CE Franklin Ltd. announces 2008 Fourth Quarter and Year End Results



    CALGARY, Jan. 29 /CNW/ - CE FRANKLIN LTD. (TSX.CFT, AMEX.CFK) reported
record net income of $8.8 million or $0.48 per share (basic) for the fourth
quarter ended December 31, 2008, an increase of 267% over the $2.4 million or
$0.13 per share earned in the fourth quarter ended December 31, 2007. For
2008, net income was $21.7 million or $1.19 per share (basic), an increase of
60% over the $13.6 million or $0.74 per share of net income earned in 2007.

    
    Financial Highlights
    --------------------

    (millions of Cdn.$ except      Three Months Ended         Year Ended
     per share data)                  December 31             December 31
                              ----------------------- -----------------------
                                    2008        2007        2008        2007
                              ----------- ----------- ----------- -----------
                                       (unaudited)             (unaudited)

    Sales                     $    161.2  $    112.3  $    547.4  $    466.3

    Gross profit                    33.9        20.4       107.7        84.6
    Gross profit - % of sales      21.0%       18.2%       19.7%       18.1%

    EBITDA(1)                       14.3         5.1        35.8        25.7
    EBITDA(1) % of sales            8.9%        4.5%        6.5%        5.5%

    Net income                $      8.8  $      2.4  $     21.7  $     13.6

    Per share - basic         $     0.48  $     0.13  $     1.19  $     0.74
              - diluted       $     0.47  $     0.13  $     1.17  $     0.72

    Net working capital(2)    $    142.8  $    134.7
    Bank operating loan(2)    $     34.9  $     44.3
    

    "2008 was the second most profitable year in the Company's history. CE
Franklin is entering a challenging business environment in 2009 with a strong
balance sheet and attractive strategies to strengthen its distribution
network, product lines and end use markets," said Michael West, President and
CEO.
    Net income for the fourth quarter of 2008 was a record $8.8 million, up
$6.4 million from the fourth quarter of 2007. Sales reached $161.2 million, an
increase of $48.9 million (44%) from the fourth quarter of 2007. Capital
project business comprised 60% of sales, and increased $34.6 million (55%)
over the prior year period, driven by a 39% increase in well completions over
the comparable period. Continued growth of oil sands revenues and increased
tubular steel sales also contributed to increased capital project sales.
Extremely tight tubular steel supply conditions during 2008 have resulted in
product cost increases in excess of 50%, and contributed to the increase in
sales. The acquisition of JEN Supply Inc. ("JEN Supply") in the fourth quarter
of 2007 contributed to the increase in Maintenance, Repair and Operating
supplies ("MRO") sales. Gross profit increased by $13.5 million (66%) over the
prior year period due to the increase in sales and gross profit margins. Gross
profit margins for the fourth quarter were 21.0% up from the prior year period
at 18.2%. Selling, general and administrative expenses increased by $4.1
million to $19.4 million for the quarter due to increased variable
compensation driven by the increase in earnings, increased facility costs with
the opening of the new Edmonton Distribution Centre during the second quarter,
and the addition of the JEN Supply operating costs. Lower interest expense was
associated with reduced average debt levels and lower floating interest rates
in the fourth quarter of 2008 as compared to the same period in 2007. Income
taxes increased by $3.2 million in the fourth quarter compared to the prior
year period due to higher pre-tax earnings offset slightly by a reduction in
income tax rates. The weighted average number of shares outstanding during the
fourth quarter was down slightly from the prior year period. Net income per
share (basic) was $0.48 in the fourth quarter of 2008, an increase of 269%
over the $0.13 earned in the fourth quarter of 2007, consistent with the
increase in net earnings.
    Net income for the year ended December 31, 2008 was $21.7 million, up
$8.1 million (60%) from the year ended December 31, 2007. Sales reached $547.4
million, up $81.2 million (17%) compared to the prior year. The increase in
sales was attributable to increased tubular product prices, the acquisitions
of JEN Supply and Full Tilt Field Services Limited ("Full Tilt") and increased
oil sands and conventional oilfield market share and industry activity.
Average rig count increased by 8% and well completions increased by 2% from
prior year levels. Gross profit increased by $23.1 million (27%) over the
prior year to a record $107.7 million, due to increased sales and gross profit
margins. Increased supplier rebates associated with higher purchasing levels,
and increased tubular margins were the principal reasons for the improvement
in margins. Selling, general and administrative expenses increased by $13.5
million (23%) in 2008 to $71.6 million due to the addition of operating
expenses associated with the JEN Supply and Full Tilt acquisitions, increased
variable compensation expense driven by the increase in earnings, and
increased facility costs associated with the opening of the new Distribution
Centre in the second quarter of 2008. Interest expense declined due to reduced
average debt levels and floating interest rates in 2008. Income taxes
increased by $3.4 million in 2008 due to higher pre-tax earnings offset
slightly by a reduction in income tax rates. The weighted average number of
shares outstanding during the year was down slightly compared to the prior
year. Net income per share (basic) was $1.19 for the year, an increase of 61%,
consistent with the increase in net income.

