Collicutt Energy Services Ltd.
TSX : COH

Collicutt Energy Services Ltd.

November 09, 2007 17:05 ET

Collicutt Energy Services Ltd. Announces Its Third Quarter Report of 2007

RED DEER, ALBERTA--(Marketwire - Nov. 9, 2007) - Collicutt Energy Services Ltd. (TSX:COH):

MESSAGE TO SHAREHOLDERS

Collicutt Energy Services Ltd. announces its third quarter report of 2007.

Basic and diluted earnings per share for the quarter ended September 30th, 2007 were 13 cents per share compared to basic and diluted earnings of 20 and 19 cents per share respectively for the same period of 2006.

Revenues decreased by $9.0 million to $36.3 million for the period from $45.3 million in the third quarter of 2006. Gross profits decreased by $1.5 million over the same period of 2006 to $7.1 million. Net earnings for the three months ended September 30th, 2007 were $1.3 million, versus net earnings of $2.0 million for the third quarter of 2006.

The decline in drilling being experienced in Western Canada continues to impact sales of new compression. The Fabrication Division sales for the third quarter were $14.9 million versus $4.7 million in the second quarter of 2007 and $28.8 million in the third quarter of last year. Looking at the balance of the year, Fabrication Division sales will increase over the third quarter due to a conscious effort to focus resources on the international and United States markets.

While our compression sales are down, our Fabrication Services and Power Generation revenues are strengthening with a strong backlog of orders from both international and the oil sands markets. We see this momentum of increased growth continuing in 2008 and we are well positioned to respond to these future needs.

Within the Fabrication Division, we remain diligent in our cost and expense controls in response to the current sales activity. We feel the current softening being experienced in Alberta and British Columbia will continue through the first half of 2008, but this will be offset by the growth in Fabrication Services and Power Generation product areas.

September 2007 saw the grand opening of Northern Alberta Institute of Technology's (NAIT) new Millwright and Instrumentation facility, whereby our Company had manufactured a fully operational Collicutt compressor package to facilitate the hands-on learning of NAIT's apprenticing students. The dedication ceremonies not only recognized our Company as a major contributor to this new and exciting program, but announced that one of the learning centers is to be now known as the Collicutt Energy Services Ltd's. classroom.

Early in September 2007, David Tan joined our team as Vice-President, Parts and Service providing our Company with a dedicated focus on driving strategies for continued growth and profitability. Possessing over 20 years experience in senior management roles, David's expertise in both domestic and international operations will enhance Collicutt's belief in continuous improvement while strengthening margins and profitability. David brings a great ability to "get things done" as well as excellent strategic planning initiatives and process improvements.

With the Alberta Government having announced its intentions to raise revenue royalties, the energy sector has still been experiencing some turbulent times. Since late August, market conditions within Alberta have seen some increases while the northeastern region of British Columbia continues to endure an industry downturn. Within the Service Division, we have been fortunate to realize increased business efficiencies and margin enhancements despite gross revenue being down relative to budget. High service demands and strong overhaul activity in the Grande Prairie region were evident throughout the third quarter. Refabrication activity levels improved and are expected to continue to do so into the fourth quarter and beyond.

I am pleased to announce that Simpower Ltd., our Maple Ridge, B.C. based branch will become known as Collicutt Energy Services (B.C.) Ltd. effective December 1st, 2007, in order to better align customer, brand and service recognition with our widely held "Standards of Excellence". This name standardization will provide customers and employees alike with instant parts and service quality recognition as one of the largest global suppliers of reciprocating power systems in North America.

With a sluggish market, we are focusing our efforts on internal cost controls, revenue generation, and personnel retention to combat the restrained 2007 market and position ourselves for the possible turnaround anticipated in the latter part of 2008.

STEVEN M. COLLICUTT, President and Chief Executive Officer

November 9, 2007

MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A)

The following constitutes management's opinion concerning the Company's operating and financial results for the three and nine month periods ended September 30, 2007 and its outlook based on current available information and expectations as at November 9, 2007. This discussion and analysis should be read in conjunction with the audited consolidated financial statements and the MD&A in the Company's Annual Report for the year ended December 31, 2006. The following discussion includes forward-looking statements that involve certain risks and uncertainties and require management to make certain assumptions which if not held will produce different results than these statements have indicated. Additional information regarding the risks and uncertainties significant to the Company are provided in the Annual Information Form (AIF). Additional information is also available on the Company's website (www.collicutt.com) and all previous public filings, including the Annual Information Form (AIF), are available through SEDAR (www.sedar.com).

The terms "Company", "we", "our" and "us", when used in this report, refer to Collicutt Energy Services Ltd. and its subsidiaries except where indicated.

EXECUTIVE OVERVIEW

Collicutt Energy Services Ltd. has two business segments - Service and Fabrication. The Service Division maintains, repairs and refurbishes natural gas compression and power generation equipment. The Fabrication Division designs and assembles natural gas compression packages, power generation systems and oilfield production equipment. The Company is geographically focused within Western Canada but has recently begun expansion into the western United States through its wholly-owned subsidiary - Collicutt Energy Services Inc. In addition, the Company does complete a number of projects globally, particularly within the Fabrication Division.



