CALGARY, July 28, 2011 /PRNewswire/ - CE FRANKLIN LTD.
(TSX.CFT) (NASDAQ.CFK) reported net earnings of $1.7 million or $0.10 per share for the second quarter ended
June 30, 2011, a significant increase
from the $0.01 loss per share
generated in the second quarter ended June
30, 2010.
Financial Highlights
| (millions of Cdn. $ except per share
data) |
|
|
|
|
|
|
|
| |
Three Months
Ended |
|
Six Months
Ended |
| |
June
30 |
|
June
30 |
| |
2011 |
|
2010 |
|
2011 |
|
2010 |
| |
|
Unaudited |
|
|
Unaudited |
| |
|
|
|
|
|
|
|
| Revenues |
113.9 |
|
99.9 |
|
251.6 |
|
221.8 |
| Gross Profit |
19.3 |
|
15.6 |
|
41.6 |
|
35.2 |
| Gross Profit - % of sales |
16.9% |
|
15.6% |
|
16.5% |
|
15.9% |
| EBITDA(1) |
3.1 |
|
0.7 |
|
8.4 |
|
4.8 |
| EBITDA (1)% of
sales |
2.7% |
|
0.7% |
|
3.3% |
|
2.2% |
| Net earnings |
1.7 |
|
(0.1) |
|
5.1 |
|
2.1 |
| Per share |
|
|
|
|
|
|
|
| |
Basic |
0.10 |
|
(0.01) |
|
0.29 |
|
0.12 |
| |
Diluted |
0.09 |
|
(0.01) |
|
0.28 |
|
0.12 |
| Net working
capital(2) |
136.5 |
|
111.8 |
|
|
|
|
| Long term debt / Bank operating
loan(2) |
$12.2 |
|
$0.3 |
|
|
|
|
"The traditional seasonal activity slowdown
caused by spring break up had rig count and well completions drop
sequentially from the first quarter by 64% and 28% respectively.
Break up was extended this year by an extremely wet spring in the
south and forest fires in the North. Despite the weather, second
quarter activity levels were up year over year and strengthened as
the quarter progressed, momentum that should continue for the
remainder of 2011," said Michael
West, President and CEO.
The June 30, 2011
interim consolidated financial statements are prepared under
International Financial Reporting Standards ("IFRS"). Consequently
the comparative figures for 2010 and the Company's statement of
financial position as at January 1,
2010 have been restated from accounting principles generally
accepted in Canada ("Canadian
GAAP") to comply with IFRS. The reconciliations from the previously
published Canadian GAAP financial statements are summarized in Note
3 to the consolidated interim financial statements, and there were
no material differences.
Net earnings for the second quarter of 2011,
were $1.7 million, an increase of
$1.8 million from the second quarter
of 2010. Revenues were $113.9
million, an increase of $14.0
million (14%) from the second quarter of 2010. Industry
activity continued to improve and is focused on oil, oil sands and
liquid rich natural gas plays. Well completions increased 26%
compared to the second quarter of 2010. Capital project business
revenue grew $2.3 million year over
year despite the wet weather which negatively impacted both
construction work as well as tubular product related work. Gross
profits increased by $3.7 million
(24%) due to the increase in revenues year over year. Average gross
profit margins improved sequentially from first quarter 2011 levels
and improved over the second quarter 2010 average gross profit
margin, as increased purchasing levels contributed to higher volume
rebate income. Selling, general and administrative expenses
increased by $1.7 million (12%) to
$16.4 million for the quarter as
compensation and operating costs have increased in response to
higher revenue levels. The weighted average number of shares
outstanding during the second quarter was consistent with the prior
year period as the rise in share price during the last year has
limited the activity occurring under the normal course issuer bid
program. Net income per share (basic) was $0.10 in the second quarter of 2011, compared to
a loss of $0.01 per share in the
second quarter of 2010.
Net income for the first half of 2011, at
$5.1 million, was more than double
2010's first half net income. Sales were $251.6 million, an increase of $29.8 million (13%) over the comparable 2010
period due to improvements in capital project and maintenance
repair and operating sales. Well completions have increased 31%
year over year as industry activity continues to build. Gross
profit was up $6.4 million (18%) due
to the increase in sales combined with an increase in vendor rebate
income due to increased purchasing levels. Selling, general and
administrative expenses increased by $3.1
million (10%) to $33.4 million
for the first half of the year for the same reasons they were
higher in the second quarter. Income taxes increased by
$0.8 million in the first half of
2011 compared to the prior year period due to higher pre-tax
earnings. The weighted average number of shares outstanding (basic)
during the first half was consistent with the prior year period as
the rise in share price during the last year has limited the
activity occurring under the normal course issuer bid program. Net
income per share (basic) was $0.29 in
the first half of 2011, compared to $0.12 earned in the first half of 2010.
Business Outlook
Oil and gas industry activity in 2011 is expected to increase from
2010 levels. Natural gas prices remain depressed as North
American production capacity and inventory levels continue to
dominate demand. Natural gas capital expenditure activity is
focused on the emerging shale gas plays in north-eastern
British Columbia and liquids rich
gas plays in north-western Alberta
where the Company has a strong market position. Conventional
and heavy oil economics are attractive at current price levels
leading to moderate increases in capital expenditure activity in
eastern Alberta and south-east
Saskatchewan. Oil sands project announcements continue to
gain momentum at current oil price levels. Approximately 50% to 60%
of the Company's total revenues are driven by our customers'
capital expenditure requirements. CE Franklin's revenues are
expected to continue to increase modestly in 2011 due to increased
oil and gas industry activity and the expansion of the Company's
product lines.
Gross profit margins are expected to remain
under pressure as customers that produce natural gas focus on
reducing their costs to maintain acceptable project economics and
due to continued aggressive oilfield supply industry competition as
industry activity levels remain below the last five year average.
The Company will continue to manage its cost structure to protect
profitability while maintaining service capacity and advancing
strategic initiatives.
Over the medium to longer term, the Company's
strong financial and competitive positions will enable profitable
growth of its distribution network through the expansion of its
product lines, supplier relationships and capability to service
additional oil and gas and other industrial end use markets.
| |
|
(1) EBITDA represents net earnings before
interest, taxes, depreciation and amortization. EBITDA is
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 revenues 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
depreciation 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. Depreciation expense is a
necessary component of the Company's expenses because the Company
uses property and equipment to generate revenues. 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 earnings, 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 earnings 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 cash and cash equivalents, accounts payable and accrued
liabilities, current taxes payable and other current liabilities.
Net working capital and long term debt / bank operating loan
amounts are as at quarter end. |
Additional Information
Additional information relating to CE Franklin,
including its first quarter 2011 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 www.sedar.com and at
www.cefranklin.com.
Conference Call and Webcast
Information
A conference call to review the 2011 second
quarter results, which is open to the public, will be held on
Friday, July 29, 2011 at 11:00 a.m. Eastern Time (9:00 a.m. Mountain Time).
Participants may join the call by dialing
1-647-427-7450 in Toronto or
dialing 1-888-231-8191 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 2:00 p.m. Eastern
Time on the same day by calling 1-416-849-0833 in
Toronto or dialing
1-800-642-1687 and entering the Passcode of 75008644
and may be accessed until midnight August
12, 2011.
The call will also be webcast live at:
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=3570600 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 Derrren Newell, 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 oil sands, refining,
heavy oil, petrochemical, forestry and mining industries.
These products are distributed through its 45 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 at
July 28, 2011
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 MD&A should be read in conjunction with the
Company's interim consolidated financial statements for the three
and six month period ended June 30,
2011 and the MD&A and the consolidated financial
statements for the period ended March 31,
2011(the Company's first financial statements under IFRS)
and the MD&A and consolidated financial statements for the year
ended December 31, 2010. All amounts
are expressed in Canadian dollars and are in accordance with
International Financial Reporting Standards ("IFRS"), except
otherwise noted. The June 30, 2011
interim consolidated financial statements are prepared under IFRS.
Consequently the comparative figures for 2010 and the Company's
statement of financial position as at January 1, 2010 have been restated from
accounting principles generally accepted in Canada ("Canadian GAAP") to comply with IFRS.
The reconciliations from the previously published Canadian GAAP
financial statements are summarized in Note 3 to the consolidated
interim financial statements, and there were no material
differences. In addition, IFRS 1 on first time adoption allows
certain exemptions from retrospective application of IFRS in the
opening statement of financial position. Where these exemptions
have been used they have also been explained in Note 3 to the
consolidated interim financial statements.
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 through its 45 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 oil
sands, 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 and when
they are needed, and for the best value. Our branches,
supported by our centralized Distribution Centre in Edmonton, Alberta, stock over 25,000 stock
keeping units sourced from over 2,000 suppliers. This supply
chain 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 NASDAQ ("CFK") stock exchanges. Schlumberger Limited
("Schlumberger"), a major oilfield service company based in
Paris, France, owns approximately
56% of the Company's shares.
