CE Franklin Ltd. announces 2008 Second Quarter Results



    CALGARY, July 24 /CNW/ - CE FRANKLIN LTD. (TSX.CFT, AMEX.CFK) announced
its results for the second quarter of 2008
    CE Franklin reported net income of $1.0 million or $0.05 per share
(basic) for the second quarter ended June 30, 2008, a 67% increase compared to
net income of $0.6 million or $0.03 per share earned in the second quarter
ended June 30, 2007.

    
    Financial Highlights

    (millions of Cdn.$ except          Three Months Ended   Six Months Ended
      per share data)                        June 30             June 30
                                      ------------------- -------------------
                                          2008      2007      2008      2007
                                      ------------------- -------------------
                                            (unaudited)        (unaudited)

    Sales                              $  96.4   $  82.9   $ 237.0   $ 237.2

    Gross Profit                          19.0      16.8      46.0      43.1
    Gross Profit - % of sales            19.7%     20.3%     19.4%     18.2%

    EBITDA(1)                              2.3       2.2      12.4      13.2
    EBITDA(1) as a % of sales             2.4%      2.7%      5.2%      5.6%

    Net Income                         $   1.0   $   0.6   $   7.2   $   7.0
    Per Share
      Basic                            $  0.05   $  0.03   $  0.39   $  0.38
      Diluted                          $  0.05   $  0.03   $  0.39   $  0.37

    Net Working Capital(2)             $ 114.9   $ 127.0
    Bank Operating Loan(2)             $  18.4   $  36.0
    

    "Net income improved in the second quarter compared to the prior year
period, out pacing the 15% decline in year over year well completions. This is
a solid result in a quarter that also saw the successful opening of our new,
larger distribution centre, which positions CE Franklin well for the expected
recovery in industry activity levels," said Michael West, President and Chief
Executive Officer.
    Net income for the second quarter of 2008 was $1.0 million, up
$0.4 million (67%) from the second quarter of 2007. Second quarter sales are
seasonally low as oilfield project activity is impacted by the spring break
up. Sales increased by 16% over the prior year period. Approximately half of
this increase in sales was due to a 17% increase in the sale of products used
in our customer's capital projects, outpacing the 12% increase in average rig
counts. Adverse weather conditions experienced in the second quarter limited
capital project activity with well completions declining by 15% compared to
the prior year period. The remaining increase reflected sales from JEN Supply
and Full Tilt that were acquired in the second half of 2007. Gross profit
increased by $2.2 million over the prior year period due to the increase in
sales offset by a reduction in gross profit margins. Gross profit margins for
the quarter were 19.7%, down from strong performance in the prior year period
at 20.3%. Gross margins improved in the second quarter from 19.3% generated in
the first quarter of 2008. Selling, general and administrative expenses
increased by $2.6 million to $16.7 million for the quarter due mainly to the
addition of people and facility costs associated with the two acquisitions
completed in the last half of 2007 and increased facility costs with the
opening of the new Edmonton distribution centre during the second quarter.
Lower interest expense was associated with reduced average debt levels and
floating interest rates in the second quarter of 2008. Income taxes increased
by $0.2 million in the second 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 second quarter
was comparable to the prior year period. Net income per share (basic) was
$0.05, up 67% from $0.03 earned in the second quarter of 2007, consistent with
the increase in net income.
    Net income for the first half of 2008 was $7.2 million, up $0.2 million
(3%) from the first half of 2007. Sales for the first half of 2008 of
$237.0 million were comparable to the prior year period. Industry capital
expenditure activity levels declined steadily throughout 2007 and the first
quarter of 2008, before beginning to recover in the second quarter for reasons
discussed in the "Outlook" section. This contributed to a 7% decline in
capital project equipment sales compared to the prior year period which was
fully offset from the JEN Supply and Full Tilt acquisitions. Gross profit
increased by $2.9 million over the prior year period as gross profit margins
increased from 18.2% in the first half of 2007 to 19.4% in the first half of
2008. The increases are due to increased high margin, MRO sales in 2008 and a
large, low margin oilsands order in the first quarter of 2007. Selling,
general and administrative expenses increased by $4.3 million to $33.6 million
due mainly to the addition of people and facility costs associated with the
two acquisitions completed in the last half of 2007 and increased facility
costs associated with the opening of the new distribution centre in the second
quarter. Interest expense declined due to reduced average debt levels and
floating interest rates in the first half of 2008. Income taxes declined by
$0.3 million in the first half of the year compared to the prior year period
due primarily to a reduction in income tax rates. The weighted average number
of shares outstanding during the first quarter was comparable to the prior
year period. Net income per share (basic) was $0.39 in the first half of 2008
compared to $0.38 in the first half of 2007.

    Outlook
    -------
    The Company's business is dependent on the level of conventional oil and
gas capital expenditures and production activity in western Canada. A
combination of events experienced in 2007 including lower natural gas prices,
the Alberta government royalty task force review and subsequent decision to
increase royalty rates, high drilling and operating costs, and the rapid
appreciation of the Canadian dollar, reduced the competitiveness of the
western Canadian sedimentary basin relative to other international oil and gas
producing regions, resulting in a reduction of industry capital expenditures.
    Through the first half of 2008, natural gas and oil prices have continued
to strengthen. On April 10, 2008, the Alberta government announced certain
enhancements to royalty rates designed to improve the economics of production
from deep wells drilled commencing in 2009. These improvements are being
partially offset by significant price increases for steel, which will result
in increased costs for our customers and higher working capital investment by
CE Franklin. Taken together, industry cash flow economics and in turn activity
levels are beginning to improve. Industry forecasts are now expecting drilling
activity over the second half of 2008 and 2009 to exceed comparable 2007
activity levels which should translate into increased well completions and
improved demand for the Company's products. With the successful opening of its
new 153,000 square foot distribution centre in Edmonton during the second
quarter, and its established supply store network in northeast British
Columbia and southeast Saskatchewan, the Company is well positioned to
efficiently service increased industry demand as it arises.
    Over the medium to longer term, the Company is optimistic that its strong
competitive position will enable it to take advantage of available market
share as conventional industry activity recovers and demand for the Company's
products increase. Effective execution of the Company's oilsands and service
diversification strategies provide further opportunities to profitably
leverage its supply chain infrastructure.

