Collicutt Energy Services Ltd.
TSX : COH

Collicutt Energy Services Ltd.

May 03, 2007 18:38 ET

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

RED DEER, ALBERTA--(CCNMatthews - May 3, 2007) - Collicutt Energy Services Ltd. (TSX:COH)

Message to Shareholders

Basic and diluted earnings per share for the quarter ended March 31, 2007 came in at a loss of 2 cents per share compared to earnings of 15 cents per share for the same period of 2006.

Revenues decreased by $5.1 million to $36.7 million for the period from $41.8 million in the first quarter of 2006. Gross profits decreased by $1.8 million over the same period of 2006. Net earnings for the three months ended March 31, 2007 were negative $0.2 million, a decrease of $1.8 million from the previous year's first quarter.

Our first quarter of 2007 did not bring positive earning levels due primarily to a significant slowdown in the industry. The backlog of customer orders slowed significantly in the first quarter of 2007. The industry has enjoyed a high level of activity over the past few years and this ebb in the tide can be expected from time to time.

Activity levels in the Service Division were soft in the first quarter of the year. Although the first quarter tends to experience lower activity levels, the start of this year was significantly lower than historically reported. Moving into the second quarter appears much more promising with a large number of orders having already been received. A major focus for the Service Division continues to be cost containment and optimization of facilities. In addition, Collicutt Energy Services' entry into the US power generation market, offering renewable fuel capabilities, will be gaining momentum as we enter into the second quarter.

Despite the market slowdown, the Fabrication Division realized a fairly strong sales quarter. Although we are seeing a definite softening going into the second quarter, we have been experiencing a lot of movement in quotations with projects scheduled well into the latter part of the year. Work on international contracts, major custom fabrication projects, and increasing focus on our leasing program are also contributing to the optimistic outlook we have for 2007.

Overall, first quarter results were not at the profitable levels we had anticipated. The inevitable market slowdown offset our efforts significantly and we continue to closely monitor our strategies and processes to ensure we remain aligned with our objectives to bring value to our customers, employees and all our stakeholders.

STEVEN M. COLLICUTT, President and Chief Executive Officer

May 3, 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 month period ended March 31, 2007 and its outlook based on current available information and expectations as at May 3, 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 California area in the US 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.



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

2007 2006
---------------------------------------
Q1 Q4 Q3 Q2 Q1
---------------------------------------
Revenue
Service 11,947 12,683 16,465 15,517 16,981
Fabrication 24,693 31,588 28,824 21,934 24,804
---------------------------------------
36,640 44,271 45,289 37,451 41,785

Gross profit 5,256 8,026 8,617 7,263 7,053
Gross profit percentage 14.34% 18.13% 19.03% 19.39% 16.88%

EBITDA(1) 968 4,037 4,383 3,685 3,619

Net (loss) earnings (202) 1,983 2,033 1,763 1,597

Capital expenditures
and business acquisitions 2,332 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.


Sales performance in both the Fabrication and Service Divisions fell below those posted in any of the quarters in 2006 and represented a 12.3% year over year decrease from those seen in the first quarter of 2006. The slowdown is a result of reduced customer demand due to falling natural gas prices and increased customer costs to bring new gas wells online. This is expected to continue, at a minimum, until later in the third quarter of this year, particularly within the Fabrication Division.

Gross profit of $5.3 million for the first quarter of 2007 saw a year over year decrease of $1.8 million from $7.1 million in the first quarter of 2006. Higher labour costs and reduced effective labour utilization impacted gross profits. Inventory control efforts were rewarded in the first quarter as a number of successful sales of the remaining gas turbine inventory took place.

EBITDA decreased $2.6 million in the first quarter of 2007 to $1.0 million compared to $3.6 million in 2006.

Net (loss) earnings decreased $1.8 million to ($0.2) million year over year as a result of the lower activity in both divisions.

Capital expenditures were $2.3 million in the first quarter of 2007 largely as a result of continued and increased focus on the development of the leasing business within the Fabrication Division.