Business Strategy
The Company is pursuing the following strategies
to grow its business profitably:
- Expand the reach and market share serviced by the Company's
distribution network. The Company is focusing its sales
efforts and product offering on servicing complex, multi-location
needs of large and emerging customers in the energy sector.
Organic growth is expected to be complemented by selected
acquisitions over time.
- Expand production equipment service capability to capture more
of the product life cycle requirements for the equipment the
Company sells such as down hole pump repair, oilfield engine
maintenance, well optimization and on site project management. This
will differentiate the Company's service offering from its
competitors and deepen relationships with its customers.
- Expand oil sands and industrial project and Maintenance, Repair
and Operating Supplies ("MRO") business by leveraging our existing
supply chain infrastructure, product and project expertise.
- Increase the resourcing of customer project sales quotation and
order fulfillment services provided by our Distribution Centre to
augment local branch capacity to address seasonal and project
driven fluctuations in customer demand. By doing so, we aim to
increase our capacity flexibility and improve operating efficiency
while providing consistent service.
Business Outlook
Oil and gas industry activity in 2011 is
expected to increase from 2010 levels. Natural gas prices
remain depressed as North American production capacity and
inventory levels continue to dominate demand. Natural gas
capital expenditure activity is focused on the emerging shale gas
plays in north eastern British
Columbia and liquids rich gas plays in north-western
Alberta where the Company has a
strong market position. Conventional and heavy oil economics
are attractive at current price levels leading to moderate
increases to capital expenditure activity in eastern Alberta and south-east Saskatchewan. Oil
sands project announcements continue to gain momentum at current
oil price levels. Approximately 50% to 60% of the Company's total
revenues are driven by our customers' capital expenditure
requirements. CE Franklin's revenues are expected to continue to
increase modestly in 2011 due to increased oil and gas industry
activity and the expansion of the Company's product lines.
Gross profit margins are expected to remain
under pressure as customers that produce natural gas focus on
reducing their costs to maintain acceptable project economics and
due to continued aggressive oilfield supply industry competition as
industry activity levels remain below the last five year average.
The Company will continue to manage its cost structure to protect
profitability while maintaining service capacity and advancing
strategic initiatives.
Over the medium to longer term, the Company's
strong financial and competitive positions will enable profitable
growth of its distribution network through the expansion of its
product lines, supplier relationships and capability to service
additional oil and gas and other industrial end use markets.
Second Quarter Operating Results
The following table summarizes CE Franklin's results of
operations:
(In millions of Canadian Dollars except per share
data)
| |
Three Months Ended June 30 |
|
Six Months Ended June 30 |
| |
2011 |
|
2010 |
|
2011 |
|
2010 |
| Revenues |
113.9 |
100.0% |
|
99.9 |
100.0% |
|
251.6 |
100.0% |
|
221.8 |
100.0% |
| Cost of Sales |
(94.6) |
(83.1)% |
|
(84.3) |
(84.4)% |
|
(210.0) |
(83.5)% |
|
(186.6) |
(84.1)% |
| Gross Profit |
19.3 |
16.9% |
|
15.6 |
15.6% |
|
41.6 |
16.5% |
|
35.2 |
15.9% |
| |
|
|
|
|
|
|
|
|
|
|
|
| Selling, general and administrative
expenses |
(16.4) |
(14.4)% |
|
(14.7) |
(14.7)% |
|
(33.4) |
(13.3)% |
|
(30.3) |
(13.7)% |
| Foreign exchange and other |
0.2 |
0.2% |
|
(0.2) |
(0.2)% |
|
0.2 |
0.1% |
|
(0.1) |
(0.0)% |
| EBITDA(1) |
3.1 |
2.7% |
|
0.7 |
0.7% |
|
8.4 |
3.3% |
|
4.8 |
2.2% |
| Depreciation |
(0.6) |
(0.5)% |
|
(0.6) |
(0.6)% |
|
(1.2) |
(0.5)% |
|
(1.2) |
(0.5)% |
| Interest |
(0.1) |
(0.1)% |
|
(0.2) |
(0.2)% |
|
(0.2) |
(0.1)% |
|
(0.4) |
(0.2)% |
| Earnings before tax |
2.4 |
2.1% |
|
(0.1) |
(0.1)% |
|
7.0 |
2.7% |
|
3.2 |
1.4% |
| Income tax expense |
(0.7) |
(0.6)% |
|
0.0 |
(0.0)% |
|
(1.9) |
(0.7)% |
|
(1.1) |
(0.5)% |
| Net earnings |
1.7 |
1.5% |
|
(0.1) |
(0.1)% |
|
5.1 |
2.0% |
|
2.1 |
0.9% |
| |
|
|
|
|
|
|
|
|
|
|
|
| Net earnings per share |
|
|
|
|
|
|
|
|
|
|
|
| Basic |
$0.10 |
|
|
($0.01) |
|
|
$0.29 |
|
|
$0.12 |
|
| Diluted |
$0.09 |
|
|
($0.01) |
|
|
$0.28 |
|
|
$0.12 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Weighted average number of shares outstanding
(000's) |
|
|
|
|
|
|
| Basic |
17,504 |
|
|
17,514 |
|
|
17,496 |
|
|
17,546 |
|
| Diluted |
18,225 |
|
|
17,514 |
|
|
18,157 |
|
|
17,818 |
|
| |
|
(1) EBITDA represents
net earnings 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 revenues 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 depreciation expenses. Interest expense is a necessary
component of the Company's expenses because the Company borrows
money to finance its working capital and capital income taxes.
Depreciation expense is a necessary component of the Company's
expenses because the Company is required to pay cash equipment to
generate revenues. 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 earnings, 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 earnings 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. |
Second Quarter Results
Net earnings for the second quarter of 2011,
were $1.7 million, an increase of
$1.8 million from the second quarter
of 2010. Revenues were $113.9
million, an increase of $14.0
million (14%) from the second quarter of 2010. Industry
activity continued to improve and is focused on oil, oil sands and
liquid rich natural gas plays. Well completions increased 26%
compared to the second quarter of 2010. Capital project business
revenue grew $2.3 million year over
year despite the wet weather which negatively impacted both
construction work as well as tubular product related work. Gross
profits increased by $3.7 million
(24%) due to the increase in revenues year over year. Average gross
profit margins improved sequentially from first quarter 2011 levels
and improved over the second quarter 2010 average gross profit
margin, as increased purchasing levels contributed to higher volume
rebate income. Selling, general and administrative expenses
increased by $1.7 million (12%) to
$16.4 million for the quarter as
compensation and operating costs have increased in response to
higher revenue levels. The weighted average number of shares
outstanding during the second quarter was consistent with the prior
year period as the rise in share price during the last year has
limited the activity occurring under the normal course issuer bid
program. Net income per share (basic) was $0.10 in the second quarter of 2011, compared to
a loss of $0.01 per share in the
second quarter of 2010.
Year to date Results
Net Income for the first half of 2011 at
$5.1 million was more than double
2010's first half net income. Sales were $251.6 million, an increase of $29.8 million (13%) over the comparable 2010
period due to improvements in capital project and maintenance
repair and operating sales. Well completions have increased 31%
year over year as industry activity continues to build. Gross
profit was up $6.4 million (18%) due
to the increase in sales combined with an increase in vendor rebate
income due to increased purchasing levels. Selling, general and
administrative expenses increased by $3.1
million (10%) to $33.4 million
for the first half of the year for the same reasons they were
higher in the second quarter. Income taxes increased by
$0.8 million in the first half of
2011 compared to the prior year period due to higher pre-tax
earnings. The weighted average number of shares outstanding (basic)
during the second quarter was consistent with the prior year period
as the rise in share price during the last year has limited the
activity occurring under the normal course issuer bid program. Net
income per share (basic) was $0.29 in
the first half of 2011, compared to $0.12 earned in the first half of 2010.
Revenues
Revenues for the quarter ended June 30,
2011, were $113.9 million, an
increase of 14% from the quarter ended June
30, 2010, as detailed above in the "Second Quarter Results"
discussion.
Oil and gas commodity prices are a key driver of
industry capital project activity as commodity prices directly
impact the economic returns realized by oil and gas companies. 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 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 drives well completion
requirements. Well completion, rig count and commodity price
information for the three and six month periods ended June 30, 2011 and 2010 are provided in the table
below.
| |
Q2
Average |
|
% |
|
YTD Average |
|
% |
| |
2011 |
|
2010 |
|
change |
|
2011 |
|
2010 |
|
change |
| Gas - Cdn. $/gj (AECO spot) |
$3.89 |
|
$3.91 |
|
(1)% |
|
$3.83 |
|
$4.42 |
|
(13)% |
| Oil - Cdn. $/bbl (syntetic
crude) |
$109.38 |
|
$78.07 |
|
40% |
|
$104.54 |
|
$80.28 |
|
21% |
| Average rig count |
188 |
|
161 |
|
17% |
|
360 |
|
293 |
|
25% |
| Well completions: |
|
|
|
|
|
|
|
|
|
|
|
| |
Oil |
1,785 |
|
1,077 |
|
66% |
|
3,986 |
|
2,432 |
|
64% |
| |
Gas |
980 |
|
1,120 |
|
(13)% |
|
2,640 |
|
2,611 |
|
(1)% |
| Total well completions |
2,765 |
|
2,197 |
|
26% |
|
6,626 |
|
5,043 |
|
31% |
Average statistics are shown except for well
completions.
