The carrying amounts for all of the Company's financial instruments
approximate their fair values due to the short-term nature of these
items.
Industry and Seasonality Risk
The major area of uncertainty for the Company is that the demand for its
services is directly related to the strength of its customers' capital
expenditure programs. The level of capital programs is strongly affected
by the level and stability of commodity prices, which can be extremely
difficult to predict and beyond the control of the Company and its
customers. During periods of uncertainty, oil and gas companies tend to
bias their capital decisions on conservative outlooks for commodity
prices.
In addition to the cyclical nature of its business, the Company is also
subject to risks and uncertainties associated with weather and
seasonality. The Company continues to react to unfavourable weather
conditions and spring breakup, which limit well access in Canada, through
diversification into geographic regions such as the United States and
internationally where these factors are less likely to influence
activity.
Credit Risk
Credit risk refers to the possibility that a customer will fail to meet
its contractual obligations. Credit risk arises from the Company's
accounts receivable balances which are predominantly with customers who
explore for and develop oil and natural gas reserves in Canada and the
United States. The Company has a process in place which assesses the
credit worthiness of its customers as well as monitoring the age and
balances outstanding on an ongoing basis. In addition, the Company's
services are a minor component when looking at the overall cost of
drilling a well, reducing credit risk accordingly.
Payment terms with customers are 30 days from invoice date however
industry practice can extend these terms. As at September 30, 2009, the
Company had $3,785 in accounts receivable balances greater than 90 days
past due and had recorded an allowance for doubtful accounts of $2,225.
The balance of the Company's allowance for doubtful accounts did not
significantly change during the first nine months of 2009.
Foreign exchange risk
The Company operates internationally and is primarily exposed to exchange
risk relative to the U.S. dollar.
The Canadian operations are exposed to currency risk on U.S. denominated
financial assets and liabilities with fluctuations in the rate recognized
as foreign exchange gains or losses in the Consolidated Statements of
Operations.
The Company's self-sustaining international subsidiaries expose the
Company to exchange rate risk on the translation of its financial assets
and liabilities to Canadian dollars for consolidation purposes.
Adjustments arising when translating these subsidiaries into Canadian
dollars are reflected in the Consolidated Statements of Comprehensive
Income as unrealized foreign currency translation adjustments.
The Company has not hedged either one of these risks.
For the first nine months of 2009, had the Canadian dollar weakened or
strengthened by 1% against the U.S. dollar, with all other variables held
constant, earnings and other comprehensive income would have been
impacted as follows:
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Nine Months Ended September 30, 2009
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Impact
to Other
Compreh-
Impact to ensive
Earnings Income
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($) ($)
1% decrease in value of Canadian dollar (96) 1,536
1% increase in value of Canadian dollar 96 (1,536)
Interest rate risk
The Company is exposed to changes in interest rates with respect to its
credit facility. Management believes this risk to be minor given the
small amounts drawn periodically on the facility.
4. SALE OF INVESTMENT
On April 8, 2008, the Company sold its investment in a privately held
company and realized a gain of $1.0 million and was included in other
expenses (income).
5. 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. In the U.S. case in 2004, the trial court
refused to grant the requested injunction to prevent the Company from
renting its automatic driller. In 2006, the Federal Circuit Appeals Court
ruled that the trial court had misconstrued the language of one of the
claims in the patent at issue and remanded the case to the trial court to
hold a full trial on the merits of the claim of infringement and the
Company's defenses, including that the patent in question is invalid and
that there is no infringement. 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 deciding upon
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 for
further proceedings on Pason's claims and defences. Further trial
proceedings have not currently been scheduled and are not expected to
occur until 2010. If the Company does not prevail on its inequitable
conduct defence and claim, it intends to renew its appeal on all issues.
Separately, 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. The patent is now in re-
examination by the USPTO, which could result in affirming the patent's
validity, the invalidation of the patent, or an amendment of the patent's
claims. Either of the latter two outcomes could eliminate the jury
verdict. A determination by the USPTO is not expected until late 2010.
In the Canadian case, which is not likely to come to a trial until 2010
at the earliest, 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 September 30, 2009.
