Our Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with our consolidated financial statements and the accompanying footnotes included in Part II, Item 8, Financial Statements and Supplementary Data included in this Report on Form 10-K. Our MD&A includes forward-looking statements that are subject to risks and uncertainties that may result in actual results differing from the statements we make. These risks and uncertainties are discussed further in Part I, Item 1A, Risk Factors included in this Report on Form 10-K.

Overview

Listed below is a general outline of our MD&A:

•         Our business - includes a summary of our business purposes, a
          description of the current business environment, a summary of our 2012
          performance and an outlook for 2013;


•         Results of operations - includes a year-over-year analysis of the
          results of our business segments, our corporate activities, and other
          income statement items;


•         Liquidity and capital resources - includes a general discussion of our
          sources and uses of cash, available liquidity, our liquidity outlook
          for 2013, an overview of cash flow activity during 2012, and additional
          factors that could impact our liquidity;


•         Critical accounting estimates - includes a discussion of accounting
          estimates that involve the use of significant assumptions and/or
          judgments in the preparation of our consolidated financial statements;
          and


•         Off balance sheet arrangements - includes a discussion of our (i) off
          balance sheet arrangements, including guarantees and letters of credit,
          if any, and (ii) other contractual obligations.

Our Business

We are a global leader in the design, manufacture, and service delivery of technology-based solutions for the upstream energy industry. We seek to change the way wells are drilled by delivering safer and more efficient solutions that add real value by reducing the costs of drilling for and producing oil and natural gas.

Prior to the sale of the CASING DRILLING business during the second quarter of 2012, our four business segments were:

• Top Drives - top drive sales, top drive rentals and after-market sales and services;

• Tubular Services - automated and conventional tubular services;

• CASING DRILLING - proprietary CASING DRILLING technology; and

•         Research and Engineering - internal research and development activities
          related to our automated tubular services and top drive model
          development, as well as the CASING DRILLING technology prior to the
          sale.

For a detailed description of these business segments, see Part I, Item 1, Business included in this Report on Form 10-K.

Business Environment

During the first half of 2012 and in 2011, oil and natural gas drilling activity increased significantly from the low level of activity beginning with the severe global economic downturn in 2008, and from the low oil and natural gas prices and tightening credit availability in 2009. However in the second half of 2012, North America experienced a decline in rig activity due to lower natural gas prices. During 2012, Europe experienced a decline in rig activity due to the uncertainty over the outcome of the European Union's ("EU") financial support programs and the possibility that other EU member states may experience similar financial troubles. Additionally, many governments are seeking additional revenue sources, including eliminating key federal income tax incentives currently available to oil and natural gas exploration and production companies. Current global macro-economic conditions make any projections difficult and uncertain. One of the key indicators of our business is the number of active drilling rigs. Below is a table that shows rig counts by region for the years ended December 31, 2012, 2011, and 2010.

                                   Average Rig Count(1)                  Increase (Decrease)
                                2012        2011       2010       2011 to 2012         2010 to 2011
U.S.                          1,919        1,875      1,541         44       2%        334        22%
Canada                          365          423        351        (58 )    (14)%       72        21%
Latin America (includes
Mexico)                         423          424        383         (1 )     -%         41        11%
Asia Pacific (excludes China
onshore)                        356          256        269        100       39%       (13 )     (5)%
Middle East (excludes Iran,
Iraq and Sudan)                 241          292        265        (51 )    (17)%       27        10%
Africa                          119           78         83         41       53%        (5 )     (6)%
Europe (excludes Russia)         96          118         93        (22 )    (19)%       25        27%
Worldwide                     3,519        3,466      2,985         53       2%        481        16%


__________________________________

Summary of 2012 and Operational Performance

During 2012, our Top Drive and Tubular Services segments improved on their performance in 2011 and provided a strong base of earnings. Our automated tubular services offering continues to gain market acceptance, and we remain committed to growing this segment as we believe that every top drive rig will eventually convert to running casing with an automated system, such as the CDS that we offer. We also invested in new and enhanced product and service offerings that are being developed in our Research and Engineering segment. We continue to grow fiscally stronger as demonstrated by the following factors:

•         we increased our revenue from $513.0 million in 2011 to $553.1 million
          in 2012;


•         we increased our operating income from $42.5 million in 2011 to $76.8
          million in 2012;


•         we completed the sale of substantially all of the assets of the CASING
          DRILLING segment to the Schlumberger Group and recognized a pre-tax
          gain of $12.4 million;

•         we increased our adjusted EBITDA from $85.7 million in 2011 to $111.3
          million in 2012;


•         we increased our net cash position from $16.4 million at December 31,
          2011 to $21.8 million at December 31, 2012;


•         we funded a substantial increase in our working capital from cash
          provided by operating activities; and


•         we amended our credit agreement to provide a revolving line of credit
          of $125 million and had no amounts outstanding under our revolving
          credit facility at December 31, 2012 and 2011.

Outlook for 2013

The current outlook for the global economy varies widely, but we believe that
most indicators point towards a continued slow recovery in 2013. Below is a
table that shows projected drilling activity for 2013 by region and compares
these projections to the number of wells drilled during each of the years ended
December 31, 2012, 2011 and 2010. In particular, U.S. and Canadian activity is
projected to increase by 6% and international activity is projected to increase
by 2% from average 2012 levels.

                                                         Wells drilled (1)
                                                     Years ended December 31,
                                          2013            2012          2011          2010
                                      (forecast)(1)
U.S.(2)                                     47,053        44,732        44,905        45,617
Canada                                      11,510        10,711        12,612        10,912
Latin America                                4,924         4,635         4,743         5,450
Europe, Africa, Middle East                 14,886        14,511        12,086        11,359
(including Russia)
Far East (including China)                  27,317        27,168        26,880        23,802
Worldwide                                  105,690       101,757       101,226        97,140


__________________________________

(2) U.S. data for the wells drilled in 2012 is estimated by World Oil magazine, February 2013.

Current global macro-economic conditions make any projections difficult and uncertain; however, in each of our revenue generating segments, we anticipate moderately improved activity into 2013, as follows:

• Top Drive - Based upon existing drilling and bidding levels and the size of our product sale backlog, we expect our top drive order rate and rental activity to remain steady in 2013. In North America, we continue experiencing downward pressure in bidding activity. Our top drive sales backlog at December 31, 2012 was 28 units with a total potential revenue value of $42.2 million, compared to 74 units with a total potential revenue value of $91.1 million at December 31, 2011. Our customers have maintained their focus on lowering project costs, which continues to put downward pressure on our sales prices on select product offerings. We expect our international top drive sales and rental activity and after-market sales and services to hold steady in 2013; and

• Tubular Services - We expect our CDS automated and conventional casing business to strengthen in our international markets in 2013. We will continue to expand our automated casing service offerings, particularly in the major unconventional shale regions in North America and select international locations. In addition, we expect drilling activity in the U.S. Gulf of Mexico to gradually increase in 2013, which should increase demand for our MCLRS proprietary services.

Results of Operations

Below is a summary of our revenue and operating results for the years ended December 31, 2012, 2011, and 2010 (in thousands, except percentages):

                        Year Ended December 31,                          Increase/Decrease
                   2012          2011          2010            2011 to 2012             2010 to 2011
Segment revenue
Top Drive       $ 357,842     $ 344,698     $ 243,933     $  13,144        4%      $ 100,765       41%
Tubular
Services          182,404       151,124       121,884        31,280       21%         29,240       24%
CASING DRILLING    12,893        17,147        12,848        (4,254 )    (25)%         4,299       33%
Consolidated
revenue         $ 553,139     $ 512,969     $ 378,665     $  40,170        8%      $ 134,304       35%