Sources: Oil and Gas prices - First Energy Capital
Corp.; Rig count data - CAODC; well completion data - Daily Oil
Bulletin
| (in millions of Cdn. $) |
Three months ended June 30 |
|
Six months ended June 30 |
| |
2011 |
|
2010 |
|
2011 |
|
2010 |
| End use revenue demand |
$ |
% |
|
$ |
% |
|
$ |
% |
|
$ |
% |
| Capital projects |
56.6 |
50% |
|
54.3 |
54% |
|
132.8 |
53% |
|
115.8 |
52% |
| Maintenance, repair and operating supplies
("MRO") |
57.3 |
50% |
|
45.6 |
46% |
|
118.8 |
47% |
|
106.0 |
48% |
| Total Revenues |
113.9 |
100% |
|
99.9 |
100% |
|
251.6 |
100% |
|
221.8 |
100% |
Note: Capital project end use revenues are
defined by the Company as consisting of the tubular and 80% of
pipe, flanges and fittings; and valves and accessories product
revenues respectively; MRO revenues 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 revenues respectively.
Revenues from capital project related products
were $56.6 million in the second
quarter of 2011, an increase of 4% ($2.3
million) from the second quarter of 2010. Total well
completions increased by 26% in the second quarter of 2011 and the
average working rig count increased by 17% compared to the prior
year period. Gas wells comprised 35% of the total wells completed
in western Canada in the second
quarter of 2011 compared to 51% in the second quarter of 2010. Spot
gas prices ended the second quarter at $3.71 per GJ (AECO) a decrease of 5% from second
quarter average prices. Oil prices ended the second quarter at
$98.56 per bbl (Synthetic Crude) a
decrease of 10% from the second quarter average. Depressed gas
prices are expected to continue to negatively impact gas drilling
activity over the remainder of 2011, which in turn is expected to
constrain demand for the Company's products. Natural gas customers
continue to utilize a high level of competitive bid activity to
procure the products they require in an effort to reduce their
costs. The Company is addressing this industry trend by pursuing
initiatives focused on improving revenues quotation processes and
increasing the operating flexibility and efficiency of its branch
network. The Company is well positioned to support customers
who are pursuing oil plays and more particularly tight oil
plays. The Company dealt with the impacts of a very wet
second quarter particularly in southern Saskatchewan and responsibly bid requests for
proposals for drilling and completions programs, which resulted in
improved gross profits. The Company's results were also
impacted by the forest fires in the North as two branches were
closed temporarily in the quarter for evacuation notices. They are
both back up and running though the Slave
Lake operation was on a limited basis during the
quarter.
MRO product revenues are related to overall oil
and gas industry production levels and tend to be more stable than
capital project revenues. MRO product revenues for the quarter
ended June 30, 2011, increased by
$11.7 million (26%) to $57.3 million compared to the quarter ended
June 30, 2010 and comprised 50% of
the Company's total revenues (2010 - 46%).
The Company's strategy is to grow profitability
by focusing on its core western Canadian oilfield product
distribution business, complemented by an increase in the product
life cycle services provided to its customers and the focus on the
emerging oil sands capital project and MRO revenues opportunities.
Revenues from these initiatives to date are provided below:
| |
Q2
2011 |
|
Q2
2010 |
|
YTD
2011 |
|
YTD
2010 |
| Revenues ($millions) |
$ |
% |
|
$ |
% |
|
$ |
% |
|
$ |
% |
| Oilfield |
89.6 |
79% |
|
85.6 |
86% |
|
212.2 |
84% |
|
188.4 |
85% |
| Oil sands |
19.4 |
17% |
|
10.9 |
11% |
|
29.4 |
12% |
|
26.1 |
12% |
| Production services |
4.9 |
4% |
|
3.4 |
3% |
|
10.0 |
4% |
|
7.3 |
3% |
| Total Revenues |
113.9 |
100% |
|
99.9 |
100% |
|
251.6 |
100% |
|
221.8 |
100% |
Revenues from oilfield products to conventional
western Canada oil and gas end use
applications were $89.6 million for
the second quarter of 2011, an increase of 5% from the second
quarter of 2010. This increase was driven by the 26% increase in
well completions compared to the prior year period.
Revenues from oil sands end use applications
were $19.4 million in the second
quarter, an increase of $8.5 million
(78%) compared to $10.9 million in
the second quarter of 2010 reflecting the timing of project
revenues and a large order of specialized material for an
engineering, procurement and construction customer. The Company
continues to position its major project execution capability and
Fort McMurray branch to penetrate
this emerging market for capital project and MRO products.
Production service revenues were $4.9 million in the second quarter of 2011, a 44%
increase from the $3.4 million of
revenues in the second quarter of 2010, reflecting improved oil
production economics resulting in increased customer maintenance
activities.
Gross Profit
| |
Q2
2011 |
|
Q2
2010 |
|
YTD
2011 |
|
YTD
2010 |
| Gross profit ($ millions) |
$19.3 |
|
$15.6 |
|
$41.6 |
|
$35.2 |
| Gross profit margin as a % of revenues |
16.9% |
|
15.6% |
|
16.5% |
|
15.9% |
| |
|
|
|
|
|
|
|
| Gross profit composition by product revenue
category: |
|
|
|
|
|
|
| Tubulars |
2% |
|
2% |
|
4% |
|
2% |
| Pipe, flanges and fittings |
30% |
|
30% |
|
28% |
|
29% |
| Valves and accessories |
21% |
|
19% |
|
21% |
|
19% |
| Pumps, production equipment and services |
12% |
|
13% |
|
13% |
|
13% |
| General |
35% |
|
36% |
|
34% |
|
37% |
| Total gross profit |
100% |
|
100% |
|
100% |
|
100% |
Gross profit was $19.3
million in the second quarter of 2011, an increase of
$3.7 million (24%) from the second
quarter of 2010 due to increased revenues compared to the prior
year period. Gross profit margins for the quarter improved
sequentially from first quarter 2011 levels and were better than
the prior year period at 16.9% as increased purchasing levels
contributed to higher volume rebate income. Increased valves and
accessories gross profit composition was due to improved gross
profit margins. The decrease in pumps, production equipment and
services and general products gross profit composition reflects
some larger low margin sales to customers under contract.
Selling, General and Administrative
("SG&A") Costs
| ($millions) |
Q2
2011 |
|
Q2
2010 |
|
YTD
2011 |
|
YTD
2010 |
| |
$ |
% |
|
$ |
% |
|
$ |
% |
|
$ |
% |
| People Costs |
10.0 |
61 |
|
8.7 |
59 |
|
20.3 |
61 |
|
17.6 |
58 |
| Facility and office costs |
3.5 |
22 |
|
3.4 |
23 |
|
7.3 |
22 |
|
6.9 |
23 |
| Selling Costs |
1.1 |
7 |
|
1.0 |
6 |
|
2.6 |
8 |
|
2.7 |
9 |
| Other |
1.8 |
10 |
|
1.6 |
12 |
|
3.2 |
9 |
|
3.1 |
10 |
| SG&A costs |
16.4 |
100 |
|
14.7 |
100 |
|
33.4 |
100 |
|
30.3 |
100 |
| SG&A costs as % of revenues |
14% |
|
|
15% |
|
|
13% |
|
|
14% |
|
SG&A costs increased $1.7
million (12%) in the second quarter of 2011 from the prior
year period and represented 14% of revenues compared to 15% in the
prior year period. The $1.7 million
increase in expenses was attributable to higher people costs
reflecting a 9% increase in employee count, to service the
additional sales volumes, and higher incentive compensation costs
reflecting the improved profit performance of the business year
over year.
Depreciation Expense
Depreciation expense of $0.6 million in the second quarter of 2011 was
comparable to the second quarter of 2010.
Interest Expense
Interest expense of $0.1
million in the second quarter of 2011 was $0.1 million below the second quarter of 2010 due
to lower borrowing levels throughout the quarter.
Foreign Exchange (Gain) Loss and
other
Foreign exchange gains and losses on
United States dollar denominated
product purchases and net working capital liabilities were gains of
$0.1 million for the second quarter
ended June 30, 2011 ($0.2 million - June 30,
2010). In the quarter a number of individually small
miscellaneous settlement gains totaling $0.1
million were realized.
Income Tax Expense
The Company's effective tax rate for the second
quarter of 2011 was 29.4%, up from (2.0%) in the second quarter of
2010 as the prior year tax recovery was offset by the impact of the
other adjustments. The current effective tax rate is higher than
the statutory rate due to the impact of the non-deductible items
and other adjustments. Substantially all of the Company's tax
provision is currently payable.