The Normal Course Issuer Bid (NCIB) was reauthorized by the Board of Directors in June of 2006 due to the belief that the market price of the Company's shares fail to reflect their true underlying value. Under the NCIB that ended on June 19, 2006, 541,800 shares were purchased and cancelled. The NCIB was renewed by the Board of Directors effective June 20, 2006 and will expire on June 19, 2007. Under the renewed NCIB, the Company may purchase from time to time as it considers advisable, up to 520,000 of the issued and outstanding common shares of the Company on the open market through the facilities of the Toronto Stock Exchange. From June 20, 2006 to May 3, 2007 427,800 shares were purchased and cancelled under the NCIB at an average price of $6.64, representing total consideration of $2.8 million. The purchase of shares for cancellation will further increase the proportionate interest of and may be advantageous to all remaining shareholders. Copies of the "Renewal Notice of Intention to Make a Normal Course Issuer Bid" of the Company dated June 14, 2006 pursuant to which the Bid is made, may be obtained by shareholders without charge by contacting the Company.



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

2007 2006
---------------------------------------
Q1 Q4 Q3 Q2 Q1
---------------------------------------
Per share
- basic (loss) earnings (0.02) 0.18 0.20 0.17 0.15
- diluted (loss) earnings (0.02) 0.18 0.19 0.16 0.15
- book value 5.68 5.72 5.51 5.33 5.20

Shares Outstanding
- average basic 10,026 10,107 10,263 10,540 10,736
- average diluted 10,026 10,351 10,677 10,794 10,922
- end of period 9,912 10,066 10,099 10,402 10,570

- end of period share options 785 805 770 775 557

Market Capitalization 59,965 64,925 68,812 68,130 60,770


Basic and diluted (loss) earnings per share for the first quarter were (2) cents per share versus 15 cents per share in the first quarter of 2006. As at March 31, 2007 the book value of the Company was $5.68 per share or $56.3 million versus the book value of $5.20 per share or $54.9 million at March 31, 2006.



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

2007 2006
---------------------------------------
Q1 Q4 Q3 Q2 Q1
---------------------------------------
Total assets 101,069 107,257 115,587 119,539 104,851
Total debt 44,663 49,643 59,929 64,119 49,915
Shareholders' equity 56,405 57,614 55,658 55,420 54,936
Debt to equity 0.79 0.86 1.08 1.16 0.91
Total interest bearing debt 31,989 26,869 28,538 31,738 20,106


The Company's balance sheet continued to improve in the first quarter of 2007 despite the difficulty faced by both divisions as the quarter progressed. Effective balance sheet management will continue to be a key focus of Company management throughout 2007.

Total interest bearing debt increased $5.1 million in the first quarter of 2007 to $32.0 million from $26.9 million in the fourth quarter of 2006. The increase in interest bearing debt was the result of $2.3 million in capital expenditures, $1.0 million in share repurchases under the NCIB, and an increase in working capital of $2.5 million partially offset by $0.7 in cash flow generated from operations. The primary components of the $2.5 million increase in working capital consisted of a $3.1 million increase in inventory and work-in-progress, a $1.8 million decrease in accounts payable and accrued liabilities, a $6.4 million reduction in deferred revenue, and a $3.1 million reduction in taxes payable partially offset by a $11.6 million decrease in accounts receivable.

Interest bearing debt is expected to continue to rise throughout 2007 in order to fund continued investment in the expansion of the rental fleet in the Fabrication Division and further expansion planned in the California area through the Company's wholly-owned US subsidiary Collicutt Energy Services Inc.

Total debt decreased $4.9 million to $44.7 million in the first quarter of 2007 from $49.6 million in the fourth quarter of 2006. The significant components of the decrease were a $6.4 million reduction in deferred revenue, a $3.1 million reduction in taxes payable, and a $1.8 million decrease in accounts payable and accrued liabilities partially offset by an increase in interest bearing debt of $5.1 million.



CONSOLIDATED
($000's - Unaudited- Prepared by Management)
Three months ended
-------------------------------
March 31, 2007 March 31, 2006
-------------------------------
Revenue 36,640 41,785
Gross profit 5,256 7,053
Gross profit % 14.34% 16.88%
General and administrative 4,309 3,456
Interest 419 312
Net (loss) earnings (202) 1,597
EBITDA (1) 968 3,619
Capital expenditures and
business acquisitions 2,332 593

(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.


