CALGARY, April 24 /PRNewswire-FirstCall/ -- CE FRANKLIN LTD.
(TSX.CFT, AMEX.CFK) announced its results for the first quarter of
2008 CE Franklin reported net income of $6.3 million or $0.34 per
share (basic) for the first quarter ended March 31, 2008,
comparable to net income of $6.4 million or $0.35 per share earned
in the first quarter ended March 31, 2007. Financial Highlights
-------------------- (millions of Cdn.$ Three Months Ended except
per share data) March 31 ----------------------- 2008 2007
----------- ---------- (unaudited) Sales $ 140.6 $ 154.3 Gross
Profit 27.1 26.3 Gross Profit - % of sales 19.2% 17.1% EBITDA(1)
10.2 11.0 EBITDA(1) as a % of sales 7.2% 7.1% Net Income $ 6.3 $
6.4 Per Share Basic $ 0.34 $ 0.35 Diluted $ 0.34 $ 0.34 Net Working
Capital(2) $ 117.4 $ 124.0 Bank Operating Loan(2) 21.8 33.6 "The
Company's bottom line performance remained consistent and net
working capital efficiency improved in the first quarter compared
to the prior year period, despite a 26% decline in western Canadian
well completions which adversely impacted demand for CE Franklin's
products," said Michael West, Chairman, President and CEO. Net
income for the first quarter of 2008 was $6.3 million, down $0.1
million (1%) from the first quarter of 2007. Sales declined by 9%
due to an overall reduction in industry capital expenditure
activity in the first quarter of 2008 as well completions declined
by 26% compared to the prior year period. This was partially offset
by increased sales from JEN Supply Inc. and Full Tilt Field
Services Limited acquired in the last half of 2007. Gross profit
increased by $0.8 million over the prior year period as the impact
of lower sales was more than offset by the increase in gross profit
margins. Gross profit margins reached 19.2% up from 17.1% in the
prior year period due mainly to increased high margin MRO sales and
a large, low margin oilsands order in the first quarter of 2007.
Selling, general and administrative expenses increased by $1.6
million to $16.9 million due mainly to the addition of people and
facility costs associated with the two acquisitions completed in
the last half of 2007. Lower interest expense was associated with
reduced average debt levels and floating interest rates in the
first quarter of 2008. Income taxes declined by $0.3 million in the
first quarter compared to the prior year period due to lower
pre-tax earnings and a reduction in the income tax rates. The
weighted average number of shares outstanding during the first
quarter was comparable to the prior year period. Net income per
share (basic) was $0.34 in the first quarter of 2008 compared to
$0.35 in the first quarter of 2007. (1) EBITDA represents net
income before interest, taxes, depreciation and amortization.
EBITDA is a supplemental non-GAAP financial measure used by
management, as well as industry analysts, to evaluate operations.
Management believes that EBITDA, as presented, represents a useful
means of assessing the performance of the Company's ongoing
operating activities, as it reflects the Company's earnings trends
without showing the impact of certain charges. The Company is also
presenting EBITDA and EBITDA as a percentage of sales because it is
used by management as supplemental measures of profitability. The
use of EBITDA by the Company has certain material limitations
because it excludes the recurring expenditures of interest, income
tax, and amortization expenses. Interest expense is a necessary
component of the Company's expenses because the Company borrows
money to finance its working capital and capital expenditures.
Income tax expense is a necessary component of the Company's
expenses because the Company is required to pay cash income taxes.
Amortization expense is a necessary component of the Company's
expenses because the Company uses property and equipment to
generate sales. Management compensates for these limitations to the
use of EBITDA by using EBITDA as only a supplementary measure of
profitability. EBITDA is not used by management as an alternative
to net income, as an indicator of the Company's operating
performance, as an alternative to any other measure of performance
in conformity with generally accepted accounting principles or as
an alternative to cash flow from operating activities as a measure
of liquidity. A reconciliation of EBITDA to Net Income is provided
within the Company's Management Discussion and Analysis. Not all
companies calculate EBITDA in the same manner and EBITDA does not
have a standardized meaning prescribed by GAAP. Accordingly,
EBITDA, as the term is used herein, is unlikely to be comparable to
EBITDA as reported by other entities. (2) Net Working Capital is
defined as current assets less accounts payable and accrued
liabilities, income taxes payable and other current liabilities.
Net Working Capital and Bank Operating Loan are as at quarter end.
Outlook ------- The Company's business is dependent on the level of
conventional oil and gas capital expenditures and production
activity in western Canada. A combination of events experienced in
2007 including soft natural gas prices, the Alberta government
royalty task force review and subsequent decision to increase
royalty rates, high drilling and operating costs, and the rapid
appreciation of the Canadian dollar, have reduced the
competitiveness of the western Canadian sedimentary basin relative
to other international oil and gas producing regions. This reduced
oil and gas industry activity in western Canada entering 2008. The
Company expects these conditions will contribute to increased
consolidation of oil and gas customers, coupled with increased
competitive activity amongst oilfield equipment distributors. The
Company intends to address these conditions by pursuing its
strategies while closely managing its costs and net working capital
investment levels. Through the first quarter of 2008, natural gas
and oil prices have continued to firm. On April 10, 2008, the
Alberta government announced certain enhancements to royalty rates
designed to improve the economics of production from deep wells
drilled commencing in 2009. Taken together, industry cash flow
economics and activity levels are beginning to improve. Over the
medium to longer term, the Company is optimistic that its strong
competitive position will enable it to take advantage of available
market share when natural gas prices recover to historic energy
equivalent price relationships to oil, resulting in renewed
conventional industry activity and demand for the Company's
products. Effective execution of the Company's oilsands and service
diversification strategies provide further opportunities to
leverage its supply chain infrastructure. Additional Information
---------------------- Additional information relating to CE
Franklin, including its first quarter 2008 Management Discussion
and Analysis and interim consolidated financial statements and its
Form 20-F / Annual Information Form, is available under the
Company's profile on the SEDAR website at http://www.sedar.com/ and
at http://www.cefranklin.com/ Conference Call and Webcast
Information --------------------------------------- A conference
call to review the 2008 first quarter results, which is open to the
public, will be held on Friday, April 25 at 11:00 a.m. Eastern Time
(9:00 a.m. Mountain Time). Participants may join the call by
dialing 1-416-644-3414 in Toronto or dialing 1-800-733-7571 at the
scheduled time of 11:00 a.m. Eastern Time. For those unable to
listen to the live conference call, a replay will be available at
approximately 1:00 p.m. Eastern Time on the same day by calling
1-416-640-1917 in Toronto or dialing 1-877-289-8525 and entering
the pass code of 21267188 followed by the pound sign and may be
accessed until midnight Monday, May 5, 2008. The call will also be
webcast live at:
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2209460 and
will be available on the Company's website at
http://www.cefranklin.com/. Michael West, President and Chief
Executive Officer will lead the discussion and will be accompanied
by Mark Schweitzer, Vice President and Chief Financial Officer. The
discussion will be followed by a question and answer period. About
CE Franklin For more than half a century, CE Franklin has been a
leading supplier of products and services to the energy industry.