Summary of Quarterly Financial Data
The selected quarterly financial data is
presented in Canadian dollars and in accordance with IFRS. This
information is derived from the Company's unaudited quarterly
financial statements. As noted above the June 30, 2011 interim consolidated financial
statements have been prepared under IFRS. The comparative figures
shown in the table below for 2010 and 2009 have been restated from
Canadian GAAP. The reconciliations from Canadian GAAP to IFRS have
been completed and there were no material differences noted. The
conversion from Canadian GAAP to IFRS is further discussed in Note
3 of the interim consolidated financial statements.
| (in millions of Cdn. $ except per share
data) |
|
|
|
|
|
| Unaudited |
Q3 2009 (2) |
Q4 2009 (2) |
Q1 2010 |
Q2 2010 |
Q3 2010 |
Q4 2010 |
Q1 2011 |
Q2 2011 |
| |
|
|
|
|
|
|
|
|
| Revenues |
94.1 |
93.0 |
121.9 |
99.9 |
132.2 |
135.6 |
137.7 |
113.9 |
| Gross Profit |
17.4 |
15.3 |
19.7 |
15.6 |
19.2 |
20.5 |
22.3 |
19.3 |
| Gross Profit % |
18.5% |
16.5% |
16.1% |
15.6% |
14.5% |
15.1% |
16.2% |
16.9% |
| |
|
|
|
|
|
|
|
|
| EBITDA |
0.5 |
0.6 |
4.1 |
0.7 |
3.8 |
3.8 |
5.3 |
3.1 |
| EBITDA as a % of revenues |
0.5% |
0.6% |
3.4% |
0.7% |
2.9% |
2.8% |
3.8% |
2.7% |
| |
|
|
|
|
|
|
|
|
| Net earnings (loss) |
0.2 |
(0.5) |
2.2 |
(0.1) |
2.2 |
1.6 |
3.4 |
1.7 |
| Net earnings (loss) as a % of
revenues |
0.2% |
(0.5%) |
1.8% |
(0.1%) |
1.7% |
1.2% |
2.5% |
1.5% |
| |
|
|
|
|
|
|
|
|
| Net earnings (loss) per share |
|
|
|
|
|
|
| |
Basic |
$0.01 |
($0.03) |
$0.13 |
($0.01) |
$0.12 |
$0.09 |
$0.19 |
$0.10 |
| |
Diluted |
$0.01 |
($0.03) |
$0.12 |
($0.01) |
$0.12 |
$0.09 |
$0.19 |
$0.09 |
| |
|
|
|
|
|
|
|
|
| Net working
capital(1) |
131.1 |
136.6 |
113.9 |
111.8 |
129.0 |
125.7 |
120.1 |
136.5 |
| Long term debt/bank
operating loan(1) |
21.6 |
26.8 |
1.4 |
0.3 |
14.4 |
6.4 |
0.3 |
12.2 |
| |
|
|
|
|
|
|
|
|
| Total well completions |
1,468 |
1,576 |
2,846 |
2,197 |
2,611 |
4,760 |
3,861 |
2,765 |
| |
|
|
|
|
|
|
|
|
| (1)Net working capital and long term
debt/bank operating loan amounts are as at quarter end. |
|
| (2) prepared using Canadian GAAP |
|
|
|
|
|
|
The Company's revenue 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. An
exceptionally wet second quarter in 2011 could impact customer
capital programs in the third quarter. As a result, the first and
fourth quarters typically represent the busiest time for oil and
gas industry activity and the highest revenue activity for the
Company. Revenue 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 decline in revenue typically out
paces the decline in SG&A costs as the majority of the
Company's SG&A costs are fixed in nature. Net working capital
(defined as current assets less cash and cash equivalents, accounts
payable and accrued liabilities, income taxes payable and other
current liabilities) and borrowing levels follow similar seasonal
patterns as revenue.
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 related to operations. Cash
flow from operating activities and the Company's $60.0 million revolving term credit facility are
used to finance the Company's net working capital, capital
expenditures and acquisitions.
As at June 30,
2011 the Company had $12.2
million in borrowings under its revolving term credit
facility, a net increase of $5.8
million from December 31,
2010. Borrowing levels have increased as the increase in net
working capital levels has outpaced the $7.2
million in cash flow from operating activities, before net
changes in non-cash working capital balances generated year to
date. Also contributing to the increase in borrowing levels was
$1.4 million in capital and other
expenditures and $0.7 million for the
purchase of shares to resource stock compensation obligations and
the repurchase of shares under the Company's Normal Course Issuer
Bid ("NCIB").
As at June 30,
2010, there were no borrowings under the Company's bank
operating loan, a decrease of $26.5
million from December 31,
2009. The Company had cash of $0.9
million at June 30, 2010 (2009
- nil). Borrowing levels have decreased due to the Company
generating $4.2 million in cash flow
from operating activities before net changes in working capital and
a $25.1 million reduction in net
working capital. This was offset by $0.5
million in capital and other expenditures, $0.2 million for the settlement of share
obligations and $1.2 million for the
purchase of shares to resource stock compensation obligations and
the repurchase of shares under the Company's NCIB.
Net working capital was $136.5 million at June 30,
2011, an increase of $10.8
million from December 31,
2010. Accounts receivable decreased by $11.8 million to $81.2
million at June 30, 2011 from
December 31, 2010 due to the 16%
decrease in revenues in the second quarter compared to the fourth
quarter of 2010, partially offset by a weaker Days Sales
Outstanding ("DSO"). DSO in the second quarter of 2011 was 60 days
compared to 56 days in the fourth quarter of 2010 and 52 days in
the second quarter of 2010. DSO is calculated using average
revenues per day for the quarter compared to the period end
accounts receivable balance. Inventory increased by $13.2 million (14%) at June 30, 2011 from December 31, 2010. Inventory turns for the second
quarter of 2011 decreased to 3.5 turns compared to 4.9 turns in the
fourth quarter of 2010, but were comparable to the second quarter
of 2010. 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 continues to adjust its investment
in inventory and inventory practices to align with anticipated
industry activity levels and supplier lead times in order to
improve inventory turnover efficiency. Accounts payable and accrued
liabilities decreased by $7.0 million
(11%) to $56.3 million at
June 30, 2011 from December 31, 2010 due to the seasonal slowdown in
activity.
Capital expenditures in the second quarter of
2011 were $1.0 million, $0.7 million higher than the prior year period
and were comprised primarily of vehicles, warehouse equipment
replacements and branch improvements.
The Company has a $60.0
million revolving term credit facility that matures in
July 2013 (the "Credit Facility").
The loan facility bears interest based on floating interest rates
and is secured by a general security agreement covering all assets
of the Company. The maximum amount available under the Credit
Facility is subject to a borrowing base formula applied to accounts
receivable and inventories. The Credit Facility requires the
Company to maintain the ration of its debt to debt plus equity at
less than 40%. As at June 30, 2011,
this ratio was 7%. The Company must also maintain coverage of its
net operating cash flow as defined in the Credit Facility agreement
over interest expense for the trailing twelve month period of
greater than 1.25 times. As at June 30,
2011 this ratio was 28.5 times. The Credit Facility
contains certain other covenants with which the Company is in
compliance. As at June 30, 2011 the
Company had available undrawn borrowing capacity of $48.1 million under this Credit facility.
Contractual Obligations
There have been no material changes in
off-balance sheet contractual commitments since March 31, 2011.
Capital Stock
As at June 30,
2011 and 2010, the following shares and securities
convertible into shares were outstanding:
| (millions) |
June 30, 2011
Shares |
|
June 30, 2010
Shares |
| |
|
| Shares outstanding |
17.5 |
|
17.4 |
| Stock options |
0.9 |
|
1.2 |
| Share unit plan obligations |
0.7 |
|
0.6 |
| Shares outstanding and issuable |
19.1 |
|
19.2 |
The weighted average number of shares
outstanding during the second quarter of 2011 was 17.5 million,
which was consistent with the prior year period as the rise in the
Company's share price during the last year has limited the activity
occurring under the normal course issuer bid program. The diluted
weighted average number of shares outstanding was 18.2 million,
which is also consistent with the prior year quarter.
The Company has established an independent trust
to purchase common shares of the Company on the open market to
resource share unit plan obligations. During the three and six
month periods ended June 30, 2011,
50,000 common shares and 75,000 common shares were acquired by the
trust at an average cost per share of $9.25 and $9.27 per share respectively (Three and six
months ended June 30, 2010 - 92,500
and 129,300 common shares at an average cost per share of
$6.85 and $6.83 respectively). As at June 30, 2011, the trust held 511,895 shares
(June 30, 2010 - 448,581 shares).
On December 21,
2010, the Company announced the renewal of the NCIB, to
purchase up to 850,000 common shares representing approximately 5%
of its outstanding common shares. Shares may be purchased up to
December 31, 2011. As at June 30, 2011 the Company had purchased 3,102
shares at an average cost of $7.56
per share (June 30, 2010 - 49,278
shares at an average cost of $6.61
per share).