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EARNING HIGHLIGHTS
($000s - Unaudited - Prepared by Management)

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2007
------------------------------
Q3 Q2 Q1
------------------------------
Revenue
Service 21,384 18,499 11,947
Fabrication 14,920 4,734 24,693
------------------------------
36,304 23,233 36,640

Gross profit 7,091 3,601 5,256
Gross profit percentage 19.53% 15.50% 14.34%

EBITDA(1) 3,311 (169) 968

Net earnings (loss) 1,293 (972) (202)

Capital expenditures and
business acquisitions 713 5,314 2,332


2006
------------------------------------------
Q4 Q3 Q2 Q1
------------------------------------------
Revenue
Service 12,683 16,465 15,517 16,981
Fabrication 31,588 28,824 21,934 24,804
------------------------------------------
44,271 45,289 37,451 41,785

Gross profit 8,026 8,617 7,263 7,053
Gross profit percentage 18.13% 19.03% 19.39% 16.88%

EBITDA(1) 4,037 4,383 3,685 3,619

Net earnings (loss) 1,983 2,033 1,763 1,597

Capital expenditures and
business acquisitions 4,004 515 3,489 593

(1) EBITDA is calculated from the consolidated statement of earnings as
revenue less cost of sales, operating and general and administrative
expenses and other income and is used to assist management and
investors in assessing the Company's ability to generate cash from
operations. EBITDA is a non-GAAP earning measure that does not have
any standardized meaning prescribed by GAAP and may not be comparable
to similar measures provided by other companies.

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Revenue performance in both the Fabrication and Service Divisions represented a 19.0% year over year decrease from the third quarter of 2006, but was 56.0% higher than in the second quarter of 2007. Although year over year revenues fell $9 million, the increase from the prior quarter, particularly within the Fabrication Division, indicated a significant improvement in sales volumes.

Gross Profit of $7.1 million for the third quarter of 2007 recorded a year over year decrease of $1.5 million from $8.6 million in the third quarter of 2006. Labour utilization has stabilized as a result of the increase in volume, improving gross profit as a percentage of revenues in comparison to the second quarter.

EBITDA decreased $1.1 million in the third quarter of 2007 to $3.3 million compared to $4.4 million in the same period of 2006.

Capital expenditures were $0.7 million in the third quarter of 2007; $0.5 million of which related to further development of the lease fleet within the Fabrication Division.

The Normal Course Issuer Bid (NCIB) was authorized by the Board of Directors in May 2005 and was the result of the strong belief that the market price of the Company's shares was not reflective of their true underlying value. Under the NCIB renewed by the Board of Directors from June 20, 2006 to June 19, 2007, the Company purchased 474,900 common shares for cancellation at an average price of $6.42, representing total consideration of $3.1 million. The NCIB was renewed on June 22, 2007 and will expire on June 21, 2008. Under this renewed NCIB, the Company may purchase from time to time, as it considers advisable, up to 495,000 of the issued and outstanding common shares of the Company on the open market through the facilities of the Toronto Stock Exchange. From June 22, 2007 to November 9, 2007 no shares were purchased pursuant to the issuer bid. Copies of the "Notice of Intention to Make a Normal Course Issuer Bid" of the Company dated June 12, 2007 to which the Bid is made, may be obtained by shareholders without charge by contacting the Company.



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COMMON SHARE INFORMATION
($000s except per share data - Unaudited - Prepared by Management)

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2007
------------------------------
Q3 Q2 Q1
------------------------------
Per share
- basic earnings (loss) 0.13 (0.10) (0.02)
- diluted earnings (loss) 0.13 (0.10) (0.02)
- book value 5.73 5.59 5.68

Shares Outstanding
- average basic 9,844 9,985 10,026
- average diluted 10,051 9,985 10,026
- end of period 9,832 9,850 9,912

- end of period share options 742 765 785

Market Capitalization 55,059 57,329 59,965


2006
------------------------------------------
Q4 Q3 Q2 Q1
------------------------------------------
Per share
- basic earnings (loss) 0.18 0.20 0.17 0.15
- diluted earnings (loss) 0.18 0.19 0.16 0.15
- book value 5.72 5.51 5.33 5.20

Shares Outstanding
- average basic 10,107 10,263 10,540 10,736
- average diluted 10,351 10,677 10,794 10,922
- end of period 10,066 10,099 10,402 10,570

- end of period share options 805 770 775 557

Market Capitalization 64,925 68,812 68,130 60,770

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Basic and diluted earnings per share for the third quarter was 13 cents per share, versus 20 and 19 cents per share respectively in the third quarter of 2006. As at September 30, 2007 the book value of the Company was $5.73 per share, or $56.3 million, versus the book value of $5.51 per share or $55.6 million at September 30, 2006.



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BALANCE SHEET SUMMARY
($000s except per share data - Unaudited - Prepared by Management)

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2007
------------------------------
Q3 Q2 Q1
------------------------------
Total assets 121,816 113,994 101,069

Total debt 65,519 58,928 44,663

Shareholders' equity 56,297 55,066 56,405

Debt to equity 1.16 1.07 0.79

Total interest bearing debt 42,497 39,480 31,989


2006
------------------------------------------
Q4 Q3 Q2 Q1
------------------------------------------

Total assets 107,257 115,587 119,539 104,851

Total debt 49,643 59,929 64,119 49,915

Shareholders' equity 57,614 55,658 55,420 54,936

Debt to equity 0.86 1.08 1.16 0.91

Total interest bearing debt 26,869 28,538 31,738 20,106

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Total interest bearing debt increased $3.0 million in the third quarter of 2007 to $42.5 million from $39.5 million in the second quarter of 2007. The increase in interest bearing debt was principally the result of $0.7 million in net capital expenditures, $0.1 million in employee share loans and an increase in working capital of $4.4 million partially offset by $2.2 million in cash flow generated from operations. The primary components of the $4.4 million increase in working capital consisted of a $6.7 million increase in accounts receivable, a $1.7 million increase in inventory and work-in-progress, and a $1.2 million reduction in accounts payable and accrued liabilities, partially offset by a $4.5 million increase in deferred revenue and a $0.7 million increase in taxes payable.