Consolidated revenues decreased 12.3% or $5.1 million from the first quarter of 2006. The majority of the year over year decrease was a result of lower revenues in the Service Division. The Fabrication Division also saw a slight decrease in revenues compared to the first quarter of 2006. Looking forward in 2007, softness in orders may result in lower activity levels particularly within the Fabrication Division.

Consolidated gross profit decreased $1.8 million from the first quarter of 2006. Year over year, gross profit as a percentage of sales was down 2.6% of sales to 14.34% versus 16.89% in the first quarter of 2006.

Consolidated general and administrative expenses increased $0.8 million to $4.3 million from $3.5 million in the first quarter of 2006 as a result of increased employee and utility expenses.

Interest expense increased by $0.1 million year over year. The increase is consistent with the increase in the bank indebtedness.

Consolidated net (loss) earnings decreased $1.8 million year over year to a loss of $0.2 million from net earnings of $1.6 million in the first quarter of 2006.

Capital expenditures of $2.3 million for the first quarter of 2007 were $1.7 million higher than in the first quarter of 2006 due to investments in the rental fleet.

Related party transactions - there were no significant related party transactions in the first quarter of 2007 or during the 2006 fiscal year.



SERVICE DIVISION
($000's - Unaudited- Prepared by Management)
Three months ended
-------------------------------
March 31, 2007 March 31, 2006
-------------------------------
Revenue 11,947 16,981
(Loss) earnings before interest
and income tax ("EBIT") (454) 1,495


Service Division revenues are generated from a network of 13 branches located across Western Canada and decreased by $0.7 million from the fourth quarter of 2006 to $11.9 million. Year over year revenues within the Service Division saw a $5.0 million decrease from $17.0 million in the first 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 in 2007.

EBIT decreased by $2.0 million in the first quarter of 2007 to a loss of $0.5 million from earnings of $1.5 million in the first quarter of 2006.

Gross profit as a percentage of revenue was 4.1% lower than in the first quarter of 2006 due to increased labour costs.



FABRICATION DIVISION
($000's - Unaudited- Prepared by Management)
Three months ended
-------------------------------
March 31, 2007 March 31, 2006
-------------------------------
Revenue 24,693 24,804
Earnings before interest and
income tax ("EBIT") 1,510 1,907



Fabrication Division revenues for the first quarter of 2007 saw a slight decrease of $0.1 million to $24.7 million from $24.8 million in the first quarter of 2006. The decrease in revenues is consistent with market overcapacity of horsepower in compression equipment.

EBIT decreased by $0.4 million to $1.5 million from $1.9 million for the first quarter of 2006.

Gross profit as a percentage of revenue was 0.8% lower than in the first quarter of 2006. Though reduced inventory obsolescence charges positively impacted the gross profit, these gains were more than offset by the negative impact of increased labour costs.



LIQUIDITY AND CAPITAL RESOURCES
($000's - Unaudited- Prepared by Management)
Three months ended
-------------------------------
March 31, 2007 March 31, 2006
-------------------------------
Cash flow from operations 719 2,637
(Increase) reduction in non-cash working
capital (2,526) 1,321
(Repurchase) issuance of share capital (980) (1,195)
Cash (invested in) received from acquisition
and disposal of capital assets (2,332) (593)
-------------------------------
(Increase) reduction in interest bearing
debt (5,119) 2,170
Repayment of long-term debt (234) (369)
-------------------------------
(Increase) reduction in operating loan (5,353) 1,801


Cash flow generated from operations, before changes in non-cash working capital, decreased by $1.9 million in the first quarter of 2007 to $0.7 million compared to $2.6 million generated in the first quarter of 2006.

Total interest bearing debt increased $11.9 million to $32.0 million in the first quarter of 2007 versus $20.1 million in the first quarter of 2006.



