Wenzel Downhole Tools Ltd.

Wenzel Downhole Tools Ltd.

May 15, 2006 08:00 ET

Wenzel Downhole Tools Ltd.: 2006 First Quarter Results and Highlights of Operations

CALGARY, ALBERTA--(CCNMatthews - May 15, 2006) - Wenzel Downhole Tools Ltd. ("Wenzel" or the "Company") (TSX:WZL) announces financial results for the first quarter ended March 31, 2006.

The Company achieved revenues of $11.4 million in the first quarter of 2006 compared to $11.2 million in 2005. Earnings before income taxes were $2.9 million in 2006 compared to $3.3 million in 2005. Remaining legal costs associated with the Company's resumption of trading on the Toronto Stock Exchange, plus stock option compensation expense account for the earnings decrease. EBITDA of $4.6 million for the first quarter of 2006 was consistent with the slight decrease in earnings as compared to $4.8 million for the same period in 2005. Gross profit margins of 53% are also among the best ever achieved for a single quarter.

The continuing high level of activity in the North American oil and gas drilling industry contributed to an increase of about 30% in rental and service revenues over the same quarter last year. These revenues increased even though US activity was slow in the first 2 months of the year as major customers were unable to obtain drilling rigs. US revenues in March reached record levels and the outlook for the 2nd Quarter is excellent. This should help to offset the usual seasonal slowdowns during spring breakup in our Canadian business.

International revenues were very slow in the First Quarter as well, however approximately $2 million US of the expected sales for 2006 were confirmed and are scheduled to be shipped and invoiced during the Second Quarter. Further significant product sales in North America and internationally are expected to also be confirmed in the Second Quarter providing an excellent outlook for this segment of our business for 2006.

Rental and service revenues typically produce approximately 60% of total Company revenues. Drilling tool sales during the quarter were down about 40% from the same period last year. While rentals tend to track the seasonal variations in drilling, sales, particularly international sales, do not and thus quarter to quarter comparisons may not predict annual sales performance. Given the current backlog of orders and customer interest, the Company believes that sales growth will be very strong on an annualized basis.

Other Developments

The Company's shares resumed trading on the Toronto Stock Exchange ("TSX") on January 26, 2006 after being cease traded since March 19, 2004. This resumption of trading followed the Company's compliance with all of the requirements of the TSX, the Alberta Securities Commission, the Ontario Securities Commission and the British Columbia Securities Commission resulting in the revocation of their respective cease trade orders.

While the Company is not in receipt of a formal takeover offer, press reports indicated that such an event might be forthcoming. In response, the Company has retained TD Securities to advise the Board of Directors on a number of strategic alternatives to maximize shareholder value including conversion, in due course to an income trust.

Highlights of the first quarters of 2006 and 2005 are summarized in the following table together with comparative year end 2005 highlights:

3 Months 3 Months 12 Months
ended ended ended
March 31, March 31, Dec. 31,
2006 2005 2005

Revenue 11,432 11,217 39,397
Gross Profit 5,999 6,091 18,960
Gross Profit Percentage 53% 54% 48%
Earnings before interest, taxes,
depreciation, amortization, and other
expenses(1) 4,639 4,817 13,743
Operating earnings before other expenses
and income taxes 3,189 3,300 7,820
Earnings before income taxes 2,921 3,267 6,644
Net earnings 2,066 3,187 6,507
Net earnings per share - basic 0.07 0.10 0.21
Total Assets 45,867 40,610 43,625
Long Term Debt 6,687 6,314 6,806

Note (1) EBITDA, or earnings before interest, taxes, depreciation and amortization, is calculated by adding these items back to reported net earnings. In addition to EBITDA, other expenses, due mainly to extra professional costs associated with the investigations arising from the cease trade order, have been excluded so as to make year to year comparisons more meaningful. Management uses EBITDA as a measurement to determine the ability of the Company to generate cash from normal operations. EBITDA does not have a standardized meaning for Canadian generally accepted accounting principles ("GAAP") and therefore may not be comparable with calculations of similar measures presented by other issuers. EBITDA is not intended to represent net income for the period nor should it be viewed as an alternative to operating or net income or other measures of financial performance calculated in accordance with GAAP.

About Wenzel Downhole Tools Ltd.

Wenzel Downhole Tools Ltd. is a manufacturer, seller and renter of drilling tools used in oil and gas exploration. In Canada the company has its manufacturing and servicing facilities located in Edmonton, Alberta and its corporate offices in Calgary, Alberta. Its U.S. headquarters and service facilities are in Conroe, Texas, with a service and sales office in Casper, Wyoming and a sales office in Oklahoma City, Oklahoma.

Wenzel Downhole Tools Ltd. is listed for trading on the TSX, symbol WZL. The Company's First Quarter consolidated financial statements and Management's Discussion and Analysis will be posted on SEDAR (www.sedar.com) on or about May 15, 2006.

This news release may contain forward-looking information. Actual future results may differ materially from those contemplated. The risks, uncertainties and other factors, both known and unknown, that could influence actual results may be substantial and include those described in documents filed with regulatory authorities, such as the Company's most recently filed Annual Report and Annual Information Form. Accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits the Company will derive there from. Please refer to the Company's public disclosure documents for more information on these risks and uncertainties as they apply to the Company.

The Toronto Stock Exchange has not reviewed and does not accept responsibility for the adequacy and accuracy of this release.

Contact Information

  • Wenzel Downhole Tools Ltd.
    Harvie Andre
    President and CEO
    (403) 205-6696
    (403) 265-8154 (FAX)
    Wenzel Downhole Tools Ltd.
    Ron Dooley
    Chief Financial Officer
    (403) 205-6696
    (403) 265-8154 (FAX)