    
    (1) EBITDA represents net income before interest, taxes, depreciation
        and amortization. EBITDA is a supplemental non-GAAP financial measure
        used by management, as well as industry analysts, to evaluate
        operations. Management believes that EBITDA, as presented, represents
        a useful means of assessing the performance of the Company's ongoing
        operating activities, as it reflects the Company's earnings trends
        without showing the impact of certain charges. The Company is also
        presenting EBITDA and EBITDA as a percentage of sales because it is
        used by management as supplemental measures of profitability. The use
        of EBITDA by the Company has certain material limitations because it
        excludes the recurring expenditures of interest, income tax, and
        amortization expenses. Interest expense is a necessary component of
        the Company's expenses because the Company borrows money to finance
        its working capital and capital expenditures. Income tax expense is a
        necessary component of the Company's expenses because the Company is
        required to pay cash income taxes. Amortization expense is a
        necessary component of the Company's expenses because the Company
        uses property and equipment to generate sales. Management compensates
        for these limitations to the use of EBITDA by using EBITDA as only a
        supplementary measure of profitability. EBITDA is not used by
        management as an alternative to net income, as an indicator of the
        Company's operating performance, as an alternative to any other
        measure of performance in conformity with generally accepted
        accounting principles or as an alternative to cash flow from
        operating activities as a measure of liquidity. A reconciliation of
        EBITDA to Net Income is provided within the Company's Management
        Discussion and Analysis. Not all companies calculate EBITDA in the
        same manner and EBITDA does not have a standardized meaning
        prescribed by GAAP. Accordingly, EBITDA, as the term is used herein,
        is unlikely to be comparable to EBITDA as reported by other entities.

    (2) Net Working Capital is defined as current assets less accounts
        payable and accrued liabilities, income taxes payable and other
        current liabilities. Net Working Capital and Bank Operating Loan are
        as at quarter end.
    

    Additional Information
    ----------------------
    Additional information relating to CE Franklin, including its second
quarter 2008 Management Discussion and Analysis and interim consolidated
financial statements and its Form 20-F/Annual Information Form, is available
under the Company's profile on the SEDAR website at www.sedar.com and at
www.cefranklin.com.

    Conference Call and Webcast Information
    ---------------------------------------
    A conference call to review the 2008 second quarter results, which is
open to the public, will be held on Friday, July 25, 2008 at 11:00 a.m.
Eastern Time (9:00 a.m. Mountain Time).
    Participants may join the call by dialing 1-416-644-3415 in Toronto or
dialing 1-800-732-9307 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 21275119 followed by the pound sign and may be accessed until midnight
Monday, August 4, 2008.
    The call will also be webcast live at:
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2317040 and will be
available on the Company's website at http://www.cefranklin.com.
    Michael West, President and Chief Executive Officer will lead the
discussion and will be accompanied by Mark Schweitzer, Vice President and
Chief Financial Officer. The discussion will be followed by a question and
answer period.

    About CE Franklin

    For more than half a century, CE Franklin has been a leading supplier of
products and services to the energy industry. CE Franklin distributes pipe,
valves, flanges, fittings, production equipment, tubular products and other
general oilfield supplies to oil and gas producers in Canada as well as to the
oilsands, refining, heavy oil, petrochemical, forestry and mining industries.
These products are distributed through its 44 branches, which are situated in
towns and cities serving particular oil and gas fields of the western Canadian
sedimentary basin.

    Forward-looking Statements: The information in this news release may
contain "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934
and other applicable securities legislation. All statements, other than
statements of historical facts, that address activities, events, outcomes and
other matters that CE Franklin plans, expects, intends, assumes, believes,
budgets, predicts, forecasts, projects, estimates or anticipates (and other
similar expressions) will, should or may occur in the future are
forward-looking statements. These forward-looking statements are based on
management's current belief, based on currently available information, as to
the outcome and timing of future events. When considering forward-looking
statements, you should keep in mind the risk factors and other cautionary
statements and refer to the Form 20-F or our annual information form for
further detail.

    Management's Discussion and Analysis as at July 24, 2008

    The following Management's Discussion and Analysis ("MD&A") is provided
to assist readers in understanding CE Franklin Ltd.'s ("CE Franklin" or the
"Company") financial performance and position during the periods presented and
significant trends that may impact future performance of CE Franklin. This
discussion should be read in conjunction with the Company's interim
consolidated financial statements for the three and six month periods ended
June 30, 2008, the MD&A for the three month period ended March 31, 2008 and
the MD&A and the consolidated financial statements for the year ended
December 31, 2007.
    All amounts are expressed in Canadian dollars and in accordance with
Canadian generally accepted accounting principles ("Canadian GAAP"), except
where otherwise noted.

    Overview

    CE Franklin is a leading distributor of pipe, valves, flanges, fittings,
production equipment, tubular products and other general industrial supplies,
primarily to the oil and gas industry in Canada through its 44 branches
situated in towns and cities that serve oil and gas fields of the western
Canadian sedimentary basin. In addition, the Company distributes similar
products to the oilsands, refining, and petrochemical industries and
non-oilfield related industries such as forestry and mining.
    The Company's branch operations service over 3,000 customers by providing
the right materials where they are needed, on time, and for the best value.
Our branches, supported by our distribution centre in Edmonton, Alberta, stock
over 25,000 stock keeping units. This hub and spoke supply chain
infrastructure enables us to provide our customers with the products they need
on a same day or over night basis while leveraging our scale to enable
industry leading 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, invoicing, credit and
collections and other business services.
    The Company's shares trade on the TSX ("CFT") and AMEX ("CFK") stock
exchanges. Smith International Inc. ("Smith"), a major oilfield service
company based in the United States, owns approximately 53% of the Company's
shares.

    
    Business and Operating Strategy

    The Company is pursuing four strategies to grow its business profitably:

    -   Grow market share in our core oilfield equipment distribution
        business in western Canada through concentrated sales efforts and
        premium customer service complimented by selected acquisitions such
        as the acquisition of JEN Supply Inc. ("JEN Supply") in
        December 2007.

    -   Leverage our existing supply chain infrastructure, product and
        project expertise by focusing on the emerging oilsands project and
        Maintenance, Repair and Operating ("MRO") business.

    -   Expand our production equipment service capability to capture more of
        the product life cycle requirements for the equipment we sell such as
        down hole pump repair, oilfield engine maintenance, well optimization
        and on site project management, in order to differentiate our service
        offering from that of other competitors and deepen our relationship
        with customers. The acquisition of Full Tilt Field Services Limited
        ("Full Tilt") in July 2007 provided us with the capability to service
        oilfield engines and related components that we were previously
        selling, and by doing so, positions us to attract new customers to
        our core oilfield equipment distribution business.

    -   Leverage our domestic supply chain infrastructure capabilities and
        customers by targeting international sales. Selected international
        project sales are resourced from our Edmonton distribution centre. An
        oilfield equipment distribution joint venture was established in the
        2nd quarter of 2007 in Libya with Wilson Supply, a wholly owned
        subsidiary of Smith, and a Libyan partner.
    