    Business Outlook

    The recent upheaval in global credit markets has contributed to
significant capital market volatility, resulting in deleveraging, repricing of
risk and ultimately the retrenchment of consumption. Oil and gas markets have
experienced similar upheaval. Our customers continue to assess the impact of
these changes on their businesses and capital expenditure plans in 2009. We
expect oil and gas well completions will decline sharply in 2009 to levels not
seen since 2002. Approximately 60% of the Company's sales are driven by our
customers' capital project expenditures.
    The Company expects these conditions will contribute to increased
consolidation of oil and gas customers, stable to deflationary product costs
and improved labour availability. We enter 2009 with a strong balance sheet
and are positioned to pursue our strategies to increase market share in both
the conventional oilfield and oil sands markets.
    Over the medium to longer term, the Company is confident that it can
continue to strengthen and improve the profitability of its distribution
network by expanding its product lines, supplier relationships and capability
to service additional oil and gas and industrial end use markets.

    
    (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 table on page 4 of this
        press release. 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.
    

    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 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. 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. The 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., a major oilfield service company based in
the United States, owns 54% of the Company's shares.

    
    Business and Operating Strategy

    The Company is pursuing the following strategies to grow its business 
profitably:

    -   Expand the reach and market share serviced by our distribution
        network. We are focusing our sales efforts and product offering on
        servicing complex, multi-site needs of large and emerging customers
        in the energy sector. In 2008 we continued to invest in our
        distribution network by opening a branch operation in Red Earth,
        Alberta and by expanding our facilities at five existing branch
        operations. Last spring, we successfully completed the move to our
        new 151,000 square foot Distribution Centre and nine acre pipe yard
        located in Edmonton, Alberta which positions us to service our
        growing distribution network. Organic growth is expected to be
        complemented by selected acquisitions such as the December 2007
        acquisition of JEN Supply which increased our market share in two
        existing markets and expanded our presence in two additional markets.

    -   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. This will differentiate our service
        offering from our competitors and deepen our relationship with
        customers. In the first quarter of 2009, we plan to open a valve
        actuation centre at our Distribution Centre, to service our
        customers' valve automation requirements. The acquisition of 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;
        position us to attract new customers to our core oilfield equipment
        distribution business.

    -   Focus on the oil sands and industrial project and MRO business by
        leveraging our existing supply chain infrastructure, product and
        project expertise. The Company is expanding its product line and
        supplier relationships and expertise to provide the automation,
        instrumentation and other specialty products that these customers
        require.

    Fourth Quarter Operating Results

    The following table summarizes CE Franklin's results of operations:

    (in millions of Cdn. dollars except per share data)

                                      Three Months Ended December 31
                              -----------------------------------------------
                                       2008                    2007
                              ----------------------- -----------------------
    Sales                     $    161.2      100.0%  $    112.3      100.0%
      Cost of sales               (127.3)    (79.0)%       (91.9)    (81.8)%
                              ----------- ----------- ----------- -----------
      Gross profit                  33.9       21.0%        20.4       18.2%

    Selling, general and
     administrative expenses       (19.5)    (12.1)%       (15.3)    (13.6)%
    Foreign exchange loss           (0.1)         -            -        0.0%
                              ----------- ----------- ----------- -----------

    EBITDA                          14.3        8.9%         5.1        4.5%
    Amortization                    (0.6)     (0.4)%        (0.7)     (0.6)%
    Interest                        (0.2)     (0.1)%        (0.5)     (0.4)%
                              ----------- ----------- ----------- -----------
    Income before taxes             13.5        8.4%         3.9        3.5%
    Income tax expense              (4.7)     (2.9)%        (1.5)     (1.3)%
                              ----------- ----------- ----------- -----------
    Net income                       8.8        5.5%         2.4        2.1%
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    Net income per share
      Basic                   $     0.48              $     0.13
      Diluted                 $     0.47              $     0.13

    Weighted average number of shares outstanding
    (000's)

      Basic                       18,149                  18,393
      Diluted                     18,392                  18,863


    (in millions of Cdn. dollars except per share data)

                                          Year Ended December 31
                              -----------------------------------------------
                                       2008                    2007
                              ----------------------- -----------------------
    Sales                     $    547.4      100.0%      $466.3      100.0%
      Cost of sales               (439.7)    (80.3)%      (381.7)    (81.9)%
                              ----------- ----------- ----------- -----------
      Gross profit                 107.7       19.7%        84.6       18.1%

    Selling, general and
     administrative expenses       (71.6)    (13.1)%       (58.1)    (12.4)%
    Foreign exchange loss           (0.2)     (0.0)%        (0.8)     (0.2)%
                              ----------- ----------- ----------- -----------

    EBITDA                          35.8        6.5%        25.7        5.5%
    Amortization                    (2.4)     (0.4)%        (2.8)     (0.6)%
    Interest                        (1.0)     (0.2)%        (2.0)     (0.4)%
                              ----------- ----------- ----------- -----------
    Income before taxes             32.4        6.0%        20.9        4.5%
    Income tax expense             (10.7)     (2.0)%        (7.3)     (1.6)%
                              ----------- ----------- ----------- -----------
    Net income                      21.7        4.0%        13.6        2.9%
                              ----------- ----------- ----------- -----------
                              ----------- ----------- ----------- -----------
    Net income per share
      Basic                   $     1.19              $     0.74
      Diluted                 $     1.17              $     0.72

    Weighted average number of shares outstanding
    (000's)

      Basic                       18,255                  18,337
      Diluted                     18,561                  18,807


    Sales

    Sales for the quarter ended December 31, 2008 were $161.2 million, up 44%
from the quarter ended December 31, 2007, as detailed above in the "Financial
Highlights" discussion.