Total debt increased $6.6 million to $65.5 million in the third quarter of 2007 from $58.9 million in the second quarter. The significant components of the increase were a $4.5 million increase in deferred revenue and a $3.0 million increase in interest bearing debt partially offset by a $1.2 million reduction in accounts payable and accrued liabilities.



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CONSOLIDATED
($000's - Unaudited- Prepared by Management)

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Three Months Ended Nine Months Ended
--------------------------------------------------------
September 30, September 30, September 30, September 30,
2007 2006 2007 2006
--------------------------------------------------------
Revenue 36,304 45,289 96,177 124,525

Gross profit 7,091 8,617 15,948 22,933

Gross profit % 19.53% 19.03% 16.58% 18.42%

General and
administrative 3,917 4,283 12,036 11,441

Interest 632 412 1,594 1,111

Net earnings 1,293 2,033 119 5,393

EBITDA (1) 3,311 4,383 4,110 11,687

Capital expenditures
and business
acquisitions 713 515 8,377 4,597

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(1) EBITDA is calculated from the consolidated statement of earnings as
revenue less cost of sales, operating and general and administrative
expenses and other income and is used to assist management and investors
in assessing the Company's ability to generate cash from operations.
EBITDA is a non-GAAP earning measure that does not have any standardized
meaning prescribed by GAAP and may not be comparable to similar measures
provided by other companies.


Consolidated revenues decreased 19.0% or $9.0 million from the third quarter of 2006 as a result of lower revenues in the Fabrication Division. The Service Division saw a year over year increase of 29.0%. Fabrication Division revenues were down 48.0% year over year despite realizing an increase of over 200% from the revenues seen in the second quarter of 2007.

Consolidated gross profit decreased $1.5 million from the third quarter of 2006. Year over year, gross profit as a percentage of sales was up 0.5% of sales to 19.5% versus 19.0% in the third quarter of 2006. Gross profit as a percentage of sales was up from the second quarter of 2007 by 4.0%.

Consolidated general and administrative expenses decreased $0.4 million to $3.9 million from $4.3 million in the third quarter of 2006.

Interest expense increased by $0.2 million year over year. The increase is consistent with the increase in bank indebtedness.

Consolidated net earnings decreased $0.7 million year over year to $1.3 million from net earnings of $2.0 million from the third quarter of 2006.

Capital expenditures and business acquisitions of $0.7 million for the third quarter of 2007 were $0.2 million higher than in the third quarter of 2006.

Related party transactions - there were no significant related party transactions during the 2007 and 2006 fiscal years.



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SERVICE DIVISION
($000's - Unaudited- Prepared by Management)

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Three Months Ended Nine Months Ended
--------------------------------------------------------
September 30, September 30, September 30, September 30,
2007 2006 2007 2006
--------------------------------------------------------

Revenue 21,384 16,465 51,830 48,963

Earnings before
interest and
income tax ("EBIT") 2,906 2,487 4,089 6,322

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Service Division revenues, generated from a network of 12 branches located across Western Canada and 3 branches located in California, increased by $2.9 million from the second quarter of 2007 to $21.4 million. Year over year revenues within the Service Division saw a $4.9 million increase from $16.5 million in the third quarter of 2006.

The Division continues to focus on increasing market share while at the same time managing the balance sheet through improved receivable collection and inventory management. This focus will continue throughout 2007.

EBIT increased by $0.4 million in the third quarter of 2007 to $2.9 million from $2.5 million in the third quarter of 2006.

Gross profit as a percentage of revenue was 5.7% lower than in the third quarter of 2006 due to the inclusion of the California operations. Year to date gross profit as a percentage of revenue was 2.7% lower than in 2006.



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FABRICATION DIVISION
($000's - Unaudited- Prepared by Management)

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Three Months Ended Nine Months Ended
--------------------------------------------------------
September 30, September 30, September 30, September 30,
2007 2006 2007 2006
--------------------------------------------------------

Revenue 14,920 28,824 44,347 75,562

Earnings before
interest and
income tax ("EBIT") 900 2,062 1,255 5,481

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Fabrication Division revenues for the third quarter of 2007 saw a decrease of $13.9 million to $14.9 million from $28.8 million in the third quarter of 2006. The decrease in revenues is consistent with the reduced market for compression equipment and increased competitiveness for sales in the industry. The fourth quarter is anticipated to post revenues greater than those reported for the third quarter, but will continue to post results below those shown in 2006.

EBIT increased by $2.0 million in the third quarter of 2007 over the second quarter of the current year. Year over year EBIT realized a decrease of $1.2 million to $0.9 million from $2.1 million for the third quarter of 2006.

Gross profit as a percentage of revenues in the third quarter of 2007 was 2.4% higher than in the third quarter of 2006 as the Division benefited from a greater proportion of higher margins in power generation, fabrication services and rental revenues. Year to date gross profit as a percentage of revenues was 0.4% lower than in 2006.