The Company is involved in other legal actions and potential claims in
the normal course of business. In the opinion of management, the
aggregate amount of any potential liability is not expected to have a
material adverse impact on the Company's financial position or results.
6. COMMON SHARE DIVIDEND
During the second quarter of 2009, the Company declared a dividend of
$9,777 (2008 - $8,187) or $0.12 per common share (2008 - $0.10). The
Company transferred these funds to the transfer agent to be held in trust
until the dividend payment was made on July 2, 2009.
7. SUBSEQUENT EVENT
On October 2, 2009, the Company purchased all of the outstanding common
shares of Petron Industries, Inc., a privately held company located in
Houston, Texas. The purchase price was US$18,000, plus up to an
additional US$7,000 in three years' time conditional on the development
of a new revenue stream for offshore rigs. The initial amount is subject
to working capital adjustments at the date of acquisition.
8. SEGMENTED INFORMATION
The Company operates in three geographic segments within one industry
segment. Rental services are provided in Canada, the United States and
internationally (Latin America and Australia). The amounts related to
each segment are as follows:
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United Interna-
Canada States tional Total
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($) ($) ($) ($)
Three Months Ended
September 30, 2009
Revenue 11,709 13,748 2,965 28,422
Operating costs 4,202 10,570 501 15,273
Depreciation and amortization 5,532 5,843 317 11,692
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Segment operating profit(loss) 1,975 (2,665) 2,147 1,457
---------------------------------------------------------------
---------------------------------------------------------------
Research and development 2,990
Stock-based compensation 3,188
Corporate services 1,518
Manufacturing and distribution 188
Other expenses 192
Income taxes (2,419)
----------
Loss (4,200)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Capital expenditures 2,360 811 708 3,879
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-------------------------------------------------------------------------
Three Months Ended
September 30, 2008
Revenue 30,158 47,902 2,418 80,478
Operating costs 9,589 19,903 571 30,063
Depreciation and amortization 6,590 6,514 603 13,707
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Segment operating profit 13,979 21,485 1,244 36,708
---------------------------------------------------------------
---------------------------------------------------------------
Research and development 2,414
Stock-based compensation 1,304
Corporate services 1,675
Manufacturing and distribution 702
Interest 18
Other income (74)
Income taxes 9,312
----------
Earnings 21,357
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-------------------------------------------------------------------------
Capital expenditures 1,157 13,792 2,042 16,991
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-------------------------------------------------------------------------
-------------------------------------------------------------------------
United Interna-
Canada States tional Total
-------------------------------------------------------------------------
($) ($) ($) ($)
Nine Months Ended
September 30, 2009
Revenue 39,749 57,225 7,874 104,848
Operating costs 16,175 37,422 2,838 56,435
Depreciation and amortization 17,393 22,343 2,393 42,129
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Segment operating profit (loss) 6,181 (2,540) 2,643 6,284
---------------------------------------------------------------
---------------------------------------------------------------
Research and development 9,404
Stock-based compensation 5,190
Corporate services 4,532
Manufacturing and distribution 372
Interest 1
Other expenses 1,074
Income taxes (6,299)
----------
Loss (7,990)
----------
----------
Total assets 175,678 169,090 22,379 367,147
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-------------------------------------------------------------------------
Capital expenditures 3,772 3,837 4,736 12,345
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nine Months Ended
September 30, 2008
Revenue 79,544 121,771 6,596 207,911
Operating costs 27,166 51,437 1,167 79,770
Depreciation and amortization 19,507 18,138 1,735 39,380
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Segment operating profit 32,871 52,196 3,694 88,761
---------------------------------------------------------------
---------------------------------------------------------------
Research and development 9,366
Stock-based compensation 3,976
Corporate services 4,570
Manufacturing and distribution 2,819
Interest 189
Other income (1,082)
Income taxes 20,241
----------
Earnings 48,682
----------
Total assets 150,474 211,134 16,875 378,483
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-------------------------------------------------------------------------
Capital expenditures 2,472 36,879 4,300 43,651
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For further information Pason Systems Inc., Jim Hill, President and CEO, Phone: (403) 301-3401, Fax: (403) 301-3499, E-mail: jim.hill@pason.com Source: Pason Systems Inc.
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