WORKING CAPITAL
($000's - Unaudited- Prepared by Management)
As at
-------------------------------
March 31, December 31,
2007 2006
-------------------------------
Working capital 26,311 29,122
-------------------------------
Operating loan 22,459 17,105
Current portion of long-term debt 1,290 1,251
Non-current portion of callable long-term
debt - -
Long-term debt 8,240 8,513
-------------------------------
Total interest bearing debt 31,989 26,869
-------------------------------
Total interest bearing debt to equity .57 .47


The Company has an operating loan of $32.0 million (December 31, 2006: $32.0 million) available to finance current operations. As at March 31, 2007, $22.5 million had been drawn (December 31, 2006: $17.1 million; March 31, 2006: $9.9 million). As a result of planned capital expenditures and further investments combined with the current slowdown in the Fabrication Division, management believes additional financing may need to be made available in order to sufficiently fund operations in the foreseeable future. As a result, management is currently examining future requirements and determining if the current availability is sufficient to successfully meet the Company's strategic objectives for 2007.

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 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.

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.

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 month period ended March 31, 2007 have not been reviewed by the Company's auditors.



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

Current
Accounts receivable (Note 4) 19,983 31,462
Inventory and work-in-progress 40,224 37,145
Prepaid expenses and deposits 834 516
Future income taxes 415 434
Income taxes recoverable 439 -
-----------------------------------
61,895 69,557
Property, plant and equipment 39,174 37,700
-----------------------------------
101,069 107,257
-----------------------------------
-----------------------------------
LIABILITIES

Current
Operating loan 22,459 17,105
Accounts payable and accrued liabilities 10,000 11,766
Income taxes payable - 2,073
Deferred revenue 1,835 8,240
Current portion of long-term debt
(Note 4) 1,290 1,251
-----------------------------------
35,584 40,435
Long-term debt (Note 4) 8,429 8,513
Future income taxes 650 695
-----------------------------------
44,663 49,643
-----------------------------------
SHAREHOLDERS' EQUITY
Share capital (Note 5) 36,727 37,300
Accumulated other comprehensive
(loss) earnings (Note 2) (126) -
Retained earnings 19,805 20,314
-----------------------------------
56,406 57,614
-----------------------------------
101,069 107,257
-----------------------------------
-----------------------------------

Steven M. Collicutt Peter. A. Lacey
Director Director

Approved by the Board of Directors


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

Accumulated
Other Total
Share Contributed Comprehensive Retained Shareholder
Capital Surplus Earnings (Loss) Earnings Equity
$ $ $ $ $
For the three
months ended
March 31, 2006
Balances,
December 31,
2005 40,001 117 - 14,400 54,518
Stock options
exercised 17 - - - 17
Common shares
purchased (809) (139) - (270) (1,218)
Stock-based
compensation - 22 - - 22
Net earnings
for the period - - - 1,597 1,597
----------------------------------------------------------------------------
Balances at
March 31,
2006 39,209 - - 15,727 54,936

For the three
months ended
March 31, 2007
Balances at
December 31,
2006 37,300 - - 20,314 57,614

Adoption of
new accounting
standards
(Note 2) - - (149) - (149)
Stock options
exercised - - - - -
Common shares
issued - - - - -
Common shares
purchased (573) (100) - (307) (980)
Share purchase
loans - - - - -
Stock-based
compensation - 100 - - 100
Other
comprehensive
earnings:
Change in
accumulated
other
comprehensive
earnings
related
to derivatives
designated as
cash
flow hedges - - 22 - 22
Cumulative
translation
adjustment - - 1 - 1
Net (loss)
earnings for
the period - - - (202) (202)

----------------------------------------------------------------------------
Balances at
March 31,
2007 36,727 - (126) 19,805 56,406
----------------------------------------------------------------------------
----------------------------------------------------------------------------


CONSOLIDATED STATEMENT OF (LOSS) EARNINGS
($000s except share and per share data - Unaudited - Prepared by Management)

Three Months Ended Twelve Months Ended
March 31, 2007 March 31, 2006 December 31, 2006
-----------------------------------------------------
-----------------------------------------------------
Sales 36,640 41,785 168,796
Cost of goods sold 31,384 34,732 137,837
-----------------------------------------------------
Gross profit 5,256 7,053 30,959
Other income 21 22 245
-----------------------------------------------------
5,277 7,075 31,204
-----------------------------------------------------
Expenses
General and
administration 4,309 3,456 15,480
Interest 419 312 1,569
Amortization 839 880 3,273
-----------------------------------------------------
5,567 4,648 20,322
-----------------------------------------------------
(Loss) earnings before
income taxes (290) 2,427 10,882
-----------------------------------------------------