CE Franklin distributes pipe, valves, flanges, fittings, production
equipment, tubular products and other general oilfield supplies to
oil and gas producers in Canada as well as to the oilsands,
refining, heavy oil, petrochemical, forestry and mining industries.
These products are distributed through its 44 branches, which are
situated in towns and cities serving particular oil and gas fields
of the western Canadian sedimentary basin. Forward-looking
Statements: The information in this news release may contain
"forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 and other applicable securities legislation.
All statements, other than statements of historical facts, that
address activities, events, outcomes and other matters that CE
Franklin plans, expects, intends, assumes, believes, budgets,
predicts, forecasts, projects, estimates or anticipates (and other
similar expressions) will, should or may occur in the future are
forward-looking statements. These forward-looking statements are
based on management's current belief, based on currently available
information, as to the outcome and timing of future events. When
considering forward-looking statements, you should keep in mind the
risk factors and other cautionary statements and refer to the Form
20-F or our annual information form for further detail.
Management's Discussion and Analysis as at April 24, 2008 The
following Management's Discussion and Analysis ("MD&A") is
provided to assist readers in understanding CE Franklin Ltd.'s ("CE
Franklin" or the "Company") financial performance and position
during the periods presented and significant trends that may impact
future performance of CE Franklin. This discussion should be read
in conjunction with the Company's interim consolidated financial
statements for the three month period ended March 31, 2008 and the
Management's Discussion and Analysis and the consolidated financial
statements for the year ended December 31, 2007. All amounts are
expressed in Canadian dollars and in accordance with Canadian
generally accepted accounting principles ("Canadian GAAP"), except
where otherwise noted. Overview CE Franklin is a leading
distributor of pipe, valves, flanges, fittings, production
equipment, tubular products and other general industrial supplies
primarily to the oil and gas industry in Canada through its 44
branches situated in towns and cities that serve oil and gas fields
of the western Canadian sedimentary basin. In addition, the Company
distributes similar products to the oilsands, refining, and
petrochemical industries and non-oilfield related industries such
as forestry and mining. The Company's branch operations service
over 3,000 customers by providing the right materials where they
are needed, on time, and for the best value. Our branches,
supported by our centralized distribution centre in Edmonton,
Alberta, stock over 25,000 stock keeping units. This infrastructure
enables us to provide our customers with the products they need on
a same day or over night basis. Our centralized inventory and
procurement capabilities allow us to leverage our scale to enable
industry leading hub and spoke purchasing and logistics
capabilities. Our branches are also supported by services provided
by the Company's corporate office in Calgary, Alberta including
sales, marketing, product expertise, logistics, invoicing, credit
and collection and other business services. The Company's shares
trade on the TSX ("CFT") and AMEX ("CFK") stock exchanges. Smith
International Inc. ("Smith"), a major oilfield service company
based in the United States, owns approximately 53% of the Company's
shares. Business and Operating Strategy The Company is pursuing
four strategies to grow its business profitably: - Grow market
share in our core conventional oilfield equipment distribution
business in western Canada through concentrated sales efforts and
premium customer service complemented by selected acquisitions such
as the acquisition of JEN Supply Inc. ("JEN Supply") in December
2007. - Leverage our existing supply chain infrastructure, product
and project expertise by focusing on the emerging oilsands projects
and Maintenance, Repair and Operating ("MRO") business in Alberta.
- Expand our production equipment service capability to capture
more of the product life cycle requirements for the equipment we
sell such as down hole pump repair, oilfield engine maintenance,
well optimization and on site project management, in order to
differentiate our service offering from that of other competitors
and deepening our relationship with customers. The acquisition of
Full Tilt Field Services Limited ("Full Tilt") in July 2007
provided us with the capability to service oilfield engines and
parts that we were previously selling, and by doing so, positions
us to attract new customers to our core oilfield equipment
distribution business. - Leverage our domestic supply chain
infrastructure capabilities and customers by targeting
international sales. Selected international project sales are
resourced from our Edmonton distribution centre. An oilfield
equipment distribution joint venture was established in the 2nd
quarter of 2007 in Libya with Wilson Supply, a wholly owned
subsidiary of Smith, and a Libyan partner. Business Outlook The
Company's business is dependent on the level of conventional oil
and gas capital expenditures and production activity in western
Canada. A combination of events experienced in 2007 including soft
natural gas prices, the Alberta government royalty task force
review and subsequent decision to increase royalty rates, high
drilling and operating costs, and the rapid appreciation of the
Canadian dollar, have reduced the competitiveness of the western
Canadian sedimentary basin relative to other international oil and
gas producing regions. This reduced oil and gas industry activity
in western Canada entering 2008. The Company expects these
conditions will contribute to increased consolidation of oil and
gas customers, coupled with increased competitive activity amongst
oilfield equipment distributors. The Company intends to address
these conditions by pursuing its strategies while closely managing
its costs and net working capital investment levels. Through the
first quarter of 2008, natural gas and oil prices have continued to
firm. On April 10, 2008, the Alberta government announced certain
enhancements to royalty rates designed to improve the economics of
production from deep wells drilled commencing in 2009. Taken
together, industry cash flow economics and activity levels are
beginning to improve. Over the medium to longer term, the Company
is optimistic that its strong competitive position will enable it
to take advantage of available market share when natural gas prices
recover to historic energy equivalent price relationships to oil,
resulting in renewed conventional industry activity and demand for
the Company's products. Effective execution of the Company's
oilsands and service diversification strategies provide further
opportunities to leverage its supply chain infrastructure.