    (in millions of Cdn. $)

                        Three months ended Dec 31       Year ended Dec 31
                        -------------------------   -------------------------
                            2008         2007           2008         2007
                        ------------ ------------   ------------ ------------
    End use
     sales demand            $    %       $    %         $    %       $    %
    Capital projects      97.3   60    62.7   56     314.0   57   269.6   58
    Maintenance,
     repair and
     operating
     supplies (MRO)       63.9   40    49.6   44     233.4   43   196.7   42
                        ------------ ------------   ------------ ------------
    Total sales          161.2  100   112.3  100     547.4  100   466.3  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 drives well completion requirements. The
relative level of oil and gas commodity prices are a key driver of industry
capital project activity as product prices directly impact the economic
returns realized by oil and gas companies. Well completion, rig count and
commodity price information for the fourth quarter and years 2008 and 2007 are
provided in the table below.

    
                                Q4 Average             Year Average
                             ---------------     %   ---------------     %
                                2008    2007  change    2008    2007  change
                             ------- ------- --------------- ------- -------
    Gas - Cdn. $/gj
     (AECO spot)               $6.76   $6.16     10%   $8.18   $6.47     26%
    Oil - Cdn. $/bbl
     (Synthetic Crude)        $65.19  $85.70   (24%) $103.03  $76.48     35%

    Average rig count            387     386      0%     398     367      8%

    Well completions:
      Oil                      2,160   1,480     46%   6,223   5,443     14%
      Gas                      4,811   3,546     36%  12,342  12,717     (3%)
                             ------- ------- --------------- ------- -------
    Total well completions     6,971   5,026     39%  18,565  18,160      2%

    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 $97.3 million in the
fourth quarter of 2008, up 55% ($34.6 million) from the fourth quarter of
2007. Total well completions increased by 39% to 6,971 in the fourth quarter
of 2008 while the average working rig count was comparable to the prior year
period at 387 rigs. Gas wells comprised 69% of the total wells completed in
western Canada in the fourth quarter of 2008 compared to 71% in the fourth
quarter of 2007. Oil and gas capital expenditure activity began to recover in
the second and third quarters of 2008 and continued through the fourth quarter
resulting in part from emerging gas exploration plays in northeast British
Columbia and oil pool development in southeast Saskatchewan combined with
strong oil and gas prices earlier in the year. Spot gas and oil prices ended
the fourth quarter at $6.63 per GJ (AECO) and $34.61 per bbl (Synthetic
Crude), a decrease of 2% and 47%, respectively, from fourth quarter average
prices. This, in combination with the volatility experienced across global
capital markets, is expected to result in reduced industry cash flow, access
to capital and capital expenditure economics, which in turn is expected to
decrease demand for the Company's products in 2009.
    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 December 31, 2008 increased by $14.3 million (29%)
to $63.9 million compared to the quarter ended December 31, 2007 and comprised
40% of the Company's total sales. The acquisition of JEN Supply in December
2007 contributed incremental sales of $6.4 million.
    The Company's strategy is to grow profitability by focusing on its core
western Canadian oilfield equipment service 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 sales opportunities.
Revenue results of these initiatives to date are provided below:

    
                          Q4 2008      Q4 2007          2008         2007
                        ------------ ------------   ------------ ------------
    Sales ($millions)        $    %       $    %         $    %       $    %
    Oilfield             141.9   88   107.1   95     491.3   90   431.4   93
    Oil sands             14.5    9     2.9    3      39.4    7    23.7    5
    Production
     services              4.8    3     2.3    2      16.7    3    11.2    2
                        ------------ ------------   ------------ ------------
    Total sales          161.2  100   112.3  100     547.4  100   466.3  100
    

    Sales of oilfield products to conventional western Canada oil and gas end
use applications were $141.9 million for the fourth quarter of 2008, up 32%
from the fourth quarter of 2007. Over half of this increase was comprised of
incremental sales from the acquisition of JEN Supply and the increased sale of
tubular steel products with the remaining increase driven by the 39% increase
in well completions compared to the prior year period.
    Sales to oil sands end use applications increased to $14.5 million in the
fourth quarter compared to $2.9 million in the fourth quarter of 2007. The
Company continues to position its sales focus and Distribution Centre and Fort
McMurray branch to penetrate this emerging market for capital project and MRO
products.
    Production service sales were $4.8 million in the fourth quarter of 2008
compared to $2.3 million in the fourth quarter of 2007. Full Tilt was acquired
at the end of the second quarter of 2007, which provides oilfield engine
maintenance and crane equipment services based in Lloydminster.