Critical Accounting Estimates
There have been no material changes to critical
accounting estimates since December 31,
2010. 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
These interim consolidated financial statements
for the period ended June 30, 2011
are prepared under IFRS. For all accounting periods prior to this,
the Company prepared its financial statements under Canadian
GAAP.
Transition to International Financial Reporting Standards
("IFRS")
In February 2008,
the Canadian Accounting Standards Board confirmed that the basis
for financial reporting by Canadian publicly accountable
enterprises will change from Canadian GAAP to IFRS effective for
January 1, 2011, including the
preparation and reporting of one year of comparative figures. This
change is part of a global shift to provide consistency in
financial reporting in the global marketplace.
Over the transition period the Company assessed
the differences between Canadian GAAP and IFRS. A risk based
approach was used to identify possibly significant differences
based on possible financial impact and complexity. As described in
Note 3 to the interim consolidated financial statements no material
differences were identified. As such there are no reconciling items
that materially changed the reporting requirements upon the
transition from Canadian GAAP to IFRS. Similarly, no
significant information system changes were required in order to
adopt IFRS.
IFRS 1 allows first time adopters of IFRS to
take advantage of a number of voluntary exemptions from the general
principal of retroactive restatement. In adopting IFRS, the Company
did take advantage of the following voluntary exemptions under IFRS
1.
Property and equipment
The Company has elected to use the historic cost model, as
presently used under Canadian GAAP and acceptable under IFRS.
Therefore the historical cost of Property and Equipment has been
brought forward into the consolidated interim financial statements
for the period ended June 30, 2011.
The Company wanted to maintain as much comparability as possible
upon transition given the nature and magnitude of the Company's
property and equipment.
Business Combinations
The Company has not applied IFRS 3, the Business Combinations
standard to acquisitions of subsidiaries that occurred before
January 1, 2010, the Company's
transition date to IFRS. As such there is no retrospective change
in accounting for business combinations. The Company used this
exemption to simplify its IFRS conversion plan and improve
comparability between its Canadian GAAP statements and its IFRS
statements.
Borrowing Costs
IAS 23 requires that borrowing costs directly attributable to
the acquisition, construction or production of a qualifying asset
(one that takes a substantial period of time to get ready for use
or sale) be capitalized as part of the cost of that asset. The
option of immediately expensing those borrowing costs has been
removed. The Company has elected to account for such transactions
on a go forward basis, and as such there is no retrospective change
in accounting for borrowing standards. The Company used this
exemption to simplify its IFRS conversion plan and improve
comparability between its Canadian GAAP statements and its IFRS
statements.
Stock Options
The Company has assessed and quantified the difference in
accounting for stock based compensation under IFRS compared to
Canadian GAAP and has deemed the difference to be immaterial. The
Company has elected to not apply IFRS 2 to share based payments
granted and full vested before the Company's date of transition to
IFRS. The Company used this exemption to simplify its IFRS
conversion plan and improve comparability between its Canadian GAAP
statements and its IFRS statements.
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 IFRS 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 six months ended June
30, 2011 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 including 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 since the year ended December
31, 2010 have occurred that would materially change the
business and market risk information disclosed in the Company's
Form 20F.
Forward Looking Statements
The information in the 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 2011 and
beyond;
- 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 circumstance after the date of
filing this MD&A, except as required by law.
Additional Information
Additional information relating to CE Franklin,
including its first quarter 2011 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 www.sedar.com and at
www.cefranklin.com.
| CE Franklin
Ltd. |
|
|
|
| CONDENSED INTERIM
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION -
UNAUDITED |
| |
|
|
|
| |
|
|
|
| |
|
As at June 30 |
As at December 31 |
| (in thousands of Canadian
dollars) |
|
2011 |
2010 |
| Assets |
|
|
|
| |
|
|
|
| Current assets |
|
|
|
| |
Accounts receivable (Note 4) |
|
81,194 |
92,950 |
| |
Inventories (Note 5) |
|
108,047 |
94,838 |
| |
Other |
|
3,619 |
1,625 |
| |
|
192,860 |
189,413 |
| Non-current assets |
|
|
|
| |
Property and equipment |
|
9,711 |
9,431 |
| |
Goodwill |
|
20,570 |
20,570 |
| |
Deferred tax assets (Note 6) |
|
1,408 |
1,116 |
| Other assets |
|
104 |
147 |
| Total Assets |
|
224,653 |
220,677 |
| |
|
|
|
| Liabilities |
|
|
|
| |
|
|
|
| Current liabilities |
|
|
|
| |
Accounts payable and accrued
liabilities (Note 7) |
|
56,344 |
63,363 |
| |
Current taxes payable |
|
- |
348 |
| |
|
56,344 |
63,711 |
| Non current liabilities |
|
|
|
| |
Long term debt (Note 8) |
|
12,225 |
6,430 |
| Total liabilities |
|
68,569 |
70,141 |
| |
|
|
|
| |
|
|
|
| Shareholders' equity |
|
|
|
| |
Capital stock (Note 11) |
|
23,060 |
23,078 |
| |
Contributed surplus |
|
20,245 |
19,716 |
| |
Retained earnings |
|
112,779 |
107,742 |
| |
|
156,084 |
150,536 |
| Total liabilities
and shareholders' equity |
|
224,653 |
220,677 |
See accompanying notes to these condensed interim
consolidated financial statements
| CE Franklin Ltd. |
|
|
|
|
|
|
|
|
|
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY - UNAUDITED |
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| (in thousands of Canadian dollars and number
of shares) |
Capital
Stock |
|
|
|
|
|
|
| |
Number
of
Shares |
$ |
|
Contributed Surplus |
|
Retained
Earnings |
|
Shareholders' Equity |
| |
|
|
|
|
|
|
|
|
| Balance - January 1, 2010 |
17,581 |
23,284 |
|
17,184 |
|
102,159 |
|
142,627 |
| Stock based compensation expense (Note 11
(b) and (c)) |
- |
- |
|
1,183 |
|
- |
|
1,183 |
| Normal Course Issuer Bid (Note 11 (d)) |
(49) |
(65) |
|
0 |
|
(261) |
|
(326) |
| Share Units exercised (Note 11 (c)) |
38 |
281 |
|
(281) |
|
0 |
|
0 |
| Purchase of shares in trust for Share Unit
Plans (Note 11 (c)) |
(129) |
(883) |
|
0 |
|
0 |
|
(883) |
| Options excercised from treasury |
3 |
20 |
|
- |
|
- |
|
20 |
| Deferred stock unit excerise |
- |
- |
|
(178) |
|
- |
|
(178) |
| Net earnings |
- |
- |
|
- |
|
2,105 |
|
2,105 |
| Balance - June 30, 2010 |
17,444 |
22,637 |
|
17,908 |
|
104,003 |
|
144,548 |
| |
|
|
|
|
|
|
|
|
| Balance - January 1, 2011 |
17,474 |
23,078 |
|
19,716 |
|
107,742 |
|
150,536 |
| Stock based compensation expense (Note 11
(b) and (c)) |
- |
- |
|
1,222 |
|
- |
|
1,222 |
| Normal Course Issuer Bid (Note 11 (d)) |
(3) |
(4) |
|
- |
|
(19) |
|
(23) |
| Stock options exercised (Note 11 (b)) |
87 |
611 |
|
(611) |
|
- |
|
- |
| Share Units exercised (Note 11 (c)) |
14 |
82 |
|
(82) |
|
- |
|
- |
| Purchase of shares in trust for Share Unit
Plans (Note 11 (c)) |
(75) |
(707) |
|
- |
|
- |
|
(707) |
| Net earnings |
- |
- |
|
- |
|
5,056 |
|
5,056 |
| Balance - June 30, 2011 |
17,497 |
23,060 |
|
20,245 |
|
112,779 |
|
156,084 |
See accompanying notes to these condensed interim
consolidated financial statements
| CE Franklin
Ltd. |
|
|
|
|
|
|
| CONDENSED INTERIM CONSOLIDATED STATEMENTS
OF EARNINGS AND COMPREHENSIVE INCOME - UNAUDITED |
| |
|
|
|
|
|
|
| |
|
Three months
ended |
|
Six
months ended |
| |
|
|
|
|
|
|
| (in thousands of Canadian
dollars except per share amounts) |
|
June 30
2011 |
June 30
2010 |
|
June 30
2011 |
June 30
2010 |
| Revenue |
|
113,866 |
99,905 |
|
251,567 |
221,784 |
| Cost of sales |
|
94,587 |
84,335 |
|
210,011 |
186,554 |
| Gross profit |
|
19,279 |
15,570 |
|
41,556 |
35,230 |
| |
|
|
|
|
|
|
| Other expenses |
|
|
|
|
|
|
| |