    Business Outlook

    The Company's business is dependent on the level of conventional oil and
gas capital expenditures and production activity in western Canada. A
combination of events experienced in 2007 including lower natural gas prices,
the Alberta government royalty task force review and subsequent decision to
increase royalty rates, high drilling and operating costs, and the rapid
appreciation of the Canadian dollar, reduced the competitiveness of the
western Canadian sedimentary basin relative to other international oil and gas
producing regions, resulting in a reduction of industry capital expenditures.
    Through the first half of 2008, natural gas and oil prices have continued
to strengthen. On April 10, 2008, the Alberta government announced certain
enhancements to royalty rates designed to improve the economics of production
from deep wells drilled commencing in 2009. These improvements are being
partially mitigated by significant price increases for steel, which will
result in increased costs for our customers and higher working capital
investment by CE Franklin. Taken together, industry cash flow economics and in
turn activity levels are beginning to improve. Industry forecasts are now
expecting drilling activity over the second half of 2008 and 2009 to exceed
comparable 2007 activity levels which should translate into increased well
completions and improved demand for the Company's products. With the
successful opening of its new 153,000 square foot distribution centre in
Edmonton during the second quarter, and its established supply store network
in northeast British Columbia and southeast Saskatchewan, the Company is well
positioned to efficiently service increased industry demand as it arises.
    Over the medium to longer term, the Company is optimistic that its strong
competitive position will enable it to take advantage of available market
share as conventional industry activity recovers and demand for the Company's
products increase. Effective execution of the Company's oilsands and service
diversification strategies provide further opportunities to profitability
leverage its supply chain infrastructure.

    
    Operating Results

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

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

                                              Three Months Ended June 30
                                      ---------------------------------------
                                          2008                 2007
                                      ------------------- -------------------
    Sales                              $  96.4    100.0%   $  82.9    100.0%
      Cost of sales                      (77.4)  (80.3)%     (66.1)  (79.7)%
                                      --------- --------- --------- ---------
      Gross profit                        19.0     19.7%      16.8     20.3%

    Selling, general and
     administrative expenses             (16.7)  (17.3)%     (14.1)  (17.0)%
    Foreign exchange loss                    -      0.0%      (0.5)   (0.6)%
                                      --------- --------- --------- ---------

    EBITDA(1)                              2.3      2.4%       2.2      2.7%
    Amortization                          (0.6)   (0.6)%      (0.7)   (0.8)%
    Interest                              (0.2)   (0.2)%      (0.5)   (0.7)%
                                      --------- --------- --------- ---------
    Income before taxes                    1.5      1.6%       1.0      1.2%
    Income tax expense                    (0.5)   (0.6)%      (0.4)   (0.5)%
                                      --------- --------- --------- ---------
    Net income                             1.0      1.0%       0.6      0.7%
                                      --------- --------- --------- ---------
                                      --------- --------- --------- ---------

    Net income per share
      Basic (Cdn. $)                   $  0.05             $  0.03
      Diluted (Cdn. $)                 $  0.05             $  0.03

    Weighted average number of shares
     outstanding (000's)
      Basic                             18,278              18,329
      Diluted                           18,574              18,768


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

                                              Six Months Ended June 30
                                      ---------------------------------------
                                          2008                2007
                                      ------------------- -------------------
    Sales                              $ 237.0    100.0%   $ 237.2    100.0%
      Cost of sales                     (191.0)  (80.6)%    (194.1)  (81.8)%
                                      --------- --------- --------- ---------
      Gross profit                        46.0     19.4%      43.1     18.2%

    Selling, general and
     administrative expenses             (33.6)  (14.2)%     (29.3)  (12.4)%
    Foreign exchange loss                    -      0.0%      (0.6)   (0.2)%
                                      --------- --------- --------- ---------

    EBITDA(1)                             12.4      5.2%      13.2      5.6%
    Amortization                          (1.2)   (0.5)%      (1.5)   (0.6)%
    Interest                              (0.6)   (0.2)%      (1.1)   (0.5)%
                                      --------- --------- --------- ---------
    Income before taxes                   10.6      4.5%      10.6      4.5%
    Income tax expense                    (3.4)   (1.5)%      (3.6)   (1.5)%
                                      --------- --------- --------- ---------
    Net income                             7.2      3.0%       7.0      3.0%
                                      --------- --------- --------- ---------
                                      --------- --------- --------- ---------

    Net income per share
      Basic (Cdn. $)                   $  0.39             $  0.38
      Diluted (Cdn. $)                 $  0.39             $  0.37

    Weighted average number of shares
     outstanding (000's)
      Basic                             18,305              18,282
      Diluted                           18,601              18,721


    (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 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 income for the second quarter of 2008 was $1.0 million, up
$0.4 million (67%) from the second quarter of 2007. Second quarter sales are
seasonally low as oilfield project activity is impacted by the spring break
up. Sales increased by 16% over the prior year period. Approximately half of
this increase in sales was due to a 17% increase in the sale of products used
in our customer's capital projects, outpacing the 12% increase in average rig
counts. Adverse weather conditions experienced in the second quarter limited
capital project activity, as well completions declined 15% compared to the
prior year period. The remaining increase reflected sales from JEN Supply and
Full Tilt that were acquired in the second half of 2007. Gross profit
increased by $2.2 million over the prior year period due to the increase in
sales offset by a reduction in gross profit margins. Gross profit margins for
the quarter were 19.7% down from strong performance in the prior year period
at 20.3%. Gross margins improved in the second quarter from 19.3% generated in
the first quarter of 2008. Selling, general and administrative expenses
increased by $2.6 million to $16.7 million for the quarter due mainly to the
addition of people and facility costs associated with the two acquisitions
completed in the last half of 2007 and increased facility costs with the
opening of the new Edmonton distribution centre during the second quarter.
Lower interest expense was associated with reduced average debt levels and
floating interest rates in the second quarter of 2008. Income taxes increased
by $0.2 million in the second 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 second quarter
was comparable to the prior year period. Net income per share (basic) was
$0.05 in the second quarter of 2008, an increase of 67% compared to $0.03 in
the second quarter of 2007, consistent with the increase in net income.

    Year to Date Results

    Net income for the first half of 2008 was $7.2 million, up $0.2 million
(3%) from the first half of 2007. Sales from the first half of 2008 of
$237.0 million were comparable to the prior year period. Industry capital
expenditure activity levels declined steadily throughout 2007 and the first
quarter of 2008, before beginning to recover in the second quarter for reasons
discussed in the "Outlook" section. This contributed to a 7% decline in
capital project equipment sales compared to the prior year period which was
fully offset from the JEN Supply and Full Tilt acquisitions. Gross profit
increased by $2.9 million over the prior year period as gross profit margins
increased from 18.2% in the first half of 2007 to 19.4% in the first half of
2008. The increases are due to increased high margin MRO sales in 2008 and a
large, low margin oilsands order in the first quarter of 2007. Selling,
general and administrative expenses increased by $4.3 million to $33.6 million
due mainly to the addition of people and facility costs associated with the
two acquisitions completed in the last half of 2007 and increased facility
costs associated with the opening of the new distribution centre. Interest
expense declined due to reduced average debt levels and floating interest
rates in the first half of 2008. Income taxes declined by $0.3 million in the
first half of the year compared to the prior year period due primarily to a
reduction in income tax rates. The weighted average number of shares
outstanding during the first quarter was comparable to the prior year period.
Net income per share (basic) was $0.39 in the first half of 2008 compared to
$0.38 in the first half of 2007.
    A more detailed discussion of the Company's second quarter results from
operations is provided below:

    Sales

    Sales for the quarter ended June 30, 2008 were $96.4 million, up 16% from
the quarter ended June 30, 2007, principally due to increased capital project
demand reflecting an increase in the average rig count of 12% for the quarter
compared to the second quarter of 2007, and from higher MRO product sales due
to the acquisition of JEN Supply and Full Tilt in the last half of 2007.