Income tax (recovery)
expense
Current (125) 886 3,738
Future 37 (56) (232)
-----------------------------------------------------
(88) 830 3,506
-----------------------------------------------------

Net (loss) earnings (202) 1,597 7,376
-----------------------------------------------------
-----------------------------------------------------

(Loss) earnings per
share (Note 3)
- basic (0.02) 0.15 0.70
- diluted (0.02) 0.15 0.68

Weighted average number
of common shares
- basic 10,026,039 10,736,372 10,464,969
- diluted 10,026,039 10,921,895 10,618,222
-----------------------------------------------------
-----------------------------------------------------


CONSOLIDATED STATEMENT OF COMPREHENSIVE (LOSS) EARNINGS
($000's - Unaudited- Prepared by Management)

Three Months Ended
March 31, 2007 March 31, 2006
--------------------------------
Net (loss) earnings (202) 1,597

Other comprehensive earnings:
Unrealized gains on translation of financial
statements of self-sustaining foreign
operations 1 -
Gains on derivatives designated as cash
flow hedges 22 -
----------------------------------------------------------------------------
Other comprehensive earnings 23 -
----------------------------------------------------------------------------
Comprehensive (loss) earnings (179) 1,597
----------------------------------------------------------------------------
----------------------------------------------------------------------------


CONSOLIDATED STATEMENT OF CASH FLOWS
($000s except share and per share data - Unaudited - Prepared by Management)

Three Months Ended Twelve Months Ended
March 31, 2007 March 31, 2006 December 31, 2006
-----------------------------------------------------
-----------------------------------------------------
Cash flows related to
the following
activities

Operating
Net (loss) earnings for
the period (202) 1,597 7,376
Adjustments for:
Amortization 839 880 3,273
Loss on sale of assets 19 14 20
Stock based
compensation expense 100 22 218
Future income tax
expense (recovery) 37 (56) (232)
Provision for warranty
costs (74) 180 272
-----------------------------------------------------
719 2,637 10,927
Net change in non-cash
working capital (2,526) 1,321 (2,727)
-----------------------------------------------------
(1,807) 3,958 8,200
-----------------------------------------------------

Financing
Repurchase of share
capital (980) (1,195) (4,303)
Advance (repayment) on
operating loan 5,353 (1,801) 5,426
Advances of long-term
debt - - 9,500
Repayment of long-term
debt (234) (369) (10,332)
-----------------------------------------------------
4,139 (3,365) 291
-----------------------------------------------------

Investing
Business acquisitions - - (1,650)
Purchase of property,
plant and equipment (2,332) (593) (6,951)
Proceeds on disposition
of property, plant and
equipment - - 110
-----------------------------------------------------
(2,332) (593) (8,491)
-----------------------------------------------------

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

Supplementary cash flow
items

Interest paid 371 287 1,548
Interest received 11 16 52
-----------------------------------------------------
-----------------------------------------------------

Income taxes paid 2,387 1,726 3,173
Income taxes refunded - - -

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


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

Three Months Ended Twelve Months Ended
March 31, 2007 March 31, 2006 December 31, 2006
-----------------------------------------------------
-----------------------------------------------------

Revenue
Service 11,947 16,981 61,646
Fabrication 24,693 24,804 107,150
-----------------------------------------------------
36,640 41,785 168,796
-----------------------------------------------------

Amortization
Service 345 517 1,651
Fabrication 425 296 1,327
Corporate 69 67 295
-----------------------------------------------------
839 880 3,273
-----------------------------------------------------

(Loss) earnings before
interest and income
taxes
Service (454) 1,495 7,294
Fabrication 1,510 1,907 8,621
Corporate (927) (663) (3,464)
-----------------------------------------------------
129 2,739 12,451
-----------------------------------------------------

Capital expenditures
and business
acquisitions
Service 170 337 5,176
Fabrication 1,975 194 3,064
Corporate 187 62 361
-----------------------------------------------------
2,332 593 8,601
-----------------------------------------------------

As at
March 31, 2007 March 31, 2006 December 31, 2006
-----------------------------------------------------
-----------------------------------------------------
Assets
Service 42,742 41,401 42,860
Fabrication 35,751 40,138 41,873
Corporate 22,576 23,312 22,524

-----------------------------------------------------
101,069 104,851 107,257

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


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.