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LIQUIDITY AND CAPITAL RESOURCES
($000's - Unaudited- Prepared by Management)

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Three Months Ended Nine Months Ended
--------------------------------------------------------
September 30, September 30, September 30, September 30,
2007 2006 2007 2006
--------------------------------------------------------
Cash flow from
operations 2,187 2,895 2,945 7,729

(Increase) reduction
in non-cash working
capital (4,396) 2,675 (8,609) (5,063)

(Repurchase)
issuance of share
capital (100) (1,861) (1,609) (4,334)

Cash (invested)
received in
business
acquisitions and
disposals - - (2,762) (1,650)

Cash (invested in)
received from
acquisition and
disposal of
property, plant and
equipment (708) (515) (5,592) (2,947)

--------------------------------------------------------
(Increase) reduction
in interest bearing
debt (3,017) 3,194 (15,627) (6,265)

Repayment of
long-term debt (300) (267) (829) (595)

--------------------------------------------------------
(Increase) reduction
in operating loan (3,317) 2,927 (16,456) (6,860)

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Cash flow generated from operations, before changes in non-cash working capital, decreased by $0.7 million to $2.2 million in the third quarter of 2007 from $2.9 million for the same period in 2006.

Total interest bearing debt increased by $14.0 million to $42.5 million in the third quarter of 2007, versus $28.5 million in the third quarter of 2006.



WORKING CAPITAL

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WORKING CAPITAL
($000's - Unaudited- Prepared by Management)

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As at
----------------------------
September 30, December 31,
2007 2006
----------------------------
Working capital 22,821 29,122

----------------------------
Operating loan 33,562 17,105

Current portion of long-term debt 1,123 1,251

Long-term debt 7,812 8,513

----------------------------
Total interest bearing debt 42,497 26,869
----------------------------

Total interest bearing debt to equity .75 .47

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The Company has an operating loan of $40.0 million (December 31 2006: $32.0 million) available to finance current operations. As at September 30, 2007, $33.6 million had been drawn (December 31, 2006: $17.1 million; September 30, 2006: $18.5 million). As a result of planned capital expenditures and further investment in the California market combined with the slowdown experienced in the Fabrication Division in 2007, management believed additional financing was required in order to sufficiently fund operations in the foreseeable future. As a result, the operating loan availability was increased to $40.0 million in the second quarter of 2007.

During the second quarter of 2006, the Company negotiated a new credit facility with the Company's existing lender. The existing term loans were replaced with a non-revolving term loan within a committed borrowing facility. The new non-revolving term loan has a ten-year amortization and has been classified as current and long-term debt.

ACCOUNTING POLICIES

Foreign Currency Translation

The Company's wholly-owned US subsidiary, Collicutt Energy Services Inc., is considered a self-sustaining foreign operation and the current rate method is used to translate their financial statements into Canadian dollars. The resulting translation adjustments are reported as part of accumulated other comprehensive income and recognized in income only when a reduction of the net investment in the foreign operation has been realized.

Financial Instruments and Hedges

On January 1, 2007, the Company adopted Section 3855 of the Canadian Institute of Chartered Accountants (CICA) Handbook, "Financial Instruments - Recognition and Measurement" and Section 3865 "Hedges". Under these standards financial assets available for sale and assets and liabilities held for trading have been measured at fair value. All derivative instruments, including embedded derivatives, are recorded in the consolidated balance sheet at fair value unless they qualify for the normal sales and purchases exemption. Changes in the fair value of derivatives that are not exempt are recorded in earnings unless hedge accounting is used, in which case changes in fair value are recorded in other comprehensive earnings.

Comprehensive Earnings

On January 1, 2007, the Company adopted Section 1530 of the CICA Handbook, "Comprehensive Income". It describes reporting and disclosure recommendations with respect to comprehensive earnings (loss) and its components. Comprehensive earnings (loss) are the change in shareholders' equity which results from transactions and events from sources other than the Company's shareholders. These transactions and events include changes in the cumulative translation adjustment relating to self-sustaining foreign operations and unrealized gains and losses resulting from changes in the fair value of certain financial instruments.

Section 1506: Accounting Changes

This standard establishes criteria for changing accounting policies, together with the accounting treatment and disclosure of changes in accounting policies and estimates, and correction of errors.

Recent Accounting Pronouncements Issued and Not Yet Adopted

In December 2006, the CICA issued three accounting standards: Section 1535, Capital Disclosures, Section 3862, Financial Instruments - Disclosures and Section 3863, Financial Instruments - Presentation, as well as Section 3031, Inventories, in June 2007. These new standards will be effective for the Company on January 1, 2008.

Section 1535: Capital Disclosures

This new standard establishes new disclosure requirements concerning capital such as: qualitative information about the Company's objectives, policies and processes for managing capital; quantitative data about what it regards as capital; whether it has complied with any externally imposed capital requirements and, if not, the consequences of such non-compliance. The Company is presently evaluating the impact of this new standard.

Section 3862: Financial Instruments - Disclosures and Section 3863: Financial Instruments - Presentation

These new standards replace Section 3861, Financial Instruments - Disclosure and Presentation, revising and enhancing disclosure requirements, and carrying forward unchanged the presentation requirements. The Company is presently evaluating the impact of these new standards.

Section 3031: Inventories

This standard introduces changes to the measurement and disclosure of inventory. The measurement changes include the elimination of the last in first out method, the requirement to measure inventories at the lower of cost and net realizable value, the allocation of overhead based on normal capacity, the use of the specific cost method for inventories that are not ordinarily interchangeable or goods and services produced for specific purposes, the requirement for an entity to use a consistent cost formula for inventory of a similar nature and use, and the reversal of previous write-downs to net realizable value when there is a subsequent increase in the value of inventories.

The Company is presently evaluating the future impact of this new standard.



National Instrument 51-102
Continuous Disclosure Obligations

Notice

Pursuant to Part 4.3 (3) of National Instrument 51-102, these unaudited
consolidated financial statements of Collicutt Energy Services Ltd. for the
three and nine month periods ended September 30, 2007 have not been reviewed
by the Company's auditors.