    
    (in millions of Cdn. $)

                      Three months ended June 30   Six months ended June 30
                     ---------------------------- ---------------------------
                           2008         2007          2008          2007
                     -------------- ------------- ------------- -------------
    End use sales
     demand               $      %      $      %      $      %      $      %
    Capital projects   52.2     54   44.5     54  130.2     55  139.4     59
    Maintenance,
     repair and
     operating
     supplies (MRO)    44.2     46   38.4     46  106.8     45   97.8     41
                     -------------- ------------- ------------- -------------
    Total sales        96.4    100   82.9    100  237.0    100  237.2    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 is 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 second quarter and YTD 2008 and 2007 are
provided in the table below.


    
                            Q2 Average                YTD Average
                       ------------------     %    -----------------    %
                           2008     2007   change     2008    2007   change
                       --------- ------- ------------------ -------- --------
    Gas - Cdn. $/gj
     (AECO spot)        $ 10.23  $  7.10      44%  $  9.09  $  7.25      25%
    Oil - Cdn. $/bbl
     (Edmonton Light)   $125.83  $ 72.11      74%  $112.04  $ 69.85      60%

    Average rig count       180      161      12%      370      362       2%

    Well completions:
      Gas                 1,667    2,118     (21%)   4,960    6,691     (26%)
      Oil                   940      939       0%    2,242    2,566     (13%)
                       --------- ------- ------------------ -------- --------
    Total well
     completions          2,607    3,057     (15%)   7,202    9,257     (22%)

    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 $52.2 million in the
second quarter of 2008, up 17% ($7.7 million) from the second quarter of 2007.
Total well completions declined by 15% to 2,607 in the second quarter 2008
while the average working rig count increased to 180 (12%) compared to the
second quarter of 2007. Gas wells comprised 64% of the total wells completed
in western Canada in the second quarter of 2008 compared to 69% in the second
quarter of 2007. Oil and gas capital expenditure activity began to recover in
the second quarter of 2008 resulting from strengthening oil and gas commodity
prices and emerging gas exploration plays in the northeast British Columbia
and oil pool development in southeast Saskatchewan. Well completions in the
second quarter declined by 15% as capital project activity was limited by
adverse weather conditions. Well completions for the remainder of 2008 should
benefit from the increase in average rig counts experienced during the second
quarter of 2008, which should translate into stronger demand for the Company's
products. Spot gas and oil prices ended the second quarter at $11.69 per GJ
(AECO spot) and $139.68 per bbl (Edmonton light), an increase of 14% and 11%,
respectively, over second quarter average prices. This should result in
improved industry cash flow and capital expenditure economics, which in turn
should increase demand for the Company's products.
    MRO product sales are related to overall oil and gas industry production
levels and tend to be more stable than capital project sales. MRO product
sales for the quarter ended June 30, 2008 increased 15% to $44.2 million
compared to the quarter ended June 30, 2007 and comprised 46% of the Company's
total sales. The increase in sales was mainly attributable to the acquisition
of JEN Supply and Full Tilt in the last half of 2007.
    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, the
focus on the emerging oilsands capital project and MRO sales opportunities, as
well as selected sales to international markets. Revenue results of these
initiatives to date are provided below:


    
                        Q2  2008       Q2 2007      YTD 2008      YTD 2007
                     ------------- ------------- ------------- --------------
    Sales ($millions)     $      %      $      %      $      %      $      %
    Western Canada
     oilfield          88.1     91   76.7     92  220.4     93  218.2     92
    Oilsands            3.7      4    3.8      5    6.1      3   13.0      6
    Production
     Services           3.5      4    1.3      2    7.8      3    3.3      1
    International       1.1      1    1.1      1    2.7      1    2.7      1
                     ------------- ------------- ------------- --------------
    Total Sales        96.4    100   82.9    100  237.0    100  237.2    100
    

    Sales of oilfield products to conventional western Canada oil and gas end
use applications were $88.1 million for the second quarter of 2008, up 15%
from the second quarter of 2007. The increase reflects an increase in industry
activity in the later part of the second quarter and in December 2007, the
Company acquired JEN Supply, an oilfield equipment distributor that operated
four branches in east central Alberta. These locations contributed
approximately $4 million to sales, reducing the impact of the decline in
industry activity for the quarter. Two of these operations were in existing
markets where the Company had operations and have been combined with the
existing branches.
    Sales to oilsands end use applications remained consistent with the
second quarter of 2007. The Company continues to position its sales focus and
Edmonton distribution centre to penetrate this emerging market for capital
project related products. The Company's Fort McMurray branch continues to
build on its position to service oilsands' MRO product requirements.
    Production service sales were $3.5 million in the second quarter of 2008,
more than double the sales in the second quarter of 2007. The acquisition of
Full Tilt at the end of the 2nd quarter of 2007, which provides oilfield
engine maintenance and crane equipment services based in Lloydminster,
contributed the majority of the increase in revenues. The Company expects to
expand Full Tilt's service to other Company branch locations during the year
in order to capture more of our customer's product life cycle expenditures
while differentiating our services from other oilfield equipment distributors.
    Sales to international customer projects remained consistent at
$1.1 million in the second quarter of 2008 and are serviced by our Edmonton
distribution centre. Sales activity from the Libyan oilfield equipment joint
venture established in 2007 has been minimal to date and is anticipated to
increase as operations gain momentum.

    
                                       Q2 2008   Q2 2007  YTD 2008  YTD 2007
                                      --------- --------- --------- ---------
    Gross Profit
    Gross profit (millions)              $19.0     $16.8     $46.0     $43.1
    Gross profit margin as a % of
     sales                               19.7%     20.3%     19.4%     18.2%

    Gross profit composition by product
     sales category:
    Tubulars                                8%        7%        8%        8%
    Pipe, flanges and fittings             23%       26%       25%       29%
    Valves and accessories                 19%       19%       20%       20%
    Pumps, production equipment and
     services                              17%       15%       16%       14%
    General                                33%       33%       31%       29%
                                      --------- --------- --------- ---------
    Total Gross Profit                    100%      100%      100%      100%
    

    Gross profit reached $19.0 million in the second quarter of 2008, up
$2.2 million (13%) from the second quarter of 2007 period due to the increase
in sales offset by a reduction in gross profit margins. Gross profit
composition in the second quarter of 2008 remained fairly consistent with the
prior year period, reflecting stable sales margins across product sales
categories and a consistent year over year capital projects/MRO sales mix.