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, an increase in long-term debt liability of $221 and a decrease in accumulated other comprehensive (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.



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

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

THREE MONTHS ENDED
March 31, 2007 March 31, 2006
-----------------------------------------------------------
Net (loss) Per Net Per
earnings Shares share earnings Shares share
Basic (loss)
earnings
per share (202) 10,026,039 (0.02) 1,597 10,736,372 0.15

Dilutive effect
of stock option
conversions - 185,523

Diluted earnings
per share (202) 10,026,039 (0.02) 1,597 10,921,895 0.15

Options and
warrants excluded
from diluted
income per common
share as their effect
could be anti-dilutive 852,500 276,500


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 $8,925 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 March 31, 2007 was negative $189 (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 March 31, 2007 the Company held forward contracts with a notional value of $11,600 (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 March 31, 2007 is $266.

NOTE 5: 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)

March 31, 2007 December 31, 2006
----------------------------------------------------
Amount Amount
Issued Common shares (000)'s Common shares (000)'s
----------------------------------------------------
Balance, beginning of
year 10,065,844 37,300 10,783,415 40,001
Stock options exercised - - 11,000 30
Common shares issued - - 21,429 150
Common shares purchased (154,300) (573) (683,000) (2,536)
Share purchase loans - - (67,000) (345)
----------------------------------------------------
Balance, end of period 9,911,544 36,727 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 will expire on June 19, 2007. From January 1, 2007 to May 3, 2007 the Company purchased and later cancelled 182,600 common shares at an average price of $6.31, for a total cost of $1,152, including commissions, pursuant to the issuer bid.

Offset within share capital are employee share purchase loans receivable of $345 (2006: $150). These loans were issued by the Company to assist key employees acquiring shares in the Company. These loans are non-interest bearing and are secured by the share certificates issued. 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 $405 at March 31, 2007 (December 31, 2006: $432).

NOTE 6: 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.



CORPORATE INFORMATION

Board of Directors Officers

Steven M. Collicutt (2) (3) Steven M. Collicutt
President and Chief Executive Officer President and Chief Executive Officer
Collicutt Energy Services Ltd.
Andrew S. Cruickshank, CA, CPA
Edward Kernaghan (2) Chief Financial Officer
President
Principia Research Inc. D. Scott Collicutt
Vice-President, Sales & Marketing
Frank Tirpak (1) (2)
President and Chief Executive Officer Glen Roberts
Lonkar Services Ltd. Senior Vice-President, Sales &
Marketing

Gary W. Harris (1) (3) Ted Melissen
President and Chief Executive Officer Vice-President, Fabrication
Westward Parts Services Ltd.

Peter A. Lacey (1) (3) Investor Relations Information
President and Chief Executive Officer
Cervus LP Requests for information should be
directed to:
(1) Member of Audit Committee
(2) Member of Compensation Committee Steven M. Collicutt
(3) Member of Corporate Governance President and Chief Executive Officer
Committee
Andrew S. Cruickshank, CA, CPA
Corporate Secretary Chief Financial Officer

Gerard N. Feehan QC
Duhamel, Manning, Feehan, Warrender, TSX Trading Symbol: COH
Glass
Red Deer, Alberta
Corporate Office
Auditors
Collicutt Energy Services Ltd.
PricewaterhouseCoopers LLP 7550 Edgar Industrial Drive
Chartered Accountants Red Deer, Alberta T4P 3R2
Edmonton, Alberta
Telephone: (403) 358-3200
Facsimile: (403) 358-3210
Banker
Website: www.collicutt.com
HSBC Bank Canada
Calgary, Alberta

Solicitors Registrar and Transfer Agent

Duhamel, Manning, Feehan, Warrender,
Glass
Red Deer, Alberta Computershare Trust Company of Canada
Calgary, Alberta and Toronto, Ontario
Tingle Merritt LLP
Calgary, Alberta

Davis and Company LLP
Calgary, Alberta



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