Operating Results The following table summarizes CE Franklin's
results of operations: (in millions of Cdn. dollars except per
share data) For the three months ended March 31 2008 2007
----------------------- ----------------------- Amount % Amount %
----------- ----------- ----------- ----------- Sales $ 140.6
100.0% $154.3 100.0% Cost of sales (113.5) (80.8)% (127.9) (82.9)%
----------- ----------- ----------- ----------- Gross profit 27.1
19.2% 26.4 17.1% Selling, general and administrative expenses
(16.9) (12.0)% (15.3) (10.0)% Foreign exchange loss - 0.0% (0.1)
0.0% ----------- ----------- ----------- ----------- EBITDA(1) 10.2
7.2% 11.0 7.1% Amortization (0.6) (0.4)% (0.8) (0.5)% Interest
(0.4) (0.3)% (0.6) (0.4)% ----------- ----------- -----------
----------- Income before taxes 9.2 6.5% 9.6 6.2% Income tax
expense (2.9) (2.0)% (3.2) (2.1)% ----------- -----------
----------- ----------- Net income 6.3 4.5% 6.4 4.1% -----------
----------- ----------- ----------- ----------- -----------
----------- ----------- Net income per share Basic (Cdn. $) $ 0.34
$ 0.35 Diluted (Cdn. $) $ 0.34 $ 0.34 Weighted average number of
shares outstanding (000's) Basic 18,333 18,235 Diluted 18,523
18,735 (1) EBITDA represents net income before interest, taxes,
depreciation amortization. EBITDA is a supplemental non-GAAP
financial measure used by management, as well as industry analysts,
to evaluate operations. Management believes that EBITDA, as
presented, represents a useful means of assessing the performance
of the Company's ongoing operating activities, as it reflects
Company's earnings trends without showing the impact of certain
charges. The Company is also presenting EBITDA and EBITDA as a
percentage of sales it is used by management as supplemental
measures of profitability. The use of EBITDA by the Company has
certain material limitations because it excludes the material
limitations because it excludes the recurring expenditures of
interest, income tax, and amortization expenses. Interest expense
is a necessary component of the Company's expenses because the
Company borrows money to finance its working capital and capital
expenditures. Income tax expense is a necessary component of the
Company's expenses because the Company is required to pay cash
income taxes. Amortization expense is a necessary component of the
Company's expenses because the Company uses property and equipment
to generate sales. Management compensates for these limitations to
the use of EBITDA by using EBITDA as only a supplementary measure
of profitability. EBITDA is not used by management as an
alternative to net income, as an indicator of the Company's
operating performance, as an alternative to any other measure of
performance in conformity with generally accepted accounting
principles or as an alternative to cash flow from operating
activities as a measure of liquidity. A reconciliation of EBITDA to
Net Income is provided within the table above. Not all companies
calculate EBITDA in the same manner and EBITDA does not have a
standardized meaning prescribed by GAAP. Accordingly, EBITDA, as
the term is used herein, is unlikely to be comparable to EBITDA as
reported by other entities. First Quarter Results Net income for
the first quarter of 2008 was $6.3 million, down $0.1 million (1%)
from the first quarter of 2007. Sales declined by 9% due to an
overall reduction in industry capital expenditure activity in the
first quarter of 2008 as well completions declined by 26% compared
to the prior year period. This was partially offset by increased
sales from JEN Supply and Full Tilt acquired in the last half of
2007. Gross profit increased by $0.8 million over the prior year
period as the impact of lower sales was more than offset by the
increase in gross profit margins. Gross profit margins reached
19.2% up from 17.1% in the prior year period due mainly to
increased high margin MRO sales and a large, low margin oilsands
order in the first quarter of 2007. Selling, general and
administrative expenses increased by $1.6 million to $16.9 million
due mainly to the addition of people and facility costs associated
with the two acquisitions completed in the last half of 2007. Lower
interest expense was associated with reduced average debt levels
and floating interest rates in the first quarter of 2008. Income
taxes declined by $0.3 million in the first quarter compared to the
prior year period due to lower pre-tax earnings and a reduction in
income tax rates. The weighted average number of shares outstanding
during the first quarter was comparable to the prior year period.
Net income per share (basic) was $0.34 in the first quarter of 2008
compared to $0.35 in the first quarter of 2007. A more detailed
discussion of the Company's results from operations is provided
below: Sales Sales for the quarter ended March 31, 2008 were $140.6
million, down 9% from the quarter ended March 31, 2007, principally
due to lower product sales used in customer capital projects
reflecting the decline in oil and gas industry capital expenditures
levels discussed previously. (in millions of Cdn. $) For the three
months ended March 31 2008 2007 ------------- ------------- End use
sales demand $ % $ % Capital projects 78.0 55 94.9 61 Maintenance,
repair and operating supplies (MRO) 62.6 45 59.4 39 -------------
------------- Total sales 140.6 100 154.3 100 Note: Capital project
end use sales are defined by the Company as consisting of tubulars
and 80% of pipe, flanges and fittings; and valves and accessories
product sales respectively; MRO Sales are defined by the Company as
consisting of pumps and production equipment, production services;
general product and 20% of pipes, flanges and fittings; and valves
and accessory product sales respectively. The Company uses oil and
gas well completions and average rig counts as industry activity
measures to assess demand for oilfield equipment used in capital
projects. Oil and gas well completions require the products sold by
the Company to complete a well and bring production on stream and
are a good general indicator of energy industry activity levels.
Average drilling rig counts are also used by management to assess
industry activity levels as the number of rigs in use ultimately
drive well completion requirements. The relative level of oil and
gas commodity prices is a key driver of industry capital project
activity as product prices directly impact the economic returns
realized by oil and gas companies. The table below provides well
completion, rig count and commodity price information for the first
quarter of 2008 and 2007 respectively. -----------------------
Average for Q1 ----------------------- 2008 2007 % change
----------- ----------- ----------- Gas - Cdn. $/gj (AECO spot) $
7.92 $ 7.40 7% Oil - Cdn. $/bbl (Edmonton Light) $ 97.81 $ 67.56
45% Average rig count 561 563 0% Well completions: Gas 3,293 4,573
(28%) Oil 1,302 1,627 (20%) ----------- ----------- -----------
Total well completions 4,595 6,200 (26%) Average statistics are
shown except for well completions. Sources: Oil and Gas prices -
First Energy Capital Corp.; Rig count data - Hughes Christensen;
Well completion data - Daily Oil Bulletin Sales of capital project
related products were $78.0 million in the first quarter of 2008,
down 18% ($16.9 million) from the first quarter of 2007. Total well
completions declined by 26% to 4,595 in the first quarter 2008
while the average working rig count remained consistent at 561,
despite a slow start to 2008. Gas wells comprised 72% of the total
wells completed in western Canada in the first quarter of 2008
compared to 74% in the first quarter of 2007. Lower oil and gas
capital expenditure activity continued into the first quarter of
2008 resulting from a continuation of high industry capital and
operating costs and uncertainty and lower returns resulting from
the Alberta government's royalty study and subsequent decision
announced in the 4th quarter of 2007 to increase royalty rates.