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

                      Three months ended June 30   Six months ended June 30
                          2008          2007          2008          2007
                      ------------- ------------- ------------- -------------
    Sales ($millions)     $      %      $      %      $      %      $      %

    People costs        9.1     54    7.6     54   19.4     58   16.5     56
    Selling costs       2.1     13    1.9     13    4.3     13    4.0     14
    Facility and
     office costs       3.5     21    2.5     18    6.1     18    5.0     17
    Other               2.0     12    2.1     15    3.8     11    3.8     13
                      ------------- ------------- ------------- -------------
    SG&A Costs         16.7    100   14.1    100   33.6    100   29.3    100
    SG&A costs a %
     of sales           17%           17%           14%           12%
    

    SG&A costs increased 19% ($2.6 million) in the second quarter of 2008
from the prior year period and represented 17% of sales consistent with the
prior year period. The increase in people costs of $1.5 million is mainly
associated with the acquisition of JEN Supply and Full Tilt. Selling costs
were up $0.2 million compared to the prior year period due to increased
accounts receivable bad debt allowances. Facility and office costs have
increased in the second quarter of 2008 as the Company moved into a new,
larger distribution centre in Edmonton during the quarter. The addition of the
JEN Supply and Full Tilt facilities and continued occupancy cost pressure in
western Canada contributed the remaining increase in cost. The Company leases
40 of its 44 branch locations as well as its corporate office in Calgary and
Edmonton distribution centre. The Company mitigates the cyclical nature of
industry activity levels by adjusting its variable and fixed (primarily
salaries and benefits) SG&A costs as activity levels change.

    Amortization Expense

    Amortization expense was $0.6 million in the second quarter of 2008 down
slightly from $0.7 million in the second quarter of 2007.

    Interest Expense

    Interest expense was $0.2 million in the second quarter of 2008, down
$0.3 million (66%) from the second quarter of 2007 due to lower average
borrowing levels and a decline in average floating interest rates.

    Foreign Exchange Loss (Gain)

    Foreign exchange gains were nominal in the second quarter of 2008
compared to a $0.5 million loss in the second quarter of 2007, reflecting
increased risk mitigation efforts undertaken.

    Income Tax Expense

    The Company's effective tax rate for the second quarter of 2008 was
35.2%, compared to 35.9% in the second quarter of 2007 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     Q3      Q4      Q1      Q2      Q3      Q4      Q1      Q2
                2006    2006    2007    2007    2007    2007    2008    2008
              ------- ------- ------- ------- ------- ------- ------- -------

    Sales     $131.7  $130.6  $154.3  $ 82.9  $116.8  $112.3  $140.6  $ 96.4

    Gross
     profit     23.7    25.0    26.3    16.8    21.0    20.4    27.1    19.0
    Gross
     profit %  18.0%   19.1%   17.0%   20.3%   18.0%   18.2%   19.3%   19.7%

    EBITDA       8.4     9.6    11.0     2.2     7.4     5.1    10.2     2.3
    EBITDA as
     a %
     of sales   6.4%    7.4%    7.1%    2.7%    6.3%    4.5%    7.2%    2.4%

    Net income   4.7     5.4     6.4     0.6     4.1     2.4     6.3     1.0
    Net income
     as a %
     of sales   3.6%    4.1%    4.1%    0.7%    3.5%    2.1%    4.5%    1.0%

    Net income
     per share
    Basic
     (Cdn. $) $ 0.26  $ 0.30  $ 0.35  $ 0.03  $ 0.22  $ 0.13  $ 0.34  $ 0.05
    Diluted
     (Cdn. $) $ 0.25  $ 0.29  $ 0.34  $ 0.03  $ 0.22  $ 0.13  $ 0.34  $ 0.05

    Net working
     capital
     (1)       130.6   120.2   124.0   127.0   128.7   134.7   117.4   114.9
    Bank
     operating
     loan(1)    49.6    34.0    33.6    36.0    35.4    44.3    21.8    18.4

    (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 June 30, 2008, borrowings under the Company's bank operating loan
were $18.4 million, a decrease of $25.9 million from December 31, 2007.
Borrowing levels have decreased due to the Company generating $9.1 million in
cash flow from operating activities, before net change in non-cash working
capital balances and a $19.9 million reduction in net working capital. This
was offset by $1.7 million in capital and other expenditures, $0.7 million in
repayments of long term debt and capital lease obligations and $0.7 million
for the purchase of shares to resource stock compensation obligations.
    As at June 30, 2007, borrowings under the Company's bank operating loan
were $36.0 million, an increase of $2.0 million from December 31, 2006.
Borrowing levels increased due to the Company generating $9.3 million in cash
from cash flow from operating activities, before net change in non-cash
working capital balances and $0.6 million in the issuance of capital stock
from the exercise of employee stock options. This was offset by a $7.7 million
increase in net working capital, $2.4 million related to the acquisition of
two agent operated branches, $0.4 million in repayment of long term debt and
capital leases, $0.2 million for the purchase of shares to resource stock
compensation obligations, and $1.2 million in capital and other expenditures.
    Net working capital was $114.9 million at June 30, 2008, a decrease of
$19.8 million from December 31, 2007. Accounts receivable decreased by
$5.2 million (6%) to $84.1 million at June 30, 2008 from December 31, 2007,
due to the seasonal decrease in sales in the second quarter offset by an 18%
increase in days sales outstanding in accounts receivable ("DSO") in the
second quarter of 2008 compared to the fourth quarter of 2007. DSO was 73 days
for the second quarter of 2008 compared to 62 days in the fourth quarter 2007
and 63 days in the second quarter 2007. The deterioration in DSO performance
during the second quarter was due in part to temporary issues associated with
the implementation of a new invoicing system that have now been rectified. DSO
is calculated using annualized sales for the quarter compared to the period
end accounts receivable balance. Inventory decreased by $3.5 million (4%) at
June 30, 2008 from December 31, 2007. Inventory turns for the second quarter
of 2008 improved to 3.7 times compared to 2.8 times in the second quarter of
2007 and 4.3 times in the fourth quarter of 2007. Inventory turns are
calculated using cost of goods sold for the quarter on an annualized basis
compared to the period end inventory balance. The company will continue to
adjust its investment in inventory in order to align with anticipated activity
levels in order to improve inventory turnover efficiency. Accounts payable and
accrued liabilities increased by $12.6 million (28%) in the second quarter of
2008 from December 31, 2007 due to a seasonal increase in purchasing combined
with slower payment to suppliers.
    The Company has a 364 day bank operating loan facility in the amount of
$60.0 million arranged with a syndicate of three banks that matures in
July 2009. The loan facility bears interest based on the 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 June 30, 2008, the Company's average debt to EBITDA ratio
was 1.2 times (June 30, 2007 - 1.3 times) which provides a maximum borrowing
ability of approximately $60 million under the facility. As at June 30, 2008,
the ratio of the Company's debt to total capitalization (debt plus equity) was
13% (June 30, 2007 - 25%).