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CONSOLIDATED BALANCE SHEET
($000's - Unaudited- Prepared by Management)
As at
----------------------------------------------------------------------------
September 30, December 31,
2007 2006
----------------------------
----------------------------
ASSETS

Current
Accounts receivable (Note 4) 29,270 31,462
Inventory and work-in-progress 48,600 37,145
Prepaid expenses and deposits 581 516
Future income taxes 508 434
Income taxes recoverable 683 -
----------------------------
79,642 69,557
Property, plant and equipment 41,174 37,700
Intangible assets (Note 8) 1,000 -
----------------------------
121,816 107,257
----------------------------
----------------------------

LIABILITIES

Current
Operating loan (Note 5) 33,562 17,105
Accounts payable and accrued liabilities 10,349 11,766
Income taxes payable - 2,073
Deferred revenue 11,787 8,240
Current portion of long-term debt (Note 4) 1,123 1,251
----------------------------
56,821 40,435
Long-term debt (Note 4) 7,812 8,513
Future income taxes 886 695
----------------------------
65,519 49,643
----------------------------

SHAREHOLDERS' EQUITY

Share capital (Note 6) 36,297 37,300
Accumulated other comprehensive
(loss) earnings (Note 2) (31) -
Retained earnings 20,031 20,314
----------------------------
56,297 57,614
----------------------------
121,816 107,257
----------------------------
----------------------------


Approved by the Board of Directors

Steven M. Collicutt Peter. A. Lacey
Director Director


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CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
($000's - Unaudited- Prepared by Management)

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Accumulated
Other
Comprehensive Total
Share Contributed Earnings Retained Shareholder
Capital Surplus (loss) Earnings Equity
$ $ $ $ $
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Balances at
December 31,
2006 37,300 - - 20,314 57,614

Adoption of new
accounting
standard
(Note 2) - - (149) - (149)
Stock options
exercised - - - - -
Common shares
issued - - - - -
Common shares
purchased (768) (193) - (337) (1,298)
Share purchase
loans (235) - - (65) (300)
Stock-based
compensation - 193 - - 193
Cumulative
translation
adjustment - - 21 - 21
Other
comprehensive
income:
Fair value of
interest rate
swap - - 97 - 97
Net earnings for
the period - - - 119 119

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Balances at
September 30,
2007 36,297 - (31) 20,031 56,297
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CONSOLIDATED STATEMENT OF EARNINGS
($000s except share and per share data - Unaudited - Prepared by Management)

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Three Months Ended Nine Months Ended
-------------------------------------------------------
September 30, September 30, September 30, September 30,
2007 2006 2007 2006
-------------------------------------------------------
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Sales 36,304 45,289 96,177 124,525
Cost of goods sold 29,213 36,672 80,229 101,592
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Gross profit 7,091 8,617 15,948 22,933
Other income 137 49 198 195
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7,228 8,666 16,146 23,128
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Expenses
General and
administration 3,917 4,283 12,036 11,441
Interest 632 412 1,594 1,111
Amortization 832 798 2,344 2,363
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5,381 5,493 15,974 14,915
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Earnings before
income taxes 1,847 3,173 172 8,213
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Income tax expense
(recovery)
Current 749 1,584 (89) 3,207
Future (195) (444) 142 (387)
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554 1,140 53 2,820
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Net earnings 1,293 2,033 119 5,393
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Earnings (loss) per
share (Note 3)
- basic 0.13 0.20 0.01 0.51
- diluted 0.13 0.19 0.01 0.48

Weighted average
number of common
shares
- basic 9,844,369 10,262,878 9,898,827 10,561,296
- diluted 10,050,617 10,677,086 10,113,504 11,343,024
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CONSOLIDATED STATEMENT OF COMPREHENSIVE EARNINGS (LOSS)
($000's - Unaudited- Prepared by Management)

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Three Months Ended Nine Months Ended
-------------------------------------------------------
September 30, September 30, September 30, September 30,
2007 2006 2007 2006
-------------------------------------------------------
-------------------------------------------------------
Net earnings 1,293 2,033 119 5,393

Other comprehensive
earnings:
Unrealized gains
(losses) on
translation of
financial statements
of self-sustaining
foreign operations 18 - 21 -
Gains (losses) on
derivatives
designated as cash
flow hedges (51) - 97 -
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Other comprehensive
(loss) earnings (33) - 118 -
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Comprehensive
earnings 1,260 2,033 237 5,393
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CONSOLIDATED STATEMENT OF CASH FLOWS
($000s except share and per share data - Unaudited - Prepared by Management)

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Three Months Ended Nine Months Ended
-------------------------------------------------------
September 30, September 30, September 30, September 30,
2007 2006 2007 2006
-------------------------------------------------------
-------------------------------------------------------
Cash flows related
to the following
activities

Operating
Net earnings for
the period 1,293 2,033 119 5,393
Adjustments for:
Amortization 832 798 2,344 2,363
(Gain) loss on
sale of assets (17) (8) (1) 6
Stock based
compensation
expense 70 84 192 100
Future income tax
expense (recovery) (195) (444) 142 (387)
Provision for
warranty costs 204 432 149 254
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2,187 2,895 2,945 7,729
Net change in
non-cash working
capital (4,396) 2,675 (8,609) (5,063)
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(2,209) 5,570 (5,664) 2,666
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Financing
Repurchase of share
capital (100) (1,861) (1,609) (4,334)
Advance (repayment)
on operating loan 3,317 (2,927) 16,456 6,860
Advances of
long-term debt - - - 9,500
Repayment of
long-term debt (300) (267) (829) (10,095)
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2,917 (5,055) 14,018 1,931
-------------------------------------------------------