Selling, general and administrative expenses
(Note 14) |
|
16,399 |
14,700 |
|
33,380 |
30,304 |
| |
Depreciation |
|
601 |
618 |
|
1,203 |
1,235 |
| |
|
17,000 |
15,318 |
|
34,583 |
31,539 |
| |
|
|
|
|
|
|
| Operating profit |
|
2,279 |
252 |
|
6,973 |
3,691 |
| |
Foreign exchange (gain) loss and other |
|
(182) |
161 |
|
(172) |
85 |
| |
Interest expense |
|
78 |
191 |
|
172 |
431 |
| Earnings before tax |
|
2,383 |
(100) |
|
6,973 |
3,175 |
| |
|
|
|
|
|
|
| Income tax expense (recovery)
(Note 6) |
|
|
|
|
|
|
| |
Current |
|
808 |
61 |
|
2,168 |
1,076 |
| |
Deferred |
|
(107) |
(59) |
|
(251) |
(6) |
| |
|
701 |
2 |
|
1,917 |
1,070 |
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
| Net earnings (loss) and comprehensive income
(loss) |
|
1,682 |
(102) |
|
5,056 |
2,105 |
| |
|
|
|
|
|
|
| Net earnings (loss) per share (Note
12) |
|
|
|
|
|
|
| |
Basic |
|
0.10 |
(0.01) |
|
0.29 |
0.12 |
| |
Diluted |
|
0.09 |
(0.01) |
|
0.28 |
0.12 |
| |
|
|
|
|
|
|
| Weighted average number of shares
outstanding (000's) |
|
|
|
|
|
|
| |
Basic |
|
17,504 |
17,514 |
|
17,496 |
17,546 |
| |
Diluted (Note 12) |
|
18,225 |
17,514 |
|
18,157 |
17,818 |
| |
|
|
|
|
|
|
See accompanying notes to these condensed interim
consolidated financial statements
| CE Franklin
Ltd. |
|
|
|
|
|
|
| CONDENSED INTERIM CONSOLIDATED
STATEMENTS OF CASHFLOWS - UNAUDITED |
|
|
|
| |
|
|
|
|
|
|
| |
|
Three months ended |
|
Six months ended |
| |
|
June 30 |
June 30 |
|
June 30 |
June 30 |
| (in thousands of Canadian
dollars) |
|
2011 |
2010 |
|
2011 |
2010 |
| |
|
|
|
|
|
|
| Cash flows from operating
activities |
|
|
|
|
|
|
| |
Net earnings (loss) for the period |
|
1,682 |
(102) |
|
5,056 |
2,105 |
| |
Items not affecting cash - |
|
|
|
|
|
|
| |
Amortization |
|
601 |
618 |
|
1,203 |
1,235 |
| |
Future income tax (recovery) |
|
(107) |
(59) |
|
(251) |
(6) |
| |
Stock based compensation expense |
|
656 |
418 |
|
1,122 |
792 |
| |
Foreign exchange and
other |
|
(24) |
189 |
|
46 |
113 |
| |
|
2,808 |
1,064 |
|
7,176 |
4,239 |
Net change in non-cash working capital balances
related to operations - |
|
|
|
|
|
|
| |
Accounts receivable |
|
12,316 |
13,144 |
|
11,756 |
5,737 |
| |
Inventories |
|
(7,357) |
(5,442) |
|
(13,209) |
7,348 |
| |
Other current assets |
|
(1,894) |
(731) |
|
(1,994) |
1,966 |
| |
Accounts payable and accrued liabilities |
|
(19,238) |
(4,682) |
|
(7,019) |
9,099 |
| |
Current taxes
payable |
|
(361) |
(62) |
|
(348) |
948 |
| |
|
(13,726) |
3,291 |
|
(3,638) |
29,337 |
| |
|
|
|
|
|
|
| Cash flows used in investing
activities |
|
|
|
|
|
|
| |
Purchase of property and equipment |
|
(980) |
(327) |
|
(1,472) |
(458) |
| |
Proceeds on disposal of
property and eqipment |
|
45 |
- |
|
45 |
- |
| |
|
(935) |
(327) |
|
(1,427) |
(458) |
| |
|
|
|
|
|
|
| Cash flows (used in)/ from financing
activities |
|
|
|
|
|
|
| |
(Decrease) in bank operating loan |
|
- |
(1,078) |
|
- |
(26,549) |
| |
Increase in long term debt |
|
11,935 |
- |
|
5,795 |
- |
| |
Issuance of capital stock - stock options
exercised |
|
- |
19 |
|
- |
19 |
| |
Settlement of share unit plan obligations |
|
- |
(178) |
|
- |
(178) |
| |
Purchase of capital stock through normal course
issuer bid |
|
- |
(131) |
|
(23) |
(326) |
| |
Purchase of capital
stock in trust for Share Unit Plans |
|
(488) |
(634) |
|
(707) |
(883) |
| |
|
11,447 |
(2,002) |
|
5,065 |
(27,917) |
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
| Change in cash and cash equivalents
during the period |
|
(3,214) |
962 |
|
- |
962 |
| |
|
|
|
|
|
|
| Cash and cash
equivalents at the beginning of the period |
|
3,214 |
- |
|
- |
- |
| |
|
|
|
|
|
|
| Cash and cash
equivalents at the end of the period |
|
- |
962 |
|
- |
- |
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
| Cash paid during the period for: |
|
|
|
|
|
|
| |
Interest |
|
40 |
191 |
|
134 |
431 |
| |
Income taxes |
|
1,189 |
240 |
|
2,449 |
240 |
| |
|
|
|
|
|
|
See accompanying notes to these condensed 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)
1. General information
CE Franklin Ltd. (the "Company") is
headquartered and domiciled in Calgary,
Canada. The Company is a subsidiary of Schlumberger Limited,
a global energy services company. The address of the Company's
registered office is 1900, 300 5th Ave SW, Calgary, Alberta, Canada and it is
incorporated under the Alberta Business Corporations Act. The
Company is a distributor of pipe, valves, flanges, fittings,
production equipment, tubular products and other general industrial
supplies primarily to the oil and gas industry through its 45
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 oil sands, refining, and
petrochemical industries and non-oilfield related industries such
as forestry and mining.
2. Accounting policies
Basis of preparation and adoption of
IFRS
The Company prepares its financial statements in
accordance with Canadian generally accepted accounting principles
as set out in the Handbook of the Canadian Institute of Chartered
Accountants ("CICA Handbook"). In 2010, the CICA Handbook was
revised to incorporate International Financial Reporting Standards
("IFRS"), and require publicly accountable enterprises to apply
such standards effective for years beginning on or after
January 1, 2011. Accordingly, the
Company commenced reporting on this basis in its 2011 interim
consolidated financial statements. In these financial statements,
the term "Canadian GAAP" refers to Canadian GAAP before the
adoption of IFRS.
These interim consolidated financial statements
have been prepared in accordance with IFRS applicable to the
preparation of interim financial statements, including IAS 34,
Interim Financial Reporting, and IFRS 1, First-time
Adoption of International Financial Reporting Standards. The
accounting policies followed in these interim financial statements
are the same as those applied in the Company's interim financial
statements for the period ended March 31,
2011. The Company has consistently applied the same
accounting policies throughout all periods presented, as if these
polices had always been in effect. Note 3 discloses the impact of
the transition to IFRS on the Company's reported equity as at
June 30, 2010 and comprehensive
income for the three and six months ended June 30, 2010, including the nature and effect of
significant changes in accounting policies from those used in the
Company's consolidated financial statements for the year ended
December 31, 2010.
The accounting policies applied in these
condensed interim consolidated financial statements are based on
IFRS effective for the year ended December
31, 2011, as issued and outstanding as of July 28, 2011, the date the Board of Directors
approved the statements. Any subsequent changes to IFRS that are
given effect in the Company's annual consolidated financial
statements for the year ending December 31,
2011 could result in the restatement of these interim
consolidated financial statements, including transition adjustments
recognized on change-over to IFRS.
The condensed interim consolidated financial
statements should be read in conjunction with the Company's
Canadian GAAP annual financial statements for the year ended
December 31, 2010, and the Company's
interim financial statements for the quarter ended March 31, 2011 prepared in accordance with IFRS
applicable to interim financial statements.
3. Explanation of transition to IFRS
The Company does not have any material
differences between IFRS and Canadian GAAP. As such there are no
reconciling items that would materially change the reporting
requirements under Canadian GAAP to IFRS.
The interim consolidated financial statements
for the period ended March 31, 2011
were the Company's first financial statements prepared under IFRS.
For all accounting periods prior to this, the Company prepared its
financial statements under Canadian GAAP.
IFRS 1 allows first time adopters to IFRS to
take advantage of a number of voluntary exemptions from the general
principal of retrospective restatement. The Company has taken the
following exemptions:
Property and equipment
The Company has continued to use the historic
cost model, as was used under Canadian GAAP and acceptable under
IFRS. Therefore the historical cost of Property and Equipment has
been brought forward into these financial statements, as was
previously recorded under Canadian GAAP.