Well completions for the remainder of 2008 should benefit from the
increase in average rig counts experienced during the first quarter
of 2008 compared to the prior year period, which should translate
into stronger demand for the Company's products. Spot gas and oil
prices ended the first quarter at $9.41 per GJ (AECO spot) and
$108.40 per bbl (Edmonton light), an increase of 19% and 11%
respectively over first quarter average prices. This should result
in improved industry cash flow and capital expenditure economics,
which in turn should increase demand for the Company's products.
MRO product sales are related to overall oil and gas industry
production levels and tend to be more stable than capital project
sales. MRO product sales for the quarter ended March 31, 2008
increased 5% to $62.6 million compared to the quarter ended March
31, 2007 and comprised 45% of the Company's total sales. The
increase in sales was mainly attributable to the acquisition of JEN
Supply and Full Tilt in the last half of 2007. In 2006, the Company
developed and began to execute its strategy to grow profitability
through focus on its core western Canadian oilfield equipment
service business, complemented by an increase in the product life
cycle services provided to its customers, the focus on the emerging
oilsands capital project and MRO sales opportunities, as well as
selected sales to international markets. Revenue results of these
initiatives to date are provided below: For the three months ended
March 31 2008 2007 ------------- ------------- Sales ($millions) $
% $ % Western Canada oil field 132.3 94 141.6 92 Oil Sands 2.5 2
9.1 6 Production Services 4.3 3 2.0 1 International 1.5 1 1.5 1
------------- ------------- Total Sales 140.6 100 154.2 100 Sales
of oilfield products to conventional western Canada oil and gas end
use applications were $132.3 million for the first quarter of 2008,
down 7% from the first quarter of 2007 consistent with the decline
in industry activity levels described previously. In December 2007,
the Company acquired JEN Supply, an oilfield equipment distributor
that operated four branches in east central Alberta. These
locations contributed approximately $3 million to sales, reducing
the impact of the decline in industry activity for the quarter. Two
of these operations were in existing markets where the Company had
operations and have been combined. Sales to oilsands end use
applications declined by $6.6 million in the first quarter of 2008
compared to the first quarter of 2007. In the first quarter of
2007, the Company had a large, low margin oilsands order. The
Company continues to position its sales focus and Edmonton
distribution centre to penetrate this emerging market for capital
project related products. The Company's Fort McMurray branch
continues to build on its position to service oilsands' MRO product
requirements. Production service sales were $4.3 million in the
first quarter of 2008, more than double the sales in the first
quarter of 2007. The acquisition of Full Tilt at the end of the 2nd
quarter of 2007, which provides oilfield engine maintenance and
crane equipment services based in Lloydminster, contributed the
majority of the increase in revenues. The Company expects to expand
Full Tilt's service to other Company branch locations during the
year in order to capture more of our customer's product life cycle
expenditures while differentiating our services from other oilfield
equipment distributors. Sales to international customer projects
remained consistent at $1.5 million in the first quarter of 2008
and are serviced by our Edmonton distribution centre. Sales
activity from the Libyan oilfield equipment joint venture
established in 2007 has been minimal to date and is anticipated to
increase as operations gain momentum. For the three months ended
March 31 2008 2007 ---------- ---------- Gross Profit Gross profit
(millions) $27.1 $26.3 Gross profit margin as a % of sales 19.2%
17.1% Gross profit composition by product sales category: Tubulars
8% 8% Pipe, flanges and fittings 27% 31% Valves and accessories 21%
21% Pumps, production equipment and services 14% 13% General 30%
27% ---------- ---------- Total Gross Profit 100% 100% Gross profit
reached $27.1 million in the first quarter of 2008, up $0.8 million
(3%) from the first quarter of 2007 due to an increase in higher
margin MRO sales and a large, low margin oilsands order in the
first quarter of 2007. Gross profit composition in the first
quarter of 2008 decreased for pipe, flanges and fittings and
increased in the general category consistent with the changes in
sales mix described previously. All other categories remained
fairly consistent. Selling, General and Administrative ("SG&A")
Costs For the three months ended March 31 2008 2007 -------------
------------- Sales ($millions) $ % $ % People costs 10.3 61 9.0 59
Selling costs 2.1 12 2.1 14 Facility and office costs 2.7 16 2.5 16
Other 1.8 11 1.7 11 ------------- ------------- SG&A Costs 16.9
100 15.3 100 SG&A costs a % of sales 12% 10% SG&A costs
increased 10% ($1.6 million) in the first quarter of 2008 from the
prior year period principally due to the increase in people and
facility costs associated with the acquisition of JEN Supply and
Full Tilt. The integration of JEN Supply was substantially complete
by the end of the first quarter of 2008. Selling costs at $2.1
million were comparable to the prior year period as increased
accounts receivable bad debt charges were offset by reduced agent
commissions due to the acquisition of two agent operated branches
in the first quarter of 2007. Facility and office costs are
expected to increase in the second quarter of 2008 as the Company
moves into a new, larger distribution centre in Edmonton and due to
continued occupancy cost pressure being experienced in western
Canada. The Company leases 40 of its 44 branch locations as well as
its corporate office in Calgary and Edmonton distribution centre.
The Company mitigates the cyclical nature of its business by
adjusting its variable and fixed (primarily salaries and benefits)
SG&A costs as activity levels change. Amortization Expense
Amortization expense was $0.6 million in the first quarter of 2008
down slightly from $0.8 million in the first quarter of 2007.
Interest Expense Interest expense was $0.4 million in the first
quarter of 2008, down $0.2 million (25%) from the first quarter of
2007 due to lower average borrowing levels and a decline in average
floating interest rates. Foreign Exchange Loss (Gain) Foreign
exchange gains were nominal in the first quarter of 2008 compared
to a $0.1 million loss in the first quarter of 2007. Income Tax
Expense The Company's effective tax rate for the first quarter of
2008 was 31.3%, compared to 34.0% in the first quarter of 2007 due
principally to a reduction in tax rates. Substantially all of the
Company's tax provision is currently payable. SUMMARY OF QUARTERLY
FINANCIAL DATA The selected quarterly financial data presented
below is presented in Canadian dollars and in accordance with
Canadian GAAP. This information is derived from the Company's
unaudited quarterly financial statements. (in millions of Cdn.
dollars except per share data) Unaudited Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2006 2006 2006 2007 2007 2007 2007 2008 ------- ------- -------
------- ------- ------- ------- ------- Sales $115.9 $131.7 $130.6
$154.3 $82.9 $116.8 $112.3 $140.6 Gross profit 22.5 23.7 25.0 26.3
16.8 21.0 20.4 27.1 EBITDA 7.0 8.4 9.6 11.0 2.2 7.4 5.1 10.2 EBITDA
as a % of sales 6.0% 6.4% 7.4% 7.1% 2.7% 6.3% 4.5% 7.2% Net income
3.9 4.7 5.4 6.4 0.6 4.1 2.4 6.3 Net income as a % of sales 3.4%
3.6% 4.1% 4.1% 0.7% 3.5% 2.1% 4.5% Net income per share Basic (Cdn.