Investing
Business
acquisitions
(Note 8) - - (2,762) (1,650)
Purchase of
property, plant
and equipment (713) (515) (5,615) (2,947)
Proceeds on
disposition of
property, plant
and equipment 5 - 23 -
-------------------------------------------------------
(708) (515) (8,354) (4,597)
-------------------------------------------------------

Net decrease in cash
and cash equivalents - - - -
Cash and cash
equivalents,
beginning and end of
period - - - -
-------------------------------------------------------
-------------------------------------------------------

Supplementary cash
flow items

Interest paid 739 388 1,574 1,090
Interest received - 9 12 41
-------------------------------------------------------
-------------------------------------------------------

Income taxes paid - 482 2,656 2,690
Income taxes
refunded - - - -

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


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

SEGMENTED INFORMATION
($000s except share and per share data - Unaudited - Prepared by Management)

----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
-------------------------------------------------------
September 30, September 30, September 30, September 30,
2007 2006 2007 2006
-------------------------------------------------------
-------------------------------------------------------
Revenue
Service 21,384 16,465 51,830 48,963
Fabrication 14,920 28,824 44,347 75,562
-------------------------------------------------------
36,304 45,289 96,177 124,525
-------------------------------------------------------

Amortization
Service 389 402 1,110 1,224
Fabrication 366 320 1,013 927
Corporate 77 76 221 212
-------------------------------------------------------
832 798 2,344 2,363
-------------------------------------------------------

Earnings (loss)
before interest and
income taxes
Service 2,906 2,487 4,089 6,322
Fabrication 900 2,062 1,255 5,481
Corporate (1,327) (1,376) (3,578) (3,590)
-------------------------------------------------------
2,479 3,173 1,766 8,213
-------------------------------------------------------

Capital expenditures
and business
acquisitions
Service 154 335 4,849 4,007
Fabrication 533 62 3,175 326
Corporate 21 118 330 264
-------------------------------------------------------
708 515 8,354 4,597
-------------------------------------------------------


As at
September 30, December 31,
2007 2006
-------------------------------------------------------
-------------------------------------------------------
Assets
Service 52,671 42,860
Fabrication 47,905 41,873
Corporate 21,240 22,524

-------------------------------------------------------
121,816 107,257

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


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

SEGMENTED INFORMATION BY GEOGRAPHIC AREA
($000s except share and per share data - Unaudited - Prepared by Management)

----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
-------------------------------------------------------
September 30, September 30, September 30, September 30,
2007 2006 2007 2006
-------------------------------------------------------
-------------------------------------------------------
Revenue
Canada 23,332 39,828 73,099 110,041
United States 11,692 209 17,203 3,436
Mexico 199 2,308 4,087 2,402
Other Countries 1,080 2,945 1,788 8,646
-------------------------------------------------------
36,304 45,290 96,177 124,525
-------------------------------------------------------
-------------------------------------------------------

Revenue is attributed to country according to destination of sale.


As at
September 30, December 31,
2007 2006
-------------------------------------------------------
-------------------------------------------------------
Assets
Canada 112,150 107,257
United States 9,666 -
Mexico - -
Other Countries - -

-------------------------------------------------------
121,816 107,257
-------------------------------------------------------
-------------------------------------------------------

Total assets are attributed to country by the location of the business.



NOTES TO FINANCIAL STATEMENTS

NOTE 1: ACCOUNTING POLICIES

The unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements contained in the Annual Report for the year ended December 31, 2006 as they do not contain all of the disclosures required for annual financial statements. The interim consolidated financial statements have not been reviewed by the Company's auditors. These unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles. The preparation of the unaudited interim consolidated financial statements is based on accounting principles and methods of application consistent with those used in the preparation of the most recent annual financial statements, except as described in Note 2. In the opinion of the Company, these unaudited interim financial statements contain all necessary adjustments to present a fair statement of the results of the interim periods presented.

Foreign Currency Translation

The Company's foreign subsidiary is considered a self-sustaining foreign operation and the current rate method is used to translate their financial statements into Canadian dollars. The resulting translation adjustments are reported as part of accumulated other comprehensive income and recognized in income only when a reduction of the net investment in the foreign operation has been realized.

NOTE 2: CHANGE IN ACCOUNTING POLICIES

Financial Instruments and Hedges

On January 1, 2007, the Company adopted Section 3855 of the Canadian Institute of Chartered Accountants (CICA) Handbook, "Financial Instruments - Recognition and Measurement" and Section 3865 "Hedges". Under these standards, financial assets available for sale and assets and liabilities held for trading have to be measured at fair value. All derivative instruments, including embedded derivatives, are recorded in the consolidated balance sheet at fair value unless they qualify for the normal sales and purchases exemption. Changes in the fair value of derivatives that are not exempt are recorded in earnings unless hedge accounting is used, in which case changes in fair value are recorded in other comprehensive earnings (loss).

In relation to CICA Handbook 3855 the Company has made the following classifications:

(a) Accounts receivable are classified as loans and receivables and are initially measured at fair value and subsequent periodical revaluations are recorded at amortized cost.

(b) Bank overdraft, accounts payable and accrued liabilities, and long-term debt are classified as other liabilities and are initially measured at fair value and subsequent periodical revaluations are recorded at amortized cost.

(c) Derivative instruments are recorded in the balance sheet at fair value, including the Company's forward exchange contracts and the interest rate swap (Note 4).

The Company has elected to use hedge accounting for the interest rate swap and as long as the hedge remains effective, gains and losses relating to the swap will be recorded in other comprehensive earnings (loss).