    
    Gross Profit

                                 Q4 2008     Q4 2007        2008        2007
                              ----------- ----------- ----------- -----------

    Gross profit (millions)       $ 33.9      $ 20.4      $107.7      $ 84.6
    Gross profit margin as
     a % of sales                  21.0%       18.2%       19.7%       18.1%

    Gross profit composition
     by product sales
     category:
    Tubulars                         15%          9%         13%          8%
    Pipe, flanges and
     fittings                        32%         29%         31%         32%
    Valves and accessories           15%         18%         17%         18%
    Pumps, production equipment
     and services                    13%         17%         15%         17%
    General                          25%         27%         24%         25%
                              ----------- ----------- ----------- -----------
    Total gross profit              100%        100%        100%        100%
    

    Gross profit reached a record $33.9 million in the fourth quarter of
2008, up $13.5 million (66%) from the fourth quarter of 2007 due to the 44%
increase in sales and improved gross profit margins due to increased supplier
rebates associated with higher purchasing levels and improved tubular margins
reflecting tight product supply conditions. Gross profit composition in the
fourth quarter of 2008 remained fairly consistent with the prior year period
with the exception of tubulars, where sales and gross profit increased due in
part to the product cost inflation of steel and tight product supply
conditions.

    
    Selling, General and Administrative ("SG&A") Costs

                         Q4 2008       Q4 2007         2008          2007
                     ------------- ------------- ------------- -------------
    ($millions)           $      %      $      %      $      %      $      %
    People costs       11.4     59    8.6     56   41.3     58   32.8     57
    Selling costs       3.2     16    2.4     16   10.2     14    7.8     13
    Facility and
     office costs       3.3     17    2.4     16   12.8     18    9.7     17
    Other               1.6      8    2.0     12    7.3     10    7.8     13
                     ------------- ------------- ------------- -------------
    SG&A costs         19.5    100   15.4    100   71.6    100   58.1    100
    SG&A costs as %
     of sales           12%           14%           13%           12%
    

    SG&A costs increased $4.1 million (27%) in the fourth quarter of 2008
from the prior year period and represented 12% of sales compared to 14% in the
prior year period. The increase in people costs of $2.8 million reflects
increased variable compensation due to the increase in earnings and a 13%
increase in the number of employees. Selling costs were up $0.8 million
compared to the prior year period due to increased sales commissions and
accounts receivable bad debt allowances. Facility and office costs have
increased in the fourth quarter of 2008 as the Company moved into a new,
larger distribution centre in Edmonton in the second quarter. The addition of
the JEN Supply facilities and continued occupancy cost pressure in western
Canada contributed the remaining increase in cost. The Company leases 34 of
its 44 branch locations as well as its corporate office in Calgary and
Distribution Centre. Five branch locations are owned and five are operated by
agents. The Company mitigates the cyclical nature of industry activity levels
by adjusting its variable and fixed (primarily salaries and benefits) SG&A
costs as activity levels change.

    Amortization Expense

    Amortization expense of $0.6 million in the fourth quarter of 2008 was
comparable to the fourth quarter of 2007.

    Interest Expense

    Interest expense was $0.2 million in the fourth quarter of 2008, down
$0.3 million (53%) from the fourth quarter of 2007 due to lower average
borrowing levels and a decline in average floating interest rates.

    Foreign Exchange Loss

    Foreign exchange losses were nominal at $0.1 million, despite
significantly increased exchange rate volatility in the fourth quarter of
2008, and amounts were consistent with the fourth quarter of 2007. Losses
reflect the impact of the weakening Canadian dollar on United States dollar
denominated product purchases and net working capital liabilities.

    Income Tax Expense

    The Company's effective tax rate for the fourth quarter of 2008 was
35.0%, compared to 38.3% in the fourth quarter of 2007. This decrease was due
principally to a reduction in statutory 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            Q1     Q2     Q3     Q4     Q1     Q2     Q3     Q4
                       2007   2007   2007   2007   2008   2008   2008   2008
                     ------- ----- ------ ------ ------- ----- ------ -------

    Sales            $154.3  $82.9 $116.8 $112.3 $140.6  $96.4 $149.3 $161.2

    Gross profit       26.3   16.8   21.0   20.4   27.1   19.0   27.8   33.9
    Gross profit %    17.0%  20.3%  18.0%  18.2%  19.3%  19.7%  18.6%  21.0%

    EBITDA             11.0    2.2    7.4    5.1   10.2    2.3    9.1   14.3
    EBITDA as a
     % of sales        7.1%   2.7%   6.4%   4.5%   7.2%   2.4%   6.1%   8.9%

    Net income          6.4    0.6    4.1    2.4    6.3    1.0    5.7    8.8
    Net income as a
     % of sales        4.1%   0.7%   3.6%   2.1%   4.5%   1.0%   3.8%   5.5%

    Net income
     per share
      Basic           $0.35  $0.03  $0.22  $0.13  $0.34  $0.05  $0.31  $0.48
      Diluted         $0.34  $0.03  $0.22  $0.13  $0.34  $0.05  $0.31  $0.47

    Net working
     capital(1)       124.0  127.0  128.7  134.7  117.4  114.9  123.1  142.8
    Bank operating
     loan(1)           33.6   36.0   35.4   44.3   21.8   18.4   20.9   34.9

    Total well
     completions      6,200  3,057  3,877  5,026  4,595  2,607  4,392  6,971

    (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.