Segment operating income
Top Drive       $  87,716     $  88,799     $  62,818     $  (1,083 )     (1)%     $  25,981       41%
Tubular
Services           21,708        16,680         8,228         5,028       30%          8,452       103%
CASING DRILLING     8,191       (12,392 )     (11,594 )      20,583       166%          (798 )     (7)%
Research and
engineering       (10,457 )     (12,512 )      (9,075 )       2,055       16%         (3,437 )    (38)%
Corporate and
other             (30,363 )     (38,058 )     (35,060 )       7,695       20%         (2,998 )     (9)%
Consolidated
operating
income             76,795        42,517        15,317        34,278       81%         27,200       178%
Other expense       2,200         1,245         1,495           955       77%           (250 )    (17)%
Income before
income taxes       74,595        41,272        13,822        33,323       81%         27,450       199%
Income tax
provision          24,781        14,276         6,777        10,505       74%          7,499       111%
Net income      $  49,814     $  26,996     $   7,045     $  22,818       85%      $  19,951       283%

Top Drive Segment

Our Top Drive business segment sells equipment and provides services to drilling contractors and oil and natural gas operating companies throughout the world. We primarily manufacture top drives that are used in drilling operations to rotate the drill string while suspended from the derrick above the rig floor. We also provide top drive rental services on a day-rate basis for land and offshore drilling rigs, and we provide after-market sales and support for our customers. The following is a summary of our top drive operating results and metrics for the years ended December 31, 2012, 2011, and 2010 (revenue and operating income in thousands, except percentages):

                        Year Ended December 31,                          Increase/Decrease
                   2012          2011          2010            2011 to 2012             2010 to 2011
Top Drive
revenue
Sales           $ 166,722     $ 152,599     $  85,584        14,123        9%         67,015       78%
Rental services   126,095       135,706       109,179        (9,611 )     (7)%        26,527       24%
After-market
sales and
services           65,025        56,393        49,170         8,632       15%          7,223       15%
                $ 357,842     $ 344,698     $ 243,933     $  13,144        4%      $ 100,765       41%
Top Drive
operating
income          $  87,716     $  88,799     $  62,818        (1,083 )     (1)%        25,981       41%
Number of top
drive sales:
New                   121           106            61            15       14%             45       74%
Used or
consigned              10             9             8             1       11%              1       13%
End of period
number of top
drives in
rental fleet:         135           132           125             3        2%              7        6%
Rental
operating days
(a)                25,420        28,280        23,972        (2,860 )    (10)%         4,308       18%
Average daily
operating rate  $   4,960     $   4,799     $   4,554           161        3%            245        5%


__________________________________

Top Drive sales revenue - The increases in revenue from 2011 to 2012 and from 2010 to 2011 were due to increased number of new top drive units sold as a result of increased demand, both domestically and internationally. The number of new top drive units sold during 2012 exceeded the pre-recession levels of 118 units in 2008.

Our selling price per unit varies significantly depending on the model, whether the unit was previously operated in our rental fleet and whether a power unit was included in the sale. Revenue related to the sale of used or consigned top drive units was $13.5 million, $9.0 million, and $8.0 million during 2012, 2011, and 2010, respectively.

Top Drive rental services revenue - The decrease in revenue from 2011 to 2012 was due to the decrease in rental operating days resulting from lower rig count in North America during the second half of 2012. The 2012 average rig count in U.S. was over 2,000 units in January 2012 but was below 1,800 units in December 2012. The increase in revenue from 2010 to 2011 was due to the increase in rental operating days, coupled with the increase in average daily rates, resulting from a 16% growth in the average worldwide rig count year-over-year. Our rental fleet increased by 7 units in 2011 and then increased by 3 units during 2012 to meet the demand of our customers for rental services.

Top Drive after-market sales and services revenue - The increases in revenue from 2011 to 2012 and from 2010 to 2011 were the result of higher market demand created by a larger installed base of TESCO top drives.

Top Drive operating income - The slight decrease in Top Drive operating results from 2011 to 2012 was due primarily to a decrease in operating days for the rental fleet, partially offset by higher revenue from top drive sales and after-market sales and services. Additionally, during 2012, our quality control processes found casting anomalies in the gearbox housing of our new ESI top drive model and subsequently determined that the casting of the gearbox housing did not meet TESCO's standards. We recorded warranty expenses of $4.4 million specifically associated with the gear box housing issue for our new ESI model.