As at January 1, 2007, the impact on the consolidated balance sheet of measuring hedging derivatives at the fair value was a decrease in future tax liabilities of $72, and increase in long-term debt liability of $221 and a decrease in accumulated other comprehensive income (loss) earnings of ($149). Prior periods were not required to be restated. There were no other impacts on opening balances relating to the adoption of these standards.

Comprehensive Earnings

On January 1, 2007, the Company adopted Section 1530 of the CICA Handbook, "Comprehensive Income". It describes reporting and disclosure recommendations with respect to comprehensive earnings (loss) and its components. Comprehensive earnings (loss) are the change in shareholders' equity which results from transactions and events from sources other than the Company's shareholders. These transactions and events include changes in the cumulative translation adjustment relating to self-sustaining foreign operations and unrealized gains and losses resulting from changes in the fair value of certain financial instruments.

The adoption of this Section required the presentation of a consolidated statement of comprehensive earnings (loss) as part of the consolidated financial statements. Comparative statements have not been restated to reflect the application of this Section.

Recent Accounting Pronouncements Issued and Not Yet Adopted

In December 2006, the CICA issued three accounting standards: Section 1535, Capital Disclosures, Section 3862, Financial Instruments - Disclosures and Section 3863, Financial Instruments - Presentation, as well as Section 3031, Inventories, in June 2007. These new standards will be effective for the Company on January 1, 2008.

Capital Disclosures

This new standard establishes new disclosure requirements concerning capital, such as: qualitative information and the Company's objectives, policies and processes for managing capital; quantitative data about what it regards as capital; whether it has complied with any externally imposed capital requirements and, if not, the consequences of such non-compliance. The Company is presently evaluating the impact of this new standard.

Section 3862: Financial Instruments - Disclosures and

Section 3863: Financial Instruments - Presentation

These new standards replace Section 3861, Financial Instruments - Disclosure and Presentation, revising and enhancing disclosure requirements, and carrying forward unchanged the presentation requirements. The Company is presently evaluating the impact of these new standards.

Section 3031: Inventories

This standard introduces changes to the measurement and disclosure of inventory. The measurement changes include the elimination of the last in-first out method, the requirement to measure inventories at the lower of cost and net realizable value, the allocation of overhead based on normal capacity, the use of the specific cost method for inventories that are not ordinarily interchangeable or goods and services produced for specific purposes, the requirement for an entity to use a consistent cost formula for inventory of a similar nature and use, and the reversal of previous write-downs to net realizable value when there is a subsequent increase in the value of inventories. The Company is presently evaluating the future impact of this new standard.



NOTE 3: BASIC AND DILUTED (LOSS) EARNINGS PER SHARE

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

($000s except share and per share data - Unaudited - Prepared by Management)

THREE MONTHS ENDED
-----------------------------------------------------
September 30, 2007 September 30, 2006
-----------------------------------------------------
Net Per Net Per
earnings Shares share earnings Shares share

Basic earnings per
share 1,293 9,844,369 0.13 2,033 10,262,878 0.20

Dilutive effect of
stock option
conversions 206,248 - 414,208 -

Diluted earnings per
share 1,293 10,050,617 0.13 2,033 10,677,086 0.19

Options excluded from
diluted income per
common share as
their effect could be
anti-dilutive 487,300 508,500

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


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

($000s except share and per share data - Unaudited - Prepared by Management)

NINE MONTHS ENDED
-----------------------------------------------------
September 30, 2007 September 30, 2006
-----------------------------------------------------
Net Per Net Per
earnings Shares share earnings Shares share

Basic earnings per
share 119 9,898,827 0.01 5,393 10,561,296 0.51

Dilutive effect of
stock option 214,677 - 781,728 -
conversions

Diluted earnings per
share 119 10,113,504 0.01 5,393 11,343,024 0.48

Options and warrants
excluded from diluted
income per common share
as their effect
could be anti-dilutive 487,300 508,500

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


NOTE 4: FINANCIAL INSTRUMENTS

To mitigate its exposure to fluctuations in interest rates, in the second quarter of 2006, the Company entered into an interest rate swap arrangement to fix the interest rate on $8,746 of its long-term debt at 6.66%, inclusive of bank stamping fees of 1.75%. The fair value of the interest rate swap contract at September 30, 2007 was negative $77 December 31, 2006: negative $221). This arrangement matures May 31, 2011.

The Company enters into foreign exchange forward contracts as a hedge against certain US dollar denominated sales and purchases and the related accounts receivable and payable. At September 30, 2007 the Company held forward contracts with a notional value of $15,675 (December 31, 2006: $8,700). These derivative financial instruments are accounted for using the fair value method. The foreign exchange translation gains and losses on these instruments are accrued under accounts receivable on the balance sheet and recognized currently in cost of sales as foreign exchange gains (losses). The forward premium or discount on forward exchange contracts is recognized in cost of sales at the time the sale is recognized. The fair value of the foreign exchange contracts at September 30, 2007 is negative $26.

NOTE 5: OPERATING LOAN

The Company has an operating loan facility of $40,000 at September 30, 2007 (December 31, 2006: $32,000), which is funded through direct prime based borrowing and bankers acceptances. The operating loan facility incurs interest on a sliding scale based on cash flow to annual debt service varying from prime to prime plus 0.5% or at the banker's acceptance rate plus acceptance-stamping fee. The operating loan facility is payable on demand and is secured by a general security agreement over all assets and demand mortgage on properties.

As at September 30, 2007, $33,562 of this loan facility has been advanced (December 31, 2006: $17,105). Bank overdrafts were offset by cash deposits.