$) $0.21 $0.26 $0.30 $0.35 $0.03 $0.22 $0.13 $0.34 Diluted (Cdn. $)
$0.21 $0.25 $0.29 $0.34 $0.03 $0.22 $0.13 $0.34 Net working
capital(1) 117.4 130.6 120.2 124.0 127.0 128.7 134.7 117.4 Bank
operating loan(1) 41.0 49.6 34.0 33.6 36.0 35.4 44.3 21.8 (1) Net
working capital and bank operating loan amounts are as at quarter
end. The Company's sales levels are affected by weather conditions.
As warm weather returns in the spring each year the winter's frost
comes out of the ground rendering many secondary roads incapable of
supporting the weight of heavy equipment until they have dried out.
In addition, many exploration and production areas in northern
Canada are accessible only in the winter months when the ground is
frozen. As a result, the first and fourth quarters typically
represent the busiest time for oil and gas industry activity and
the highest sales activity for the Company. Sales levels drop
dramatically during the second quarter until such time as roads
have dried and road bans have been lifted. This typically results
in a significant reduction in earnings during the second quarter,
as the Company does not reduce its SG&A expenses during the
second quarter to offset the reduction in sales. Net working
capital (defined as current assets less accounts payable and
accrued liabilities, income taxes payable and other current
liabilities) and bank operating loan borrowing levels follow
similar seasonal patterns as sales. B. LIQUIDITY AND CAPITAL
RESOURCES The Company's primary internal source of liquidity is
cash flow from operating activities before net changes in non-cash
working capital balances. Cash flow from operating activities and
the Company's 364-day bank operating facility are used to finance
the Company's net working capital, capital expenditures required to
maintain its operations and growth capital expenditures. As at
March 31, 2008, borrowings under the Company's bank operating loan
were $21.8 million, a decrease of $22.5 million from December 31,
2007. Borrowing levels have decreased due to the Company generating
$7.1 million in cash flow from operating activities, before net
change in non-cash working capital balances and a $17.5 million
reduction in net working capital. This was offset by $0.9 million
in capital and other expenditures, $0.7 million in repayments of
long term debt and capital lease obligations and $0.5 million for
the purchase of shares to resource stock compensation obligations.
For the three months ended March 31, 2007, the Company generated
$7.8 million in cash from cash flow from operating activities,
before net change in non-cash working capital balances and $0.2
million in the issuance of capital stock from the exercise of
employee stock options. Cash used during the quarter consisted of a
$4.3 million increase in net working capital, $2.4 million related
to the acquisition of two agent operated branches, $0.3 million on
repayment of long term debt, $0.2 million for the purchase of
shares to resource stock compensation obligations, and $0.4 million
in capital and other expenditures. These activities resulted in a
$0.4 million decrease in the bank operating loan. Net working
capital was $117.4 million at March 31, 2008, a decrease of $17.2
million from December 31, 2007. Accounts receivable increased by
$23.1 million (26%) to $112.4 million at March 31, 2008 from
December 31, 2007, due to a 25% increase in sales and an 8%
increase in days sales outstanding in accounts receivable ("DSO")
in the first quarter of 2008 compared to the fourth quarter of
2007. DSO was 67 days for the first quarter of 2008 compared to 62
days in the fourth quarter 2007 and 56 days in the first quarter
2007. The deterioration in DSO performance during the first quarter
was due in part to temporary issues associated with the
implementation of a new invoicing system. DSO is calculated using
annualized sales for the quarter compared to the period end
accounts receivable balance. Inventory decreased by $8.2 million
(9%) at March 31, 2008 from December 31, 2007. Inventory turns for
the first quarter of 2008 improved to 5.8 times compared to 5.6
times in the first quarter of 2007 and 4.3 times in the fourth
quarter of 2007. Inventory turns are calculated using cost of goods
sold for the quarter on an annualized basis compared to the period
end inventory balance. The company will continue to adjust its
investment in inventory in order to align with anticipated activity
levels in order to improve inventory turnover efficiency. Accounts
payable and accrued liabilities increased by $27.9 million (62%) in
the first quarter of 2008 from December 31, 2007 due to a seasonal
increase in purchasing combined with slower payment to suppliers.
