Phoenix Oilfield Hauling Inc.
TSX VENTURE : PHN

Phoenix Oilfield Hauling Inc.

April 29, 2008 13:19 ET

Phoenix Oilfield Hauling Inc. Announces Financial Results for the Year Ended December 31, 2007

NISKU, ALBERTA--(Marketwire - April 29, 2008) -

THIS PRESS RELEASE IS NOT TO BE DISTRIBUTED TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES. ANY FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF U.S. SECURITIES LAW.

Phoenix Oilfield Hauling Inc. (TSX VENTURE:PHN) is pleased to announce its financial and operating results for 2007.

Financial Summary

The consolidated financial statements for the year ended December 31, 2007 have been prepared on a going concern basis in accordance with Canadian GAAP. The going concern basis of presentation reflects the assumption that the Company will continue in operation for a reasonable period of time and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. There is uncertainty about the appropriateness of the use of the going concern assumption because the Company is in breach of its debt service covenant under its loan agreement (including certain capital leases). In addition, the Company experienced a significant net loss and a working capital deficiency as at December 31, 2007. Based on the Company's current projections, the Corporation believes it is unlikely that it will be in compliance with the existing loan agreement financial covenants during 2008. Failure to comply with these debt covenants could result in a requirement to immediately repay the bank loans. As a result of cross-covenant violations, the Company has reclassified the scheduled repayments under its capital lease facility due beyond one year as current.

Management is of the opinion that sufficient working capital will be obtained from operations, shareholders and other external financing sources to meet the Company's liabilities and commitments as they become payable. Future operations are dependant on the Company's ability to generate sustainable profits and the ongoing support of its lender.

The Company completed two acquisitions during the year. On October 2, 2007 the Company acquired the operating assets of Marcels Truck Service Ltd. ("Marcels") and on October 16, 2007 the Company acquired the operating assets of Finnie Hauling & Storage Ltd. ("Finnie").



The following table summarizes selected financial data for:

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Five months
Year ended Year ended ended
(In thousands of dollars, December 31, December 31, December 31,
except per share data) 2007 2006 2005(2)
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Revenue $ 25,936 $ 25,063 $ 8,168
Operating expenses 16,406 14,374 4,730
Operating expenses, % of revenue 63.3% 57.4% 57.9%
Selling, general and
administrative expenses 4,386 3,604 838
Due diligence costs respecting
abandoned acquisition 330 - -
Loss (gain) on disposal
of assets 283 (64) (46)
EBITDA (1) 4,531 7,149 2,646
EBITDA % 17.5% 28.5% 32.4%
Net income (loss) (15,797) 3,420 1,326
Earnings per share - basic (0.29) 0.09 0.10
Earnings per share - diluted (0.29) 0.09 0.10
Funds flow from operations $ 4,774 $ 1,224 $ 1,027
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December 31, December 31, December 31,
(In thousands of dollars) 2007 2006 2005
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Total assets $ 52,334 $ 54,365 $ 11,129
Long