    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 December 31, 2008, borrowings under the Company's bank operating
loan were $34.9 million, a decrease of $9.4 million from December 31, 2007.
Borrowing levels have decreased due to the Company generating $25.8 million in
cash flow from operating activities, before net changes in non-cash working
capital balances. This was offset by an $8.3 million increase in net working
capital, $5.2 million in capital and other expenditures, $0.9 million in
repayments of long term debt and capital lease obligations and $2.0 million
for the purchase of shares to resource stock compensation obligations.
    As at December 31, 2007, borrowings under the Company's bank operating
loan were $44.3 million, an increase of $10.3 million from December 31, 2006.
Borrowing levels increased as business acquisitions of $18.0 million and net
investments of $2.0 million to maintain property and equipment have been
funded principally by bank borrowings and cash flow from operations of $9.8
million.
    Net working capital was $142.8 million at December 31, 2008, an increase
of $8.1 million from December 31, 2007. Accounts receivable increased by $11.2
million (13%) to $100.5 million at December 31, 2008 from December 31, 2007,
due to increased sales in the fourth quarter offset by a 18% improvement in
days sales outstanding in accounts receivable ("DSO") in the fourth quarter of
2008 to 51 days compared to 62 days in the fourth quarter of 2007. The
improvement in DSO performance during the fourth quarter of 2008 was due in
part to a more efficient invoicing process implemented in the first quarter of
2008 and a general improvement in collections performance. DSO is calculated
using average sales per day for the quarter compared to the period end
accounts receivable balance. Inventory increased by $33.0 million (38%) at
December 31, 2008 from December 31, 2007 in order to resource a similar
increase in sales levels. Inventory turns for the fourth quarter of 2008
remained consistent at 4.2 times compared to 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 adjust its investment in inventory to align with anticipated
lower industry activity levels and compressed supplier lead times in 2009 in
order to improve inventory turnover efficiency. Accounts payable and accrued
liabilities increased by $38.4 million (86%) to $83.2 million at December 31,
2008 from December 31, 2007 due mainly to an increase in purchasing to
resource higher sales levels.
    Capital expenditures in 2008 were $5.6 million, an increase of $3.6
million and $2.5 million over 2007 and 2006 expenditures respectively. The
increase in expenditures were directed towards the new Distribution Centre
which increased capacity by approximately 75% over the previous facility and
the purchase of a new Fort St. John branch location which will more than
double the Company's capacity in the growing north east British Columbia
market.
    The Company has a 364 day bank operating loan facility in the amount of
$60.0 million arranged with a syndicate of three banks that matures in July
2009. 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 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 December 31, 2008, the Company's average debt to EBITDA ratio
was 0.7 times (December 31, 2007 - 1.7 times) which provides a maximum
borrowing ability of $60 million under the facility. As at December 31, 2008,
the ratio of the Company's debt to total capitalization (debt plus equity) was
20% (December 31, 2007 - 28%).

    Contractual Obligations

    There have been no material changes in off-balance sheet contractual
commitments since December 31, 2007.

    Capital Stock

    The weighted average number of shares outstanding during the fourth
quarter 2008 was 18.1 million, a decrease of 0.2 million shares over the prior
year's fourth quarter due principally to the purchase of common shares to
resource restricted share unit obligations. The diluted weighted average
number of shares outstanding was 18.4 million, a decrease of 0.5 million
shares from the prior year's fourth quarter.
    As at December 31, 2008 and 2007, the following shares and securities
convertible into shares were outstanding:

    
    (millions)                         December 31, 2008   December 31, 2007
                                                  Shares              Shares
                                      ------------------- -------------------
    Shares outstanding                              18.1                18.4
    Stock options                                    1.3                 1.3
    Restricted share units                           0.2                 0.2
                                      ------------------- -------------------
    Shares outstanding and issuable                 19.6                19.9
    

    The Company has established an independent trust to purchase common
shares of the Company on the open market to resource restricted share unit
obligations. During the three and twelve month periods ended December 31,
2008, 100,000 and 300,095 common shares were acquired by the trust at an
average cost per share of $4.13 and $6.86 respectively (2007 - 25,000 for the
three month period and 40,200 common shares for the twelve month period and at
an average cost per share of $6.08 and $8.08 respectively). As at December 31,
2008, the trust held 343,892 shares (2007 - 54,551 shares).
    On January 6, 2009, the Company announced a normal course issuer bid to
purchase for cancellation, up to 900,000 common shares representing
approximately 5% of its outstanding common shares.

    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 have occurred that would materially change the information
disclosed in the Company Form 20F.

    Forward Looking Statements

    The information in this press 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. 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 press release, 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 2009;

    -   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 press release 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
press release 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
press release, except as required by law.