The Company has a 364 day bank operating loan facility in the
amount of $75.0 million arranged with a syndicate of four banks
that matures in July 2008. The loan facility bears interest based
on the floating Canadian bank prime rate and is secured by a
general security agreement covering all assets of the Company. The
maximum amount available under the facility is subject to a
borrowing base formula applied to accounts receivable and
inventories, and a covenant restricting the Company's average debt
to 2.25 times trailing twelve month EBITDA. As at March 31, 2008,
the Company's average debt to EBITDA ratio was 1.3 times (March 31,
2007 - 1.1 times) which provides a maximum borrowing ability of
approximately $60 million under the facility (March 31, 2007 - $75
million). As at March 31, 2008, the ratio of the Company's debt to
total capitalization (debt plus equity) was 15% (March 31, 2007 -
24%). CAPITAL STOCK The weighted average number of shares
outstanding during the first quarter 2008 was 18.3 million, an
increase of 0.1 million shares over the prior year's first quarter
due principally to the exercise of stock options and restricted
share units, offset by the purchase of common shares to resource
restricted share unit obligations. The diluted weighted average
number of shares outstanding at March 31, 2008 was 18.5 million,
consistent with the first quarter of 2007. As at March 31, 2008 and
2007, the following shares and securities convertible into shares,
were outstanding: (millions) March 31, March 31, 2008 2007 Shares
Shares ---------- ---------- Shares outstanding 18.3 18.2 Stock
Options 1.3 0.8 Restricted Share units 0.2 0.2 ----------
---------- Shares outstanding and issuable 19.8 19.2 The Company
has established an independent trust to purchase common shares of
the Company on the open market to resource restricted share unit
obligations. In the first quarter of 2008, the trust acquired
75,000 common shares (Q1 2007 - 15,200 common shares) at an average
cost of $6.62 per share (Q1 2007 - $11.38 per share). Contractual
Obligations There have been no material changes in off-balance
sheet contractual commitments since December 31, 2007. Capital
expenditures in 2008 are anticipated to be in the $3 million to $5
million range and will be directed towards the Company's new
Edmonton distribution center, computer systems enhancements and
expanding its production service capability. Critical Accounting
Estimates There have been no material changes to critical
accounting estimates since December 31, 2007. The Company is not
aware of any environmental or asset retirement obligations that
could have a material impact on its operations. Change in
Accounting Policies Effective January 1, 2008, the Company adopted
the Canadian Institute of Chartered Accountant's Handbook Section
1535 - Capital Disclosures, Section 3862 - Financial Instruments -
Disclosures and Section 3863 - Financial Instruments -
Presentation. The standards establish presentation guidelines for
financial instruments and deal with their classification, as well
as providing readers of the financial statements with information
pertinent to the Company's objectives, policies and processes for
managing capital. Effective January 1, 2008, the Company adopted
Section 3031 - Inventories. The standard sets out to prescribe the
accounting treatment for inventories and provide guidance on the
determination of cost and subsequent recognition of expenses. The
adoption of Section 3031 did not impact the determination of
inventory cost and expenses recorded by the Company. Inventory
obsolescence expense of $160,000 was recognized in the three month
period ending March 31, 2008 (2007- $175,000). As at March 31, 2008
and December 31, 2007 the Company had recorded reserves for
inventory obsolescence of $2.0 million and $1.8 million,
respectively. Controls and Procedures Internal control over
financial reporting ("ICFR") is designed to provide reasonable
assurance regarding the reliability of the Company's financial
reporting and its compliance with Canadian GAAP in its financial
statements. The President and Chief Executive Officer and the Vice
President and Chief Financial Officer of the Company have evaluated
whether there were changes to its ICFR during the three months
ended March 31, 2008 that have materially affected or are
reasonably likely to materially affect the ICFR. No such changes
were identified through their evaluation. Risk Factors The Company
is exposed to certain business and market risks arising from
transactions that are entered into the normal course of business,
which are primarily related to interest rate changes and
fluctuations in foreign exchange rates. During the reporting
period, no events or transactions have occurred that would
materially change the information disclosed in the Company's 2007
Form 20-F. Forward Looking Statements The information in this
MD&A may contain "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. All statements, other
than statements of historical facts, that address activities,
events, outcomes and other matters that CE Franklin plans, expects,
intends, assumes, believes, budgets, predicts, forecasts, projects,
estimates or anticipates (and other similar expressions) will,
should or may occur in the future are forward-looking statements.
These forward-looking statements are based on management's current
belief, based on currently available information, as to the outcome
and timing of future events. When considering forward-looking
statements, you should keep in mind the risk factors and other
cautionary statements in this MD&A, including those in under
the caption "Risk factors". Forward-looking statements appear in a
number of places and include statements with respect to, among
other things: - forecasted oil and gas industry activity levels in
2008; - planned capital expenditures and working capital and
availability of capital resources to fund capital expenditures and
working capital; - the Company's future financial condition or
results of operations and future revenues and expenses; - the
Company's business strategy and other plans and objectives for
future operations; - fluctuations in worldwide prices and demand
for oil and gas; - fluctuations in the demand for the Company's
products and services. Should one or more of the risks or
uncertainties described above or elsewhere in this MD&A occur,
or should underlying assumptions prove incorrect, the Company's
actual results and plans could differ materially from those
expressed in any forward-looking statements. All forward-looking
statements expressed or implied, included in this MD&A and
attributable to CE Franklin are qualified in their entirety by this
cautionary statement. This cautionary statement should also be
considered in connection with any subsequent written or oral
forward-looking statements that CE Franklin or persons acting on
its behalf might issue. CE Franklin does not undertake any
obligation to update any forward-looking statements to reflect
events or circumstances after the date of filing this MD&A,
except as required by law. Other Items Additional information
relating to CE Franklin, including its Form 20-F/Annual Information
Form, is available under the Company's profile on SEDAR at
http://www.sedar.com/ and at http://www.cefranklin.com/. CE
Franklin Ltd. Interim Consolidated Balance Sheets - Unaudited
-------------------------------------------------------------------------
(in thousands of Canadian dollars) March 31 December 31 2008 2007
-------------------------------------------------------------------------
Assets Current assets Accounts receivable 112,430 89,305
Inventories 78,342 86,414 Other 1,289 3,781
-------------------------------------------------------------------------
192,061 179,500 Property and equipment 6,123 6,398 Goodwill 20,809
20,523 Future income taxes (note 3) 1,481 1,403 Other 979 891
-------------------------------------------------------------------------
221,453 208,715
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities Current liabilities Bank operating loan 21,762 44,301
Accounts payable and accrued liabilities 72,699 44,807 Income taxes
payable 1,956 - Current portion of long term debt and capital lease
obligations 208 805
-------------------------------------------------------------------------
96,625 89,913 Long term debt and capital lease obligations 528 582
-------------------------------------------------------------------------
97,153 90,495
-------------------------------------------------------------------------
Shareholders' Equity Capital stock 23,870 24,306 Contributed
surplus 17,905 17,671 Retained earnings 82,525 76,243
-------------------------------------------------------------------------
124,300 118,220
-------------------------------------------------------------------------
221,453 208,715
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to these interim consolidated financial
statements. CE Franklin Ltd. Interim Consolidated Statements of
Operations - Unaudited
-------------------------------------------------------------------------
Three Months Ended March 31 (in thousands of Canadian dollars
except shares and per share amounts) 2008 2007
-------------------------------------------------------------------------
Sales 140,582 154,255 Cost of sales 113,521 127,944
-------------------------------------------------------------------------