IFRS 2 Share based payments
The Company has elected to not apply IFRS 2 to
share based payments granted and fully vested before the Company's
date of transition to IFRS. The Company has assessed and quantified
the difference in accounting for stock based compensation under
IFRS compared to Canadian GAAP and has deemed the difference to be
immaterial.
IFRS 3 Business combinations
This standard has not been applied to
acquisitions of subsidiaries that occurred before January 1, 2010, the Company's transition date to
IFRS. As such, there is no retrospective change in accounting for
business combinations.
IAS 23 Borrowing costs
Borrowing costs requires an entity to capitalize
borrowing costs directly attributable to the acquisition,
construction or production of a qualifying asset (one that takes a
substantial period of time to get ready for use or sale) as part of
the cost of that asset. The option of immediately expensing those
borrowing costs has been removed. The Company has elected to
account for such transactions on a go forward basis. As such there
is no retrospective change in accounting for borrowing costs.
4. Accounts receivable
| |
June 30, 2011 |
|
December 31, 2010 |
|
| Current |
45,222 |
|
40,014 |
|
| Less than 60 days overdue |
27,379 |
|
41,253 |
|
| Greater than 60 days overdue |
7,889 |
|
5,519 |
|
| Total Trade receivables |
80,490 |
|
86,786 |
|
| Allowance for credit losses |
(1,551) |
|
(1,887) |
|
| Net trade receivables |
78,939 |
|
84,899 |
|
| Other receivables |
2,255 |
|
8,051 |
|
| |
81,194 |
|
92,950 |
|
A substantial portion of the Company's accounts
receivable balance is with customers within the oil and gas
industry and is subject to normal industry credit risks.
Concentration of credit risk in trade receivables is limited as the
Company's customer base is large and diversified. The Company
follows a program of credit evaluations of customers and limits the
amount of credit extended when deemed necessary.
The Company has established procedures in place
to review and collect outstanding receivables. Significant
outstanding and overdue balances are reviewed on a regular basis
and resulting actions are put in place on a timely basis.
Appropriate provisions are made for debts that may be impaired on a
timely basis.
The Company maintains an allowance for possible
credit losses that are charged to selling, general and
administrative expenses by performing an analysis of specific
accounts.
5. Inventories
The Company maintains net realizable value allowances against
slow moving, obsolete and damaged inventories that are charged to
cost of goods sold on the statement of earnings. These allowances
are included in the inventory value disclosed above. Movement of
the allowance for net realizable value is as follows:
| |
Six
months ended June 30, 2011 |
|
Year ended December 31, 2010 |
| |
|
| Opening balance as at January 1, |
5,000 |
|
6,300 |
| Additions |
630 |
|
900 |
| Utilization through (write downs) /
recoveries |
(1,230) |
|
(2,200) |
| Closing balance |
4,400 |
|
5,000 |
6. Taxation
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 |
|
Six Months Ended |
| |
June 30 |
|
June 30 |
| |
2011 |
% |
2010 |
% |
|
2011 |
% |
2010 |
% |
| Earnings before income
taxes |
2,383 |
|
(100) |
|
|
6,973 |
|
3,175 |
|
| Income taxes calculated at statutory rates |
635 |
26.6% |
(29) |
28.5% |
|
1,862 |
26.6% |
905 |
28.5% |
| Non-deductible items |
15 |
0.6% |
28 |
(28.0)% |
|
33 |
0.6% |
55 |
1.7% |
| Share based compensation |
48 |
2.0% |
55 |
(55.0)% |
|
62 |
0.9% |
130 |
4.1% |
| Capital taxes |
2 |
0.1% |
- |
- |
|
5 |
0.1% |
- |
- |
| Adjustments for filing
returns and others |
1 |
0.1% |
(52) |
52.5% |
|
(45) |
(0.6)% |
(20) |
(0.6)% |
| |
701 |
29.4% |
2 |
(2.0)% |
|
1,917 |
27.6% |
1,070 |
33.7% |
As at June 30,
2011, income taxes receivable was $21,000 (June 30,
2010 - $111,000 receivable).
Income tax expense is based on management's best estimate of the
weighted average annual income tax rate expected for the full
financial year.
Significant components of deferred tax assets
and liabilities are as follows:
| As at |
|
June 30, 2011 |
|
December 31, 2010 |
| Assets |
|
|
|
|
| |
Property and equipment |
|
907 |
|
870 |
| |
Stock based compensation expense |
|
768 |
|
487 |
| |
Other |
|
135 |
|
156 |
| |
|
1,810 |
|
1,513 |
| Liabilities |
|
|
|
|
| Goodwill and
other |
|
402 |
|
397 |
| Net Deferred tax
asset |
|
1,408 |
|
1,116 |
Deductible temporary differences are recognized to the extent
that it is probable that taxable profit will be available against
which the deductible temporary differences can be utilized.
7. Accounts payable and accrued liabilities
| |
June 30, 2011 |
|
December 31, 2010 |
|
| Current |
|
|
|
|
| Trade payables |
23,304 |
|
23,966 |
|
| Other payables |
5,660 |
|
7,057 |
|
| Accrued compensation expenses |
2,175 |
|
2,434 |
|
| Other accrued liabilities |
25,205 |
|
29,906 |
|
| |
56,344 |
|
63,363 |
|
| |
|
|
|
|
8. Long term debt and bank operating
loan
| |
June 30, 2011 |
|
December 31, 2010 |
| JEN Supply debt |
290 |
|
290 |
| Bank operating loan |
11,935 |
|
6,140 |
| Long term debt |
12,225 |
|
6,430 |
In July of 2010, the Company entered into a
$60.0 million revolving term Credit
Facility that matures in July
2013. The Credit Facility replaced the existing
$60.0 million, 364 day bank operating
loan. Borrowings under the Credit Facility bear interest based on
floating interest rates and are secured by a general security
agreement covering all assets of the Company. The maximum amount
available under the Credit Facility is subject to a borrowing base
formula applied to accounts receivable and inventories. The Credit
Facility requires that the Company maintains the ratio of its debt
to debt plus equity at less than 40%. As at June 30, 2011, this ratio was 7% (December 31, 2010 - 4%). The Company must also
maintain coverage of its net operating cash flow as defined in the
Credit Facility agreement, over interest expense for the trailing
twelve month period, at greater than 1.25 times. As at June 30, 2011, this ratio was 28.5 times
(December 31, 2010 - 14.1
times). The Credit Facility contains certain other covenants,
with which the Company is in compliance and has been for the
comparative periods. As at June 30,
2011, the Company had borrowed $11.9
million and had available undrawn borrowing capacity of
$48.1 million under the Credit
Facility. In management's opinion, the Company's available
borrowing capacity under its Credit Facility and ongoing cash flow
from operations, are sufficient to resource its ongoing
obligations.
The JEN Supply debt is unsecured and bears
interest at the floating Canadian bank prime rate and is repayable
in 2012.
9. Capital management
The Company's primary source of capital is its
shareholders' equity and cash flow from operating activities before
net changes in non-cash working capital balances. The Company
augments these capital sources with a $60
million, revolving bank term loan facility maturing in
July 2013 (see Note 8) which is used
to finance its net working capital and general corporate
requirements. The Company's objective is to maintain adequate
capital resources to sustain current operations including meeting
seasonal demands of the business and the economic cycle. The
Company's capital is summarised as follows:
| |
June 30, 2011 |
|
December 31, 2010 |
|
| Shareholders' equity |
156,084 |
|
150,536 |
|
| Long term debt / Bank operating loan |
12,225 |
|
6,430 |
|
| Net working capital |
136,516 |
|
125,702 |
|
Net working capital is defined as current assets less cash
and cash equivalents, accounts payable and accrued liabilities,
income taxes payable and other current liabilities.
10. Related party transactions
Schlumberger owns approximately 56% 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 Schlumberger. Purchases of such equipment conducted in the
normal course on commercial terms were as follows:
| For the six months
ended June 30 |
|
2011 |
|
2010 |
| Cost of sales for the three months ended |
|
1,803 |
|
1,582 |
| Cost of sales for the six months ended |
|
4,088 |
|
3,697 |
| Inventory |
|
4,842 |
|
3,631 |
| Accounts payable and accrued liabilities |
|
1,141 |
|
601 |
| Accounts receivable |
|
2 |
|
- |
11. Capital Stock
a) The Company has
authorized an unlimited number of common shares with no par value.
At June 30, 2011, the Company had
17.5 million common shares, 0.9 million stock options and 0.7
million share units outstanding.
b) The Board of
Directors may grant options to purchase common shares to
substantially all employees, officers and directors and to persons
or corporations who provide management or consulting services to
the Company. The exercise period and the vesting schedule
after the grant date are not to exceed 10 years.