    CAPITAL STOCK

    The weighted average number of shares outstanding during the second
quarter 2008 was 18.3 million, a decrease of 0.1 million shares over the prior
year's second quarter due principally to the purchase of common shares to
resource restricted share unit obligations, offset by the exercise of stock
options and restricted share units. The diluted weighted average number of
shares outstanding at June 30, 2008 was 18.6 million, consistent with the
second quarter of 2007.
    As at June 30, 2008 and 2007, the following shares and securities
convertible into shares, were outstanding:

    
                                                        June 30,     June 30,
                                                           2008         2007
    (millions)                                           Shares       Shares
                                                     -----------  -----------
    Shares outstanding                                     18.3         18.4
    Stock Options                                           1.3          0.7
    Restricted Share units                                  0.2          0.2
                                                     -----------  -----------
    Shares outstanding and issuable                        19.8         19.3
    

    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 six month periods ended June 30, 2008,
25,000 and 100,000 common shares were acquired by the trust at an average cost
per share of $9.06 and $7.23 respectively (2007 - 15,200 common shares at an
average cost per share of $11.38).

    Contractual Obligations

    There have been no material changes in off-balance sheet contractual
commitments since December 31, 2007. Capital expenditures in 2008 are
anticipated to be in the $3 million to $5 million range and will be directed
towards the Company's new Edmonton distribution center, computer systems
enhancements and expanding its production service capability.

    Critical Accounting Estimates

    There have been no material changes to critical accounting estimates
since December 31, 2007. The Company is not aware of any environmental or
asset retirement obligations that could have a material impact on its
operations.

    Change in Accounting Policies

    Effective January 1, 2008, the Company adopted the Canadian Institute of
Chartered Accountant's Handbook Section 1535 - Capital Disclosures, Section
3862 - Financial Instruments - Disclosures and Section 3863 - Financial
Instruments - Presentation. The standards establish presentation guidelines
for financial instruments and deal with their classification, as well as
providing readers of the financial statements with information pertinent to
the Company's objectives, policies and processes for managing capital.
    Effective January 1, 2008, the Company adopted Section 3031 -
Inventories. The standard sets out to prescribe the accounting treatment for
inventories and provide guidance on the determination of cost and subsequent
recognition of expenses. The adoption of Section 3031 did not impact the
determination of inventory cost and expenses recorded by the Company.
Inventory obsolescence expense of $326,000 was recognized in the six month
period ending June 30, 2008 (2007- $255,000). As at June 30, 2008 and
December 31, 2007 the Company had recorded reserves for inventory obsolescence
of $2.1 million and $1.8 million, respectively.

    New Accounting Pronouncements

    During the second quarter of 2008, the CICA published CICA 3064 -
Goodwill and Intangible Assets, with an effective date of January 1, 2009.
This standard addresses the accounting treatment of internally developed
intangibles and the recognition of such assets. The Company believes that the
adoption of this standard will not have a material impact on its financial
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 Canadian GAAP in its financial statements.
The President and Chief Executive Officer and the Vice President and Chief
Financial Officer of the Company have evaluated whether there were changes to
its ICFR during the six months ended June 30, 2008 that have materially
affected or are reasonably likely to materially affect the ICFR. No such
changes were identified through their evaluation.

    Risk Factors

    The Company is exposed to certain business and market risks arising from
transactions that are entered into in the normal course of business, which are
primarily related to interest rate changes and fluctuations in foreign
exchange rates. During the reporting period, no events or transactions have
occurred that would materially change the information disclosed in the
Company's 2007 Form 20-F.

    Forward Looking Statements

    The information in this MD&A may contain "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. All statements, other than
statements of historical facts, that address activities, events, outcomes and
other matters that CE Franklin plans, expects, intends, assumes, believes,
budgets, predicts, forecasts, projects, estimates or anticipates (and other
similar expressions) will, should or may occur in the future are
forward-looking statements. These forward-looking statements are based on
management's current belief, based on currently available information, as to
the outcome and timing of future events. When considering forward-looking
statements, you should keep in mind the risk factors and other cautionary
statements in this MD&A, including those in under the caption "Risk factors".
    Forward-looking statements appear in a number of places and include
statements with respect to, among other things:

    
    -   forecasted oil and gas industry activity levels in 2008 and 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 MD&A occur, or should underlying assumptions prove
incorrect, the Company's actual results and plans could differ materially from
those expressed in any forward-looking statements.
    All forward-looking statements expressed or implied, included in this
MD&A and attributable to CE Franklin are qualified in their entirety by this
cautionary statement. This cautionary statement should also be considered in
connection with any subsequent written or oral forward-looking statements that
CE Franklin or persons acting on its behalf might issue. CE Franklin does not
undertake any obligation to update any forward-looking statements to reflect
events or circumstances after the date of filing this MD&A, except as required
by law.

    Other Items

    Additional information relating to CE Franklin, including its Form
20-F/Annual Information Form, is available under the Company's profile on
SEDAR at www.sedar.com and at www.cefranklin.com.



    
    CE Franklin Ltd.
    Interim Consolidated Balance Sheets - Unaudited

    -------------------------------------------------------------------------
    (in thousands of Canadian dollars)
                                                        June 30  December 31
                                                           2008         2007
    -------------------------------------------------------------------------
    Assets

    Current assets
      Accounts receivable                                84,120       89,305
      Inventories                                        82,906       86,414
      Other                                               5,542        3,781
    -------------------------------------------------------------------------
                                                        172,568      179,500

    Property and equipment                                6,762        6,398
    Goodwill                                             20,570       20,523
    Future income taxes (note 3)                          1,619        1,403
    Other                                                   857          891
    -------------------------------------------------------------------------
                                                        202,376      208,715
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities

    Current liabilities
      Bank operating loan                                18,396       44,301
      Accounts payable and accrued liabilities           57,428       44,807
      Income taxes payable (note 3)                         243            -
      Current portion of long term debt and capital
       lease obligations                                    183          805
    -------------------------------------------------------------------------
                                                         76,250       89,913

    Long term debt and capital lease obligations            500          582
    -------------------------------------------------------------------------
                                                         76,750       90,495
    -------------------------------------------------------------------------

    Shareholders' Equity
      Capital stock                                      23,715       24,306
      Contributed surplus                                18,434       17,671
      Retained earnings                                  83,477       76,243
    -------------------------------------------------------------------------
                                                        125,626      118,220
    -------------------------------------------------------------------------
                                                        202,376      208,715
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to these interim consolidated financial
    statements.