Gross profit 27,061 26,311
-------------------------------------------------------------------------
Other expenses (income) Selling, general and administrative
expenses 16,873 15,266 Amortization 617 759 Interest expense 438
583 Foreign exchange (gain)/loss (2) 54
-------------------------------------------------------------------------
17,926 16,662
-------------------------------------------------------------------------
Income before income taxes 9,135 9,649 Income tax expense
(recovery) (note 3) Current 2,931 3,227 Future (78) 49
-------------------------------------------------------------------------
2,853 3,276
-------------------------------------------------------------------------
Net and comprehensive income for the period 6,282 6,373
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income per share (note 2) Basic 0.34 0.35 Diluted 0.34 0.34
-------------------------------------------------------------------------
Weighted average number of shares outstanding (000's) Basic 18,333
18,235 Diluted 18,523 18,735
-------------------------------------------------------------------------
See accompanying notes to these interim consolidated financial
statements. CE Franklin Ltd. Interim Consolidated Statements of
Cash Flow - Unaudited
-------------------------------------------------------------------------
Three Months Ended March 31 (in thousands of Canadian dollars) 2008
2007
-------------------------------------------------------------------------
Cash flows from operating activities Net income for the period
6,282 6,373 Items not affecting cash - Amortization 617 759 Future
income tax (recovery) expense (78) 49 Stock based compensation
expense 293 386
-------------------------------------------------------------------------
7,114 7,567 Net change in non-cash working capital balances related
to operations - Accounts receivable (23,039) (18,277) Inventories
8,515 6,279 Other current assets 1,620 (786) Accounts payable and
accured liabilities 27,766 9,376 Income taxes payable 2,646 (714)
-------------------------------------------------------------------------
24,622 3,445
-------------------------------------------------------------------------
Cash flows (used in)/from financing activities (Decrease)/Increase
in bank operating loan (22,539) 3,208 Decrease in capital lease
obligations and long term debt (651) (340) Issuance of capital
stock 1 214 Purchase of capital stock in trust for RSU Plans (496)
(173)
-------------------------------------------------------------------------
(23,685) 2,909
-------------------------------------------------------------------------
Cash flows used in investing activities Purchase of property and
equipment (937) (406) Business acquisitions - (2,377)
-------------------------------------------------------------------------
(937) (2,783)
-------------------------------------------------------------------------
Change in cash and cash equivalents during the period - 3,571 Cash
and cash equivalents- Beginning of period - - Cash and cash
equivalents - End of period - 3,571
-------------------------------------------------------------------------
Cash paid during the period for: Interest on bank operating loan
430 575 Interest on capital lease obligations and long term debt 8
8 Income taxes 163 3,941
-------------------------------------------------------------------------
See accompanying notes to these interim consolidated financial
statements. CE Franklin Ltd. Interim Consolidated Statements of
Changes in Shareholders' Equity - Unaudited
-------------------------------------------------------------------------
(in thousands of Canadian Capital Stock dollars
----------------------- Share- and number Number of Contributed
Retained holders' of shares) Shares $ Surplus Earnings Equity
-------------------------------------------------------------------------
Balance - December 31, 2006 18,223 23,586 16,213 62,676 102,475
Stock based compensation expense - - 386 - 386 Stock options
exercised 63 305 (91) - 214 Restricted share units (RSU's)
exercised 10 202 (202) - - Purchase of shares in trust for RSU
plans (15) (173) - - (173) Net income - - - 6,373 6,373
-------------------------------------------------------------------------
Balance - March 31, 2007 18,281 23,920 16,306 69,049 109,275
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Balance - December 31, 2007 18,370 24,306 17,671 76,243 118,220
Stock based compensation expense - - 293 - 293 Stock options
exercised 2 6 (5) - 1 RSU's exercised 3 54 (54) - - Purchase of
shares in trust for RSU Plans (75) (496) - - (496) Net income - - -
6,282 6,282
-------------------------------------------------------------------------
Balance - March 31, 2008 18,300 23,870 17,905 82,525 124,300
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to these interim consolidated financial
statements. CE Franklin Ltd. Notes to Interim Consolidated
Financial Statements - Unaudited
-------------------------------------------------------------------------
(tabular amounts in thousands of Canadian dollars except share and
per share amounts) Note 1 - Accounting Policies These interim
consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in Canada applied on
a consistent basis with CE Franklin Ltd.'s (the "Company") annual
consolidated financial statements for the year ended December 31,
2007, with the exception of policies relating to financial
instruments, capital disclosures and inventories as noted below.
The disclosures provided below are incremental to those included in
the annual consolidated financial statements. These interim
consolidated financial statements should be read in conjunction
with the annual consolidated financial statements and the notes
thereto for the year ended December 31, 2007. Effective January 1,
2008, the Company adopted the Canadian Institute of Chartered
Accountant's HandbookSection 1535 - Capital Disclosures, Section
3862 - Financial Instruments - Disclosures and Section 3863 -
Financial Instruments - Presentation. The standards establish
presentation guidelines for financial instruments and deal with
their classification, as well as providing readers of the financial
statements with information pertinent to the Company's objectives,
policies and processes for managing capital. Effective January 1,
2008, the Company adopted Section 3031 - Inventories. The standard
establishes the accounting treatment for inventories and provides
guidance on the determination of cost and subsequent recognition of
expenses. The adoption of Section 3031 did not impact the
determination of inventory costs and expense recorded by the
Company. Inventories consisting primarily of goods purchased for
resale are valued at the lower of average cost or net realizable
value. Inventory obsolescence expense of $160,000 was recognized in
the period ending March 31, 2008 (March 31, 2007- $175,000). As at
March 31, 2008 and December 31, 2007, the Company had recorded
reserves for inventory obsolescence of $2.0 million and $1.8
million respectively. These unaudited interim consolidated
financial statements reflect all adjustments which are, in the
opinion of management, necessary for a fair presentation of the
results for the interim periods presented; all such adjustments are
of a normal recurring nature. The Company's sales typically peak in
the first quarter when drilling activity is at its highest levels.
They then decline through the second and third quarters, rising
again in the fourth quarter when preparation for the new drilling
season commences. Similarly, net working capital levels are
typically at seasonally high levels at the end of the first
quarter, declining in the second and third quarters, and then
rising again in the fourth quarter. Note 2 - Share Data At March
31, 2008, the Company had 18,296,818 common shares and 1,334,058
options outstanding to acquire common shares at a weighted average
exercise price of $5.81 per common share, of which 606,815 options
were vested and exercisable at a weighted average exercise price of
$3.80 per common share. a) Stock options Option activity for each
of the quarters ended March 31 was as follows: 000's 2008 2007
--------------------------------------------- Outstanding at
January 1 1,262 804 Granted 75 109 Exercised (2) (63) Forfeited (1)
(1) --------------------------------------------- Outstanding at
March 31 1,334 849 ---------------------------------------------
--------------------------------------------- The fair value of the
options granted during the three month period ended March 31, 2008
was $274,000 (March 31,2007- $521,000). The fair value of common
share options granted in the first quarter of 2008 was estimated as
at the grant date using the Black-Scholes option pricing model,
using the following assumptions: 2008 ---- Dividend yield Nil
Risk-free interest rate 3.88% Expected life 5 years Expected
volatility 50% Stock Option compensation expense recorded in the
three months ended March 31, 2008 was $169,900 (2007 - $118,280).
b) Restricted share units The Company has Restricted Share unit
("RSU") and Deferred Share Unit ("DSU") plans, where by RSU's and
DSU's are granted which entitle the participant, at the Company's
option, to receive either a common share or cash equivalent value
in exchange for a vested unit. The vesting period for RSU's is
three years from the grant date. DSU's vest on the date of grant.