NOTE 6: SHARE CAPITAL

Authorized

Unlimited number of voting common shares

Unlimited number of First Preferred shares, issuable in series, without nominal or par value.

Unlimited number of Second Preferred shares, issuable in series, without nominal or par value.



----------------------------------------------------------------------------
As at (Unaudited - Prepared by Management)
--------------------------------------------------------
September 30, 2007 December 31, 2006
--------------------------------------------------------
Amount Amount
Issued Common shares (000)'s Common shares (000)'s
--------------------------------------------------------
Balance, beginning
of year 10,132,844 37,645 10,783,415 40,001
Stock options
exercised - - 11,000 30
Common shares issued - - 21,429 150
Common shares
purchased (206,900) (768) (683,000) (2,536)
Common shares
cancelled (22,900) (235) - -
--------------------------------------------------------
9,903,044 36,642 10,132,844 37,645
Share purchase loans (71,165) (345) (67,000) (345)
--------------------------------------------------------
Balance, end of
period 9,831,879 36,297 10,065,844 37,300
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The Company, under a normal course issuer bid ("NCIB"), had the ability to purchase from time to time, as it considered advisable, up to 520,000 of the issued and outstanding common shares of Collicutt Energy Services Ltd. on the open market through the facilities of the Toronto Stock Exchange. The bid commenced on June 20, 2006 and expired on June 19, 2007. During the nine month period ended September 30, 2007, the Company purchased and later cancelled 206,900 common shares at an average price of $6.27, for a total cost of $1,298, including commissions, pursuant to the issuer bid.

The NCIB was renewed effective June 22, 2007 and will expire on June 21, 2008. Under this renewed NCIB, the Company may purchase from time to time, as it considers advisable, up to 495,000 of the issued and outstanding common shares of the Company on the open market through the facilities of the Toronto Stock Exchange. During the period ending September 30, 2007, no shares were purchased pursuant to the issuer bid.

Offset within share capital are employee share purchase loans receivable of $345 (2006: $345). During the nine month period ended September 30, 2007, 22,900 shares were cancelled representing loans receivable of $150 and 27,065 shares were granted representing loans receivable of $156. These loans, issued by the Company to assist key employees acquiring shares in the Company, are non-interest bearing and secured by the share certificates issued. Repayment of the loan balance is required five years from date of issuance. The employee share purchase loans receivable are reflected in these financial statements as a reduction against share capital. The market value of the shares held as security against these loans was $406 at September 30, 2007 (December 31, 2006: $432).

NOTE 7: CONTINGENCIES

The Company is involved in various litigation matters arising in the ordinary course of business, for which no provision has been made in the financial statements. Management is of the opinion that any resulting net settlement would not materially affect the financial position, results of operations, or liquidity of the Company.

NOTE 8: ACQUISITIONS

On May 4, 2007, the Company acquired Kohler Power Systems - California Standby, Residential and Mobile distributorship branches in Stockton, California and Los Angeles, California for cash consideration of $2,762.

The estimated fair value of the net assets, including intangible assets, acquired at the date of acquisition was $2,762 and included $1,853 in Inventory, $225 in Property, Plant and Equipment, $94 in other current assets, $411 in deferred revenue and $1,000 in Intangible Assets.

The fair value adjustments relating to the acquisition, including the valuation of intangible assets, are provisional and will be finalized during 2007.



CORPORATE INFORMATION

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


Board of Directors

Steven M. Collicutt (2) (3)
President and Chief Executive Officer
Collicutt Energy Services Ltd.

Edward Kernaghan (2)
President
Principia Research Inc.

Frank Tirpak (1) (2)
President and Chief Executive Officer
Lonkar Services Ltd.

Gary W. Harris (1) (3)
President and Chief Executive Officer
Westward Parts Services Ltd.

Peter A. Lacey (1) (3)
President and Chief Executive Officer
Cervus LP

(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Member of Corporate Governance Committee


Corporate Secretary

Gerard N. Feehan QC
Duhamel, Manning, Feehan, Warrender, Glass

Auditors
PricewaterhouseCoopers LLP
Chartered Accountants
Edmonton, Alberta


Banker

HSBC Bank Canada
Calgary, Alberta


Solicitors

Duhamel, Manning, Feehan, Warrender, Glass
Red Deer, Alberta

Tingle Merritt LLP
Calgary, Alberta

Davis and Company LLP
Calgary, Alberta


Officers

Steven M. Collicutt
President and Chief Executive Officer

Andrew S. Cruickshank, CA, CPA
Chief Financial Officer

D. Scott Collicutt
Vice-President, Sales & Marketing

Ted Melissen
Vice-President, Fabrication

David Tan
Vice-President, Parts and Service


Investor Relations Information

Requests for information should be directed to:

Steven M. Collicutt
President and Chief Executive Officer

Andrew S. Cruickshank, CA, CPA
Chief Financial Officer


TSX Trading Symbol: COH

Corporate Office

Collicutt Energy Services Ltd.
7550 Edgar Industrial Drive
Red Deer, Alberta T4P 3R2

Telephone: (403) 358-3200
Facsimile (403) 358-3210

Website: www.collicutt.com


Registrar and Transfer Agent

Computershare Trust Company of Canada
Calgary, Alberta and Toronto, Ontario

Contact Information

  • Collicutt Energy Services Ltd.
    Steven M. Collicutt
    President and Chief Executive Officer
    (403) 358-3200
    (403) 358-3210 (FAX)
    or
    Collicutt Energy Services Ltd.
    Andrew S. Cruickshank, CA, CPA
    Chief Financial Officer
    (403) 358-3200
    (403) 358-3210 (FAX)
    Website: www.collicutt.com