    CE Franklin Ltd.
    Interim Consolidated Statements of Operations - Unaudited

                                      Three months ended    Six months Ended
    (in thousands of Canadian         ------------------- -------------------
     dollars except shares and         June 30   June 30   June 30   June 30
     per share amounts)                   2008      2007      2008      2007
    -------------------------------------------------------------------------
    Sales                               96,395    82,938   236,977   237,193
    Cost of sales                       77,442    66,107   190,963   194,051
    -------------------------------------------------------------------------
    Gross profit                        18,953    16,831    46,014    43,142
    -------------------------------------------------------------------------

    Other expenses (income)
      Selling, general and
       administrative expenses          16,735    14,086    33,608    29,352
      Amortization                         594       727     1,211     1,486
      Interest expense                     163       479       601     1,062
      Foreign exchange (gain)/loss          (8)      535       (10)      589
    -------------------------------------------------------------------------
                                        17,484    15,827    35,410    32,489
    -------------------------------------------------------------------------

    Income before income taxes           1,469     1,004    10,604    10,653

    Income tax expense (recovery)
     (note 3)
      Current                              651       654     3,583     3,881
      Future                              (134)     (294)     (213)     (245)
    -------------------------------------------------------------------------
                                           517       360     3,370     3,636
    -------------------------------------------------------------------------

    Net income and comprehensive income    952       644     7,234     7,017
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net income per share (note 2)
      Basic                               0.05      0.03      0.39      0.38
      Diluted                             0.05      0.03      0.39      0.37
    -------------------------------------------------------------------------

    Weighted average number of shares
     outstanding (000's)
      Basic                             18,278    18,329    18,305    18,282
      Diluted                           18,574    18,768    18,601    18,721
    -------------------------------------------------------------------------

    See accompanying notes to these interim consolidated financial
    statements.



    CE Franklin Ltd.
    Interim Consolidated Statements of Cash Flow - Unaudited

                                      Three months ended    Six months Ended
                                      ------------------- -------------------
    (in thousands of Canadian          June 30   June 30   June 30   June 30
     dollars)                             2008      2007      2008      2007
    -------------------------------------------------------------------------
    Cash flows from operating
     activities
      Net income for the period            952       644     7,234     7,017
      Items not affecting cash -
        Amortization                       594       727     1,211     1,486
        Future income tax recovery        (134)     (294)     (213)     (245)
        Stock based compensation
         expense                           552       676       846     1,062
    -------------------------------------------------------------------------
                                         1,964     1,753     9,078     9,320
    Net change in non-cash working
     capital balances related to
     operations -
      Accounts receivable               28,027    39,443     4,988    21,166
      Inventories                       (5,050)   (4,783)    3,465     1,495
      Other current assets              (3,375)   (1,859)   (1,755)   (2,645)
      Accounts payable and accured
       liabilities                     (14,698)  (33,808)   13,068   (24,431)
      Income taxes payable              (2,514)   (2,585)      132    (3,299)
    -------------------------------------------------------------------------
                                         4,354    (1,839)   28,976     1,606
    -------------------------------------------------------------------------

    Cash flows (used in)/from
     financing activities
      (Decrease)/Increase in bank
       operating loan                   (3,366)   (1,233)  (25,905)    1,975
      Decrease in long term debt and
       capital lease obligations           (54)      (51)     (705)     (391)
      Issuance of capital stock             48       354        49       568
      Purchase of capital stock in
       trust for RSU Plans                (227)        -      (723)     (173)
    -------------------------------------------------------------------------
                                        (3,599)     (930)  (27,284)    1,979
    -------------------------------------------------------------------------

    Cash flows (used in)/from
     investing activities
      Purchase of property and
       equipment                        (1,196)     (802)   (2,133)   (1,208)
      Business acquisitions                441         -       441    (2,377)
    -------------------------------------------------------------------------
                                          (755)     (802)   (1,692)   (3,585)
    -------------------------------------------------------------------------

    Change in cash and cash
     equivalents during the period           -    (3,571)        -         -

    Cash and cash equivalents -
     Beginning of period                     -     3,571         -         -

    Cash and cash equivalents -
     End of period                           -         -         -         -
    -------------------------------------------------------------------------

    Cash paid during the period for:
      Interest on bank operating loan      153       472       583     1,047
      Interest on capital lease
       obligations and long term debt       10         7        18        15
      Income taxes                       2,407     3,244     2,570     7,185
    -------------------------------------------------------------------------

    See accompanying notes to these interim consolidated financial
    statements.



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

    -------------------------------------------------------------------------

                               Capital Stock
                             ------------------
    (in thousands of          Number                                  Share-
     Canadian dollars and       of            Contributed  Retained  holders'
     number of shares)        Shares      $      Surplus   Earnings   Equity
    -------------------------------------------------------------------------
    Balance - December 31,
     2006                     18,223    23,586    16,213    62,676   102,475

    Stock option compensation
     expense                       -         -     1,062         -     1,062
    Stock options excercised     174       824      (256)        -       568
    Restricted share units
     (RSU's) exercised            10       204      (204)        -         -
    Purchase of shares in
     trust for RSU plans         (15)     (173)        -         -      (173)
    Net income                     -         -         -     7,017     7,017
    -------------------------------------------------------------------------
    Balance - June 30, 2007   18,392    24,441    16,815    69,693   110,949
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Balance - December 31,
     2007                     18,370    24,306    17,671    76,243   118,220
    Stock option
     compensation expense          -         -       605         -       605
    Stock options exercised       10        70       (20)        -        50
    RSU's exercised                3        62       (62)        -         -
    DSU grant                      -         -       240         -       240
    Purchase of shares in
     trust for RSU Plans        (100)     (723)        -         -      (723)
    Net income                     -         -         -     7,234     7,234
    -------------------------------------------------------------------------
    Balance - June 30, 2008   18,283    23,715    18,434    83,477   125,626
    -------------------------------------------------------------------------

    See accompanying notes to these interim consolidated financial
    statements.
    

    CE Franklin Ltd.
    Notes to Interim Consolidated Financial Statements - Unaudited
    -------------------------------------------------------------------------
    (tabular amounts in thousands of Canadian dollars except share and per
    share amounts)

    Note 1 - Accounting Policies

    These interim consolidated financial statements have been prepared in
    accordance with accounting principles generally accepted in Canada
    applied on a consistent basis with CE Franklin Ltd.'s (the "Company")
    annual consolidated financial statements for the year ended December 31,
    2007, with the exception of policies relating to financial instruments,
    capital disclosures and inventories as noted below. The disclosures
    provided below are incremental to those included in the annual
    consolidated financial statements. These interim consolidated financial
    statements should be read in conjunction with the annual consolidated
    financial statements and the notes thereto for the year ended
    December 31, 2007.

    Effective January 1, 2008, the Company adopted 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 recognized in the three and six month
    periods ending June 30, 2008 of $90,000 and $326,000 respectively (2007 -
    -$25,000 and $255,000). As at June 30, 2008 and December 31, 2007 the
    Company had recorded reserves for inventory obsolescence of $2.1 million
    and $1.8 million respectively.

    These unaudited interim consolidated financial statements reflect all
    adjustments which are, in the opinion of management, necessary for a fair
    presentation of the results for the interim periods presented; all such
    adjustments are of a normal recurring nature.

    The Company's sales typically peak in the first quarter when drilling
    activity is at its highest levels. They then decline through the second
    and third quarters, rising again in the fourth quarter when preparation
    for the new drilling season commences. Similarly, net working capital
    levels are typically at seasonally high levels at the end of the first
    quarter, declining in the second and third quarters, and then rising
    again in the fourth quarter.