Option activity for each of the six month
periods ended June 30 was as
follows:
| 000's |
|
2011 |
|
2010 |
| Outstanding - January 1 |
|
1,073 |
|
1,195 |
| Granted |
|
- |
|
- |
| Exercised |
|
(87) |
|
(15) |
| Forfeited |
|
(54) |
|
(7) |
| Outstanding at June
30 |
|
932 |
|
1,173 |
| Exercisable at June
30 |
|
799 |
|
870 |
Stock based compensation expense recorded for
the three and six month period ended June
30, 2011 was $164,000 (2010 -
$117,000) and $231,000 (2010 - $171,000) respectively and is included in
selling, general and administrative expenses on the Consolidated
Statement of Earnings and Comprehensive Income. No options
were granted during the six month period ended June 30, 2011 or the year ended December 31, 2010. Options vest one third or one
fourth per year from the date of grant.
Prior to the fourth quarter of 2010, the
Company's stock option plan included a cash settlement mechanism.
Stock options were revalued at each period end using the Black
Scholes pricing model, using the following assumptions:
| |
|
2010 |
|
| Dividend yield |
|
Nil |
|
| Risk-free interest rate |
|
3.48% |
|
| Expected life |
|
5 years |
|
| Expected volatility |
|
63.2% |
|
Note: Expected volatility is based on
historical volatility.
During the fourth quarter of 2010, the Company
discontinued the settlement of stock option obligations with cash
payments in favour of issuing shares from treasury. At the time of
this plan modification, the current liability of $2,075,000 was transferred to contributed surplus
on the Company's consolidated statement of financial position.
c) Share Unit
Plans
The Company has Restricted Share Unit ("RSU"),
Performance Share Unit ("PSU") and Deferred Share Unit ("DSU")
plans (collectively the "Share Unit Plans"), where by RSU's, PSU's
and DSU's are granted entitling the participant, at the Company's
option, to receive either a common share or cash equivalent in
exchange for a vested unit. For the PSU plan the number of units
granted is dependent on the Company meeting certain return on net
asset ("RONA") performance thresholds during the year of grant. The
multiplier within the plan ranges from 0% - 200% dependent on
performance. RSU and PSU grants vest one third per year over the
three year period following the date of the grant. DSU's vest on
the date of grant, and can only be redeemed when the Director
resigns from the Board.
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
contributed surplus. The contributed surplus balance is
reduced as the vested units are exchanged for either common shares
or cash. During the six month period ended June 30, 2011 and 2010, the fair value of the
RSU, PSU and DSU units granted was $2,009,000 (2010 - $1,956,000) and compensation expense recorded in
the three and six month period ended June
30, 2011, were $433,000 (2010
- $301,000) and $791,000 (2010 - $621,000).
Share Unit Plan activity for the periods ended June 30, 2011, and December 31, 2010 was as follows:
| (000's) |
June
30, 2011
Number of Units |
|
December 31, 2010
Number of Units |
| |
RSU |
PSU |
DSU |
Total |
|
RSU |
PSU |
DSU |
Total |
| Outstanding at January 1 |
273 |
97 |
80 |
450 |
|
223 |
53 |
98 |
374 |
| Granted |
116 |
101 |
22 |
239 |
|
145 |
132 |
31 |
308 |
| Performance adjustments |
- |
- |
- |
- |
|
- |
(77) |
- |
(77) |
| Excercised |
(10) |
(3) |
- |
(13) |
|
(82) |
(7) |
(49) |
(138) |
| Forfeited |
- |
- |
- |
- |
|
(13) |
(4) |
- |
(17) |
| Outstanding at end of period |
379 |
195 |
102 |
676 |
|
273 |
97 |
80 |
450 |
| Exercisable at end of period |
116 |
43 |
102 |
261 |
|
30 |
10 |
80 |
120 |
The Company has established an independent trust
to purchase common shares of the Company on the open-market to
satisfy Share Unit Plan obligations. The Company's intention is to
settle all share based obligations with shares delivered from the
trust. The trust is considered to be a special interest entity and
is consolidated in the Company's financial statements with the cost
of the shares held in trust reported as a reduction to capital
stock. For the six month period ended June 30, 2011, 75,000 common shares were
purchased by the trust (2010 - 129,300) at an average cost of
$9.27 per share (2010 - $6.83). As at June
30, 2011, the trust held 511,895 shares (2010 -
448,581).
d) Normal Course
Issuer Bid ("NCIB")
On December 21,
2010, the Company announced a NCIB to purchase for
cancellation up to 850,000 common shares representing approximately
5% of its outstanding common shares. During the six months ended
June 30, 2011, the company purchased
3,102 shares at an average cost of $7.56 (2010: 49,278 shares purchased at an
average cost of $6.61).
12. Earnings per share
Basic
Basic earnings per share is calculated by
dividing the net income attributable to shareholders by the
weighted average number of ordinary shares in issue during the
year.
Dilutive
Diluted earnings per share are calculated using
the treasury stock method, as if RSU's, PSU's, DSU's and stock
options were exercised at the beginning of the year and funds
received were used to purchase the Company's common shares on the
open market at the average price for the year.
| |
Three
Months Ended |
|
|
Six Months
Ended |
| |
June 30 |
|
|
June 30 |
| |
2011 |
2010 |
|
|
2011 |
2010 |
| Total Comprehensive income attributable to
shareholders |
1,682 |
(102) |
|
|
5,056 |
2,105 |
| Weighted average number of common shares issued
(000's) |
17,504 |
17,514 |
|
|
17,496 |
17,546 |
| Adjustments for: |
|
|
|
|
|
|
| |
Stock options |
295 |
326 |
|
|
256 |
326 |
| |
Share Units |
426 |
(55) |
|
|
405 |
(53) |
| Weighted average number of ordinary shares for
dilutive |
18,225 |
17,785 |
|
|
18,157 |
17,819 |
| Net earnings per share: Basic |
0.10 |
(0.01) |
|
|
0.29 |
0.12 |
| Net earnings per share: Diluted |
0.09 |
(0.01) |
|
|
0.28 |
0.12 |
13. Financial instruments
a) Fair values
The Company's financial instruments recognized
on the consolidated statements of financial position consist of
accounts receivable, accounts payable and accrued liabilities and
long term debt. The fair values of these financial instruments,
excluding long term debt, approximate their carrying amounts due to
their short- term maturity. At June 30,
2011, the fair value of the long term debt approximated
their carrying values due to their floating interest rate nature
and short term maturity. Long term debt is initially recorded at
fair value and subsequently measured at amortized cost using the
effective interest rate method.
b) Credit Risk is described in Note
4.
c) Market Risk and Risk Management
The Company's long term debt bears interest
based on floating interest rates. As a result the Company is
exposed to market risk from changes in the Canadian prime interest
rate which can impact its borrowing costs. Based on the Company's
borrowing levels as at June 30, 2011,
a change of one percent in interest rates would decrease or
increase the Company's annual net income by $0.1 million.
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. The Company is exposed to possible losses in the event
of non-performance by counterparties. The Company manages this
credit risk by entering into agreements with counterparties that
are substantially all investment grade financial institutions. The
Company's foreign exchange risk arises principally from the
settlement of United States dollar
dominated net working capital balances as a result of product
purchases denominated in United
States dollars. As at June 30,
2011, the Company had contracted to purchase US$19.4 million at fixed exchange rates with
terms not exceeding nine months (December
31, 2010 - $6.5 million). The
fair market values of the contracts were nominal at June 30, 2011 and December
31, 2010 respectively. As at June 30,
2011, a one percent change in the Canadian dollar relative
to the US dollar would be expected to not have a material impact on
net earnings.
14. Selling, general and administrative ("SG&A")
Costs
Selling, general and administrative costs for
the three and six month periods ended June
30 are as follows:
| |
Three months ended |
|
Six months ended |
| |
2011 |
2010 |
|
2011 |
2010 |
| |
$ |
% |
$ |
% |
|
$ |
% |
$ |
% |
| Salaries and Benefits |
10,021 |
61% |
8,699 |
59% |
|
20,313 |
61% |
17,565 |
58% |
| Selling Costs |
1,081 |
7% |
940 |
6% |
|
2,553 |
8% |
2,739 |
9% |
| Facility and office costs |
3,540 |
22% |
3,436 |
23% |
|
7,252 |
22% |
6,865 |
23% |
| Other |
1,757 |
10% |
1,625 |
12% |
|
3,262 |
9% |
3,135 |
10% |
| SG&A costs |
16,399 |
100% |
14,700 |
100% |
|
33,380 |
100% |
30,304 |
100% |
| |
|
|
|
|
|
|
|
|
|
15. Segmented reporting
The Company distributes oilfield products
principally through its network of 45 branches located in western
Canada primarily to oil and gas
industry customers. Accordingly, the Company has determined
that it operated through a single operating segment and geographic
jurisdiction.
16. Seasonality
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.
Revenue 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 decline in revenues typically out paces the
decline in SG&A costs as the majority of the Company's SG&A
costs are fixed in nature. Net working capital (defined as current
assets less cash and cash equivalents, accounts payable and accrued
liabilities, income taxes payable and other current liabilities)
and bank revolving loan borrowing levels follow similar seasonal
patterns as revenues.
SOURCE CE Franklin Ltd.