The improvement in Top Drive operating results from 2010 to 2011 was a function of revenue factors discussed above, which provided flow-through to our operating margin. No significant adjustments affecting operating income were recorded in 2011 or 2010.

Tubular Services Segment

Our Tubular Services business segment includes both automated and conventional services, which are typically offered as a "call out" service on a well-by-well basis. Our automated service offerings, in particular the CDS, provide a safer and more automated method for running casing and, if required, reaming the casing into the hole, as compared to traditional methods. Additionally, our automated Tubular Service business includes the installation services of deep water smart well

completion equipment using our MCLRS, a proprietary and patented technology that improves the quality of the installation of high-end well completions. Our conventional Tubular Service business provides equipment and personnel for the installation of tubing and casing, including power tongs, pick-up/lay-down units, torque monitoring services, and connection testing services for new well construction and in work-over and re-entry operations. Below is a summary of our tubular services operating results and metrics for the years ended December 31, 2012, 2011, and 2010 (revenue and operating income in thousands, except percentages):

                        Year Ended December 31,                          Increase/Decrease
                   2012          2011          2010            2011 to 2012             2010 to 2011
Tubular
Services
revenue
Automated       $ 141,191     $ 120,315     $ 100,734     $  20,876       17%      $  19,581       19%
Conventional       41,213        30,809        21,150        10,404       34%          9,659       46%
                $ 182,404     $ 151,124     $ 121,884     $  31,280       21%      $  29,240       24%
Tubular
Services
operating
income          $  21,708     $  16,680     $   8,228     $   5,028       30%      $   8,452       103%
Number of
automated jobs      3,525         3,557         3,173           (32 )     (1)%           384       12%

The increases in Tubular Services revenue from 2011 to 2012 and from 2010 to 2011 were due to increased demand for tubular services. A significant amount of current U.S. drilling activity is in shale formations that require directional and horizontal drilling techniques, which we believe are good applications for our automated service offerings. In addition, increased domestic and international demand for our tubular services, both automated and conventional, has resulted in new jobs at more favorable pricing terms. During 2012, we recorded $10.2 million of revenue from our MCLRS offerings, compared to $5.6 million during 2011 and $5.4 million during 2010. The increase was due primarily to improved market conditions in 2012 following the depressed market conditions in 2011 that resulted from the Deepwater Horizon explosion, the temporary Gulf of Mexico drilling moratorium and the resulting negative impact on the deepwater drilling permitting process. The Tubular Services automated revenue during 2012 and 2011 also included $6.7 million and $2.3 million, respectively, of revenue from CDS equipment sales, while no CDS equipment sales were made during 2010. Additionally, during 2012, Premiere Casing Services - Egypt SAE ("Premiere"), which we acquired in October 2011, recorded $8.3 million of revenue from conventional service offerings, compared to $0.7 million during 2011.

Our Tubular Services revenue improved from 2010 to 2011 due to the 16% increase in average worldwide rig count year-over-year. The increase in the average worldwide rig count let to an increase in the number of proprietary jobs and more favorable pricing terms in 2011, as compared to 2010. The majority of our conventional revenue growth was driven by the more recently developing shale formations in North America and new entry markets in Asia Pacific and the Middle East regions. As we penetrate these markets further, we intend to transition customer preferences to our automated offerings.

The increase in Tubular Services operating income from 2011 to 2012 was due primarily to higher revenue for our MCLRS automated tubular services and CDS equipment sales, which provide higher operating margins and higher revenue for automated and conventional jobs discussed above. The improvement in our Tubular Services operating results from 2010 to 2011 was primarily a function of the revenue factors discussed above, which provided flow-through to our operating margin as benefits were derived from economies of scale. During 2010, our operating results included a $1.8 million decrease in operating income resulting from a customer dispute over contract term interpretations.

On June 4, 2012, we completed the sale of substantially all of the assets of the CASING DRILLING segment to the Schlumberger Group. For detailed discussion of this matter, see Part II, Item 8, Financial Statements and Supplementary Data, Note 3 included in the Report on Form 10-K.