Compensation expense related to the units granted is recognized
over the vesting period based on the fair value of the units at the
date of the grant and is recorded to compensation expense and
contributed surplus. The contributed surplus balance is reduced as
the vested units are exchanged for either common shares or cash.
000's 2008 2007
-------------------------------------------------------------------------
RSU DSU RSU DSU Outstanding at January 1 178 37 120 12 Granted - -
65 - Exercised (3) - (10) - Forfeited - - - -
-------------------------------------------------------------------------
Outstanding at March 31 175 37 175 12
-------------------------------------------------------------------------
-------------------------------------------------------------------------
RSU compensation expense recorded in the three months ended March
31, 2008 was $122,700 (2007- $268,250). The Company purchases its
common shares on the open market to satisfy performance share unit
obligations through an independent trust. The trust is considered
to be a variable interest entity and is consolidated in the
Company's financial statements with the number and cost of shares
held in trust, reported as a reduction of capital stock. During the
first quarter of 2008, 75,000 common shares were acquired by the
trust (2007 - 15,200 common shares) at a cost of $496,000 (2007 -
$173,000). c) Reconciliation of weighted average number of diluted
common shares outstanding (in 000's) The following table summarizes
the common shares in calculating net earnings per share. Three
Months Ended --------------------- 2008 2007
-------------------------------------------------------------------------
Weighted average common shares outstanding - basic 18,333 18,235
Effect of Stock options and RSU Plans 190 500
-------------------------------------------------------------------------
Weighted average common shares outstanding - diluted 18,523 18,735
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Note 3 - Income taxes a) The difference between the income tax
provision recorded and the provision obtained by applying the
combined federal and provincial statutory rates is as follows:
Three Months Ended March 31 March 31 2008 % 2007 %
-------------------------------------------------------------------------
Income before income taxes 9,135 9,649
-------------------------------------------------------------------------
Income taxes calculated at expected rates 2,736 29.9 3,147 32.6
Non-deductible items 83 0.9 135 1.4 Capital and large corporations
taxes 8 0.1 11 0.1 Adjustments on filing returns & other 26 0.3
(17) (0.1)
-------------------------------------------------------------------------
2,853 31.2 3,276 34.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at March 31, 2008, income taxes payable are $1.956 million
(December 31 2007 - Income taxes receivable included in other
current assets were $0.848 million). b) Future income taxes reflect
the net effects of temporary difference between the carrying
amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purpose. Significant components
of future income tax assets and liabilities are as follows: March
31 December 31 2008 2007
-------------------------------------------------------------------------
Assets Financing charges 95 103 Property and equipment 891 874
Stock compensation expense & Other 870 786
-------------------------------------------------------------------------
1,856 1,763 Liabilities Goodwill 375 360
-------------------------------------------------------------------------
Net future income tax asset 1,481 1,403
-------------------------------------------------------------------------
The Company believes it is more likely than not that all future
income tax assets will be realized. Note 4- Capital Management The
Company's primary source of capital is its shareholder's equity and
cash flow from operating activities before net changes in non-cash
working capital balances. The Company augments these capital
sources with a $75 million, 364 day operating facility which is
used to finance its net working capital and general corporate
requirements. The Company's bank operating facility limits its
annual average debt to EBITDA ratio to 2.25 times. As at March 31,
2008, this ratio was 1.3 times (December 31, 2007 - 1.4 times). In
management's opinion, the Company's available borrowing capacity
under its bank operating facility and ongoing cash flow from
operations, are sufficient to resource its anticipated contractual
commitments. The facility contains certain other restrictive
covenants, which the Company was in compliance with as at March 31,
2008. The Company anticipates that its 364 day bank operating loan
will be extended in 2008 in the normal course. Note 5 - Financial
Instruments and Risk Management a) Fair Values The Company's
financial instruments recognized on the consolidated balance sheet
consist of accounts receivable, accounts payable and accrued
liabilities, bank operating loan, long term debt and obligations
under capital leases. The fair values of these financial
instruments, excluding the bank operating loan, long term debt and
obligations under capital leases, approximate their carrying
amounts due to their short- term maturity. At March 31, 2008, the
fair value of the bank operating loan, long term debt and
obligations under capital leases approximated their carrying values
due to their floating interest rate nature and short term maturity.
b) Credit Risk A substantial portion of the Company's accounts
receivable balance is with customers in the oil and gas industry
and is subject to normal industry credit risks. c) Market Risk The
Company is exposed to market risk from changes in the Canadian
prime interest rate which can impact its borrowing costs. The
Company purchases certain products in US dollars and sells such
products to its customer typically priced in Canadian dollars. As a
result, fluctuations in the value of the Canadian dollar relative
to the US dollar can result in foreign exchange gains and losses.
d) Risk Management From time to time the Company enters into
foreign exchange forward contracts to manage its foreign exchange
market risk by fixing the value of its liabilities and future
commitments. As at March 31, 2008, the Company had contracted to
purchase US$2.0 million at a fixed exchange rate maturing in
September, 2008. The fair market value of the contract is nominal.
Note 6 - Related Party Transactions Smith International Inc.
("Smith") owns approximately 53% of the Company's outstanding
shares. The Company is the exclusive distributor in Canada of down
hole pump production equipment manufactured by Wilson Supply, a
division of Smith. Purchase of such equipment conducted in the
normal course on commercial terms were as follows: March 31 March
31 2008 2007
-------------------------------------------------------------------------
Cost of sales for the Three months ended 3,056 2,304 Inventory
4,295 3,851 Accounts Payable and accrued liabilities 943 953 Note 7
- Segmented reporting The Company distributes oilfield products
principally through its networks of 44 branches located in western
Canada to oil and gas industry customers. Accordingly, the Company
has determined that it operated through a single operating segment
and geographic jurisdiction. DATASOURCE: CE Franklin Ltd. CONTACT:
Investor Relations, (800) 345-2858, (403) 531-5604,
Copyright