    
    Additional Information
    ----------------------

    Additional information relating to CE Franklin, including its annual and
quarterly 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 www.sedar.com and at
www.cefranklin.com.

    Conference Call and Webcast Information
    ---------------------------------------
    

    A conference call to review the 2008 fourth quarter results, which is
open to the public, will be held on Friday, January 30, 2009 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 Passcode
of 21294300 followed by the pound sign and may be accessed until midnight
Monday, February 9, 2009.
    The call will also be webcast live at:
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2518340 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.

    
    CE Franklin Ltd.
    Interim Consolidated Balance Sheets  - (Unaudited)
    -------------------------------------------------------------------------


                                                   December 31   December 31
    (in thousands of Canadian dollars)                    2008          2007
    -------------------------------------------------------------------------
    Assets

    Current assets
      Accounts receivable                              100,513        89,305
      Inventories                                      119,459        86,414
      Other                                              9,529         3,781
    -------------------------------------------------------------------------
                                                       229,501       179,500

    Property and equipment                               9,528         6,398
    Goodwill                                            20,570        20,523
    Future income taxes (note 2)                         1,186         1,403
    Other                                                  649           891
    -------------------------------------------------------------------------
                                                       261,434       208,715
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities

    Current liabilities
      Bank operating loan                               34,948        44,301
      Accounts payable and accrued liabilities          83,249        44,807
      Income taxes payable                               3,405             -

      Current portion of long term debt and
       capital lease obligations                             9           805
    -------------------------------------------------------------------------
                                                       121,611        89,913

    Long term debt and capital lease
     obligations                                           500           582
    -------------------------------------------------------------------------
                                                       122,111        90,495
    -------------------------------------------------------------------------

    Shareholders' equity
      Capital stock                                     22,498        24,306
      Contributed surplus                               18,835        17,671
      Retained earnings                                 97,990        76,243
    -------------------------------------------------------------------------
                                                       139,323       118,220
    -------------------------------------------------------------------------
                                                       261,434       208,715
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CE Franklin Ltd.
    Interim Consolidated Statements of Operations - Unaudited

    -------------------------------------------------------------------------
                                 Three months               Twelve months
                                 ------------               -------------
                                    ended                       ended
    (in thousands of Canadian       -----                       -----
    dollars except shares and    December 31                 December 31
    per share amounts)        2008          2007          2008          2007
    -------------------------------------------------------------------------

    Sales                  161,196       112,263       547,429       466,275
    Cost of sales          127,337        91,871       439,760       381,694
    -------------------------------------------------------------------------
    Gross profit            33,859        20,392       107,669        84,581
    -------------------------------------------------------------------------

    Other expenses
      Selling, general and
       administrative
       expenses             19,443        15,352        71,587        58,053
      Amortization             570           656         2,367         2,795
      Interest expense         226           482         1,031         2,031
      Foreign exchange
       (gain) loss             133           (35)          242           837
    -------------------------------------------------------------------------
                            20,372        16,455        75,227        63,716
    -------------------------------------------------------------------------

    Income before income
     taxes                  13,487         3,937        32,442        20,865

    Income tax expense
     (recovery) (note 3)
      Current                4,343         1,442        10,474         7,541
      Future                   376            68           221          (243)
    -------------------------------------------------------------------------
                             4,719         1,510        10,695         7,298
    -------------------------------------------------------------------------

    Net and comprehensive
     income for the period   8,768         2,427        21,747        13,567
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net income per share
      Basic                   0.48          0.13          1.19          0.74
      Diluted                 0.47          0.13          1.17          0.72
    -------------------------------------------------------------------------

    Weighted average
     number of shares
     outstanding (000's)
      Basic                 18,149        18,393        18,255        18,337
      Diluted (note 2c)     18,392        18,863        18,561        18,807
    -------------------------------------------------------------------------

    See accompanying notes to these interim consolidated financial
    statements.



    CE Franklin Ltd.
    Interim Consolidated Statements of Changes in Shareholders'
    Equity - Unaudited

    -------------------------------------------------------------------------
                              Three months ended         Twelve months ended
                              ------------------         -------------------
    (in thousands of   December 31   December 31   December 31   December 31
     Canadian dollars)        2008          2007          2008          2007
    -------------------------------------------------------------------------

    Cash flows from
     operating activities
      Net income for the
       period                8,768         2,427        21,747        13,567
      Items not affecting
       cash -
        Amortization           570           656         2,367         2,795
        Future income tax
         (recovery) expense    376            68           221          (243)
        Loss on disposal
         of capital assets      74             -            74             -
        Stock based
         compensation
         expense               217           450         1,365         1,924
    --------------------------------------------- ---------------------------
                            10,005         3,601        25,774        18,043
    Net change in non-cash
     operating working
     capital balances
      Accounts receivable      701         4,748       (10,997)        5,633
      Inventories          (32,667)        1,502       (33,138)       12,974
      Other current assets  (1,836)       (1,206)       (6,619)           79
      Accounts payable and
       accured liabilities  10,140        (4,395)       38,128       (25,214)
      Income taxes payable   3,929          (721)        4,253        (1,667)
    -------------------------------------------------------------------------
                            (9,728)        3,529        17,401         9,848
    -------------------------------------------------------------------------