Below is a summary of our CASING DRILLING operating results for the years ended December 31, 2012, 2011, and 2010 (in thousands, except percentages):

CASING DRILLING
revenue         $  12,893     $  17,147     $  12,848     $  (4,254 )    (25)%     $   4,299       33%
CASING DRILLING
operating
income (loss)   $   8,191     $ (12,392 )   $ (11,594 )   $  20,583       166%     $    (798 )     (7)%

CASING DRILLING operating income for the year ended December 31, 2012, includes approximately $12.4 million gain from the sale of the business segment.

Research and Engineering Segment

Our Research and Engineering segment is comprised of our internal research and development activities related to our automated tubular services and top drive model development, as well as the CASING DRILLING technology prior to the sale. The following is a summary of our research and engineering expense for the years ended December 31, 2012, 2011, and 2010 (in thousands, except percentages):

Year Ended December 31, Increase/Decrease 2012 2011 2010 2011 to 2012 2010 to 2011 Research and
engineering
expense $ 10,457 $ 12,512 $ 9,075 $ (2,055 ) (16)% $ 3,437 38%

Research and engineering expenses decreased from 2011 to 2012 due to the absence of CASING DRILLING research and engineering after the sale of this business segment on June 4, 2012. Research and engineering expenses increased from 2010 to 2011 as we continued our investment in the development, commercialization and enhancements of our proprietary technologies.

Corporate and Other Segment

Corporate and other expenses primarily consist of the corporate level general
and administrative expenses and certain selling and marketing expenses. Below is
a summary of our corporate and other expense for the years ended December 31,
2012, 2011, and 2010 (in thousands, except percentages):

                        Year Ended December 31,                          Increase/Decrease
                   2012          2011          2010            2011 to 2012             2010 to 2011
Corporate and
other expenses  $  30,363     $  38,058     $  35,060     $  (7,695 )    (20)%     $   2,998        9%
Corporate and
other expenses
as a % of
revenue         5%            7%            9%                          (2) pts                  (2) pts

Corporate and other expenses were lower in 2012 than in 2011 primarily due to decreased short term and long term incentive compensation. Corporate and other expenses were higher in 2011 than in 2010 due to increased payroll and benefit expense from increased headcount and increased expenses for travel, depreciation, advertising and marketing and other administrative costs resulting from expanded operations to meet increased demand for our products and services.

Corporate and other expenses as a percentage of revenue decreased in 2012 as compared to 2011 and 2010 due to higher revenues during 2012 as we recover from the downturn in the oil and natural gas industry.

Other Expense (Income)

Below is a summary of our other expense (income) for the years ended
December 31, 2012, 2011, and 2010 (in thousands, except percentages):

                             Year Ended December 31,                    Increase/Decrease
                          2012        2011        2010         2011 to 2012          2010 to 2011
Other expense (income)
Interest expense        $ 1,204     $ 1,504     $   758     $  (300 )   (20)%    $   746       98%
Interest income            (104 )    (2,596 )      (165 )     2,492      96%      (2,431 )   (1,473)%
Foreign exchange losses   3,083       2,523       1,043         560      22%       1,480       142%
Other income             (1,983 )      (186 )      (141 )    (1,797 )   (966)%       (45 )    (32)%
Total other expense     $ 2,200     $ 1,245     $ 1,495     $   955      77%     $  (250 )    (17)%

Interest expense - Interest expense decreased from 2011 to 2012 due primarily to a reduction of $1.6 million to interest expense previously accrued for a legacy withholding tax issue in a foreign jurisdiction based on favorable determinations received in April 2012 and January 2013. This reduction was partially off-set by interest expenses accrued during 2012 for tax assessments in foreign jurisdictions. For detailed discussion of these tax matters, see Part II, Item 8, Financial Statements and Supplementary Data, Note 14 included in the Report on Form 10-K. Interest expense increased from 2010 to 2011 as a result of outstanding debt balances under our credit facility. During the fourth quarter of 2011, we drew down and repaid $10.0 million on our credit facility to fund . . .