    Note 2 - Share Data

    At June 30, 2008, the Company had 18,283,238 common shares and 1,325,638
    options outstanding to acquire common shares at a weighted average
    exercise price of $5.83 per common share, of which 606,815 options were
    vested and exercisable at a weighted average exercise price of $3.80 per
    common share.

    a) Stock options

    Option activity for each of the six month periods ended June 30 was as
    follows:

    
    000's                                                  2008         2007
    -------------------------------------------------------------------------
    Outstanding at January(1)                             1,262          804
    Granted                                                  75          109
    Exercised                                               (10)        (174)
    Forfeited                                                (1)          (1)
    -------------------------------------------------------------------------
    Outstanding at June 30                                1,326          738
    -------------------------------------------------------------------------

    There were no options granted during the three month periods ended
    June 30, 2008 and June 30, 2007. The fair value of the options granted
    during the six month period ended June 30, 2008 was $274,000 (June 30,
    2007 - $521,000) and were estimated as at the grant date using the Black-
    Scholes option pricing model, using the following assumptions:

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

    Stock option compensation expense recorded in the three and six month
    periods ended June 30, 2008 was $180,000 (2007 - $117,000) and $350,000
    (2007- $235,000), 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 which entitle the participant, at the Company's option, to
    receive either a common share or cash equivalent value in exchange for a
    vested unit. The vesting period for RSU's is three years from the grant
    date. DSU's vest on the date of grant. Compensation expense related to
    the units granted is recognized over the vesting period based on the fair
    value of the units at the date of the grant and is recorded to
    compensation expense and contributed surplus. The contributed surplus
    balance is reduced as the vested units are exchanged for either common
    shares or cash.

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

    Outstanding at January 1               178        37       120        12
    Granted                                  1        30        67        25
    Exercised                               (3)        -       (10)        -
    Forfeited                                -         -         -         -
    -------------------------------------------------------------------------
    Outstanding at June 30                 176        67       177        37
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    RSU compensation expense recorded in the three and six month periods
    ended June 30, 2008 were $373,000 (2007- $559,000) and $495,000 (2007 -
    $827,000) 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 six
    month periods ended June 30, 2008, 25,000 and 100,000 common shares were
    acquired, respectively, by the trust (2007 - 15,200 common shares for
    both the three and six month periods) at a cost of $227,000 for the three
    month period and $723,000 for the six month period (2007 - $173,000).

    c)  Reconciliation of weighted average number of diluted common shares
        outstanding (in 000's)

    The following table summarizes the common shares in calculating net
    earnings per share.

                                      Three Months Ended    Six Months Ended
                                      ------------------- -------------------
                                       June 30   June 30   June 30   June 30
                                          2008      2007      2008      2007
    -------------------------------------------------------------------------

    Weighted average common shares
     outstanding - basic                18,278    18,329    18,305    18,282
    Effect of Stock options and RSU
     Plans                                 296       439       296       439
    -------------------------------------------------------------------------
    Weighted average common shares
     outstanding - diluted              18,574    18,768    18,601    18,721
    -------------------------------------------------------------------------


    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            Six Months Ended
                    June 30       June 30       June 30       June 30
                       2008     %    2007     %    2008     %    2007     %
    -------------------------------------------------------------------------
    Income before
     income taxes     1,469         1,004        10,604        10,653
    -------------------------------------------------------------------------
    Income taxes
     calculated at
     expected rates     437   29.7    332   33.1  3,173   29.9  3,479   32.7
    Non-deductible
     items              116    7.9    112   11.2    199    1.9    247    2.3
    Capital and
     large
     corporations
     taxes               15    1.0     11    1.1     23    0.2     22    0.2
    Adjustments on
     filing returns
     & other            (51)  (3.4)   (95)  (9.5)   (25)  (0.2)  (112)  (1.1)
    -------------------------------------------------------------------------
                        517   35.2    360   35.9  3,370   31.8  3,636   34.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    As at June 30, 2008, income taxes payable are $243,000 (December 31 2007
    - Income taxes receivable included in other current assets were
    $848,000).

    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:

                                                        June 30  December 31
                                                           2008         2007
    -------------------------------------------------------------------------
    Assets
      Financing charges                                      80          103
      Property and equipment                                963          874
      Stock compensation expense & Other                    922          786
    -------------------------------------------------------------------------
                                                          1,965        1,763
    Liabilities
      Goodwill                                              346          360
    -------------------------------------------------------------------------
    Net future income tax asset                           1,619        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 secured bank operating 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 Company's bank operating facility limits
    its annual average debt to EBITDA ratio to 2.25 times.

    As at June 30, 2008 this ratio was 1.2 times (December 31, 2007 - 1.4
    times). 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 debt to 2.25 times
    trailing 12 month earnings before interest, amortization and taxes. As at
    June 30, 2008, the maximum amount available to be borrowed under this
    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
    June 30, 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 June 30, 2008, the fair value of the bank operating
    loan, long term debt and obligations under capital leases approximated
    their carrying values due to their floating interest rate nature and
    short term maturity.

    b)  Credit Risk

    A substantial portion of the Company's accounts receivable balance is
    with customers in the oil and gas industry and is subject to normal
    industry credit risks.

    c)  Market Risk

    The Company is exposed to market risk from changes in the Canadian prime
    interest rate which can impact its borrowing costs. The Company purchases
    certain products in US dollars and sells such products to its customer
    typically priced in Canadian dollars. As a result, fluctuations in the
    value of the Canadian dollar relative to the US dollar can result in
    foreign exchange gains and losses.

    d)  Risk Management

    From time to time the Company enters into foreign exchange forward
    contracts to manage its foreign exchange market risk by fixing the value
    of its liabilities and future commitments. As at June 30, 2008, the
    Company had contracted to purchase US $6.0 million at fixed exchange
    rates maturing in 2008. The fair market value of the contracts are
    nominal.

    Note 6 - Related Party Transactions

    Smith International Inc. ("Smith") owns approximately 53% of the
    Company's outstanding shares. The Company is the exclusive distributor in
    Canada of down hole pump production equipment manufactured by Wilson
    Supply, a division of Smith. Purchase of such equipment conducted in the
    normal course on commercial terms were as follows:

                                                        June 30      June 30
                                                           2008         2007
    -------------------------------------------------------------------------
    Cost of sales for the three months ended              2,311        2,083

    Cost of sales for the six months ended                5,368        4,385

    Inventory                                             4,578        3,911

    Accounts payable and accrued liabilities                 22          953


    Note 7 - Segmented reporting

    The Company distributes oilfield products principally through its
    networks of 44 branches located in western Canada to oil and gas industry
    customers. Accordingly, the Company has determined that it operated
    through a single operating segment and geographic jurisdiction
    





For further information:

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

Organization Profile

CE Franklin Ltd.

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