    Cash flows from (used
     in) financing
     activities
      Increase (Decrease)
       in bank operating
       loan                 14,046         8,911        (9,353)       10,293
      Decrease in long
       term debt and
       capital lease
       obligations            (119)          (40)         (878)         (476)
      Issuance of capital
       stock                     -            10            49           579
      Purchase of capital
       stock in trust
       for RSU Plans          (416)         (152)       (2,058)         (325)
    -------------------------------------------------------------------------
                            13,511         8,729       (12,240)       10,071
    -------------------------------------------------------------------------

    Cash flows used in
     investing activities

      Purchase of property
       and equipment        (3,783)         (119)       (5,602)       (1,956)
      Business
       acquisitions              -       (12,139)          441       (17,963)
    -------------------------------------------------------------------------
                            (3,783)      (12,258)       (5,161)      (19,919)
    -------------------------------------------------------------------------

    Change in cash and
     cash equivalents
     during the period           -             -             -             -

    Cash and cash
     equivalents- Beginning
     and end of period           -             -             -             -
    -------------------------------------------------------------------------

    Cash paid during the
     period for:
      Interest on bank
       operating loan          223           474         1,001         1,999
      Interest on capital
       lease obligations
       and long term debt        3             8            30            32
      Income taxes             415         2,163         6,594         9,375
    -------------------------------------------------------------------------

    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 dollars
    and number of
    shares)               Capital Stock
                      ----------------------
                      Number of          Contributed  Retained Shareholders'
                         Shares        $     Surplus  Earnings        Equity
    -------------------------------------------------------------------------

    Balance - December
     31, 2006             18,223     23,586     16,213     62,676    102,475

    Stock options
     excercised              177        838       (259)         -        579
    Restricted share
     units (RSU's)
     exercised                10        207       (207)         -          -
    Stock based
     compensation
     expense                   -          -      1,924          -      1,924
    Purchase of shares
     in trust for
     RSU plans               (40)      (325)         -          -       (325)
    Net income                 -          -          -     13,567     13,567
    -------------------------------------------------------------------------
    Balance - December
     31, 2007             18,370     24,306     17,671     76,243    118,220
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Stock options
     exercised                13         69        (20)         -         49
    Restricted share
     units (RSU's)
     exercised                11        181       (181)         -          -
    Stock based
     compensation expense      -          -      1,365          -      1,365
    Purchase of shares
     in trust for RSU
     Plans                  (300)    (2,058)         -          -     (2,058)
    Net income                 -          -          -     21,747     21,747
    -------------------------------------------------------------------------
    Balance - December
     31, 2008             18,094     22,498     18,835     97,990    139,323
    -------------------------------------------------------------------------

    See accompanying notes to these interim consolidated financial
    statements.


    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 Section 1400 - Assessing
    Going Concern. The Standard was amended to include requirements for
    management to assess and disclose an entity's ability to continue as a
    going concern. Management has reviewed the guidance in section 1400 and
    determined that no material uncertainties exist with respect to the
    Company's ability to continue as a going concern.

    Effective January 1, 2008, the Company adopted 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 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 was charged to cost of sales in the year
    ending December 31, 2008 of $1,366,000 (2007 - $575,000; 2006 -
    $312,000). The reversal of any write down of inventory arising from an
    increase in net realizable value, shall be recognized as a reduction in
    the amount of obsolescence expense in the period in which the reversal
    occurred. As at December 31, 2008 and December 31, 2007, the Company had
    recorded reserves for inventory obsolescence of $2.8 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 winter 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 - Capital stock

    At December 31, 2008, the Company had 18.1 million common shares and 1.3
    million options outstanding to acquire common shares at a weighted
    average exercise price of $5.80 per common share, of which 822,000
    options were vested and exercisable at a weighted average exercise price
    of $4.88 per common share.

    a)  Stock options

    Option activity for each of the twelve month periods ended December 31
    was as follows:

    000's                                                     2008      2007
    -------------------------------------------------------------------------
    Outstanding at January 1                                 1,262       804
    Granted                                                     75       647
    Exercised                                                  (13)     (177)
    Forfeited                                                  (30)      (12)
    -------------------------------------------------------------------------

    Outstanding at December 31                               1,294     1,262
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    There were no options granted during the three month period ended
    December 31, 2008. A total of 428,808 share options were granted at a
    weighted average strike price of $6.50 in the three month period ended
    December 31, 2007 for a fair value of $1,215,000. The fair value of the
    options granted during the twelve month period ended December 31, 2008
    was $274,000 (December 31, 2007- $2,242,000) and were estimated as at the
    grant date using the Black-Scholes option pricing model, using the
    following assumptions:

                                                              2008      2007
                                                              ----      ----
    Dividend yield                                             Nil       Nil
    Risk-free interest rate                                  3.88%     3.93%
    Expected life                                          5 years   5 years
    Expected volatility                                        50%       50%


    Stock Option compensation expense recorded in the three and twelve month
    periods ended December 31, 2008 was $324,000 (2007 - $149,000) and
    $843,000 (2007- $528,000) respectively.

    b)  Restricted share units

    The Company has Restricted Share Unit ("RSU") and Deferred Share Unit
    ("DSU") plans (collectively the "RSU Plans"), where by RSU's and DSU's
    are granted entitling 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. RSU activity for the twelve month periods ended December
    31 was as follows:


    000's                                      2008                2007
    -------------------------------------------------------------------------
                                           RSU       DSU       RSU       DSU

    Outstanding at January 1               178        37       120        12
    Granted                                  1        33        78        25
    Exercised                              (11)        -       (10)        -
    Forfeited                               (7)        -       (10)        -
    -------------------------------------------------------------------------

    Outstanding at December 31             161        70       178        37
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    RSU plan compensation expense recorded in the three and twelve month
    periods ended December 31, 2008 was $107,000 recovery (2007- $269,000)
    and $521,000 (2007- $1,396,000) respectively.

    The Company purchases its common shares on the open market to satisfy
    restricted 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 three and
    twelve month periods ended December 31, 2008, 100,000 and 300,095 common
    shares were acquired respectively by the trust (2007 - 25,000 and 40,200
    common shares respectively) at a cost of $416,000 and $2,058,000 for the
    three and twelve month periods respectively (2007 - $152,000 and $325,000
    respectively).

    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 Twelve Months Ended
                                     ------------------- --------------------
                                      December  December  December  December
                                            31        31        31        31
                                          2008      2007      2008      2007
    -------------------------------------------------------------------------

    Weighted average common shares
     outstanding- basic                 18,149    18,393    18,255    18,337
    Effect of Stock options and RSU
     Plans                                 243       470       306       470
    -------------------------------------------------------------------------
    Weighted average common shares
     outstanding- diluted               18,392    18,863    18,561    18,807
    -------------------------------------------------------------------------



    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
                                           ----------------------------------
                                                     December 31
                                             2008        %     2007        %
    -------------------------------------------------------------------------

    Income before income taxes             13,487             3,937
    -------------------------------------------------------------------------
    Income taxes calculated at expected
     rates                                  4,033     29.9    1,285     32.6
    Non-deductible items                      580      4.3       92      2.3
    Capital taxes                              21      0.2       22      0.6
    Adjustments on filing returns & other      85      0.6      111      2.8
    -------------------------------------------------------------------------
                                            4,719     35.0    1,510     38.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                   Twelve Months Ended
                                           ----------------------------------
                                                     December 31
                                             2008        %     2007        %
    -------------------------------------------------------------------------

    Income before income taxes             32,442            20,865
    -------------------------------------------------------------------------
    Income taxes calculated at expected
     rates                                  9,700     29.9    6,807     32.6
    Non-deductible items                      899      2.8      434      2.1
    Capital taxes                              56      0.2       44      0.2
    Adjustments on filing returns & other      40      0.1       13      0.1
    -------------------------------------------------------------------------
                                           10,695     33.0    7,298     35.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    As at December 31, 2007, income taxes receivable of $848,000 were
    included in other current assets.

    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:


    As at December 31                                         2008      2007
    -------------------------------------------------------------------------
    Assets
      Property and equipment                                   855       874
      RSU expense                                              289       648
      Other                                                    395       241
    -------------------------------------------------------------------------
                                                             1,539     1,763
    Liabilities
      Goodwill and other                                       353       360
    -------------------------------------------------------------------------
    Net future income tax asset                              1,186     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 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, 364 day bank operating loan facility which is used to
    finance its net working capital and general corporate requirements. The
    bank operating facility is arranged through a syndicate of three banks
    and matures in July 2009.

    The maximum amount available to borrow under this facility is subject to
    a borrowing base formula applied to accounts receivable and inventories,
    and a covenant restricting the Company's average guaranteed debt to 2.25
    times trailing 12 month earnings before interest, amortization and taxes.
    As at December 31, 2008, this ratio was 0.7 times (December 31, 2007 -
    1.7 times) and the maximum amount available to be borrowed under the
    facility was $60 million. 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
    December 31, 2008.

    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 December 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 purchase commitments. As at December 31,
    2008, the Company had contracted to purchase US$2.0 million at fixed
    exchange rates with terms not exceeding six months. The fair market value
    of the contracts was nominal.

    Note 6 - Related party transactions

    Smith International Inc. ("Smith") owns approximately 54% 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:


                                                          December  December
                                                                31        31
                                                              2008      2007
    -------------------------------------------------------------------------
    Cost of sales for the three months ended                 2,749     2,371

    Cost of sales for the twelve months ended               10,680     9,253

    Inventory                                                4,549     4,295

    Accounts payable and accrued liabilities                   759       313



    Note 7 - Segmented reporting

    The Company distributes oilfield products principally through its network
    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.
    





For further information:

For further information: Investor Relations, 1-800-345-2858, (403)
531-5604, investor@cefranklin.com

Organization Profile

CE Franklin Ltd.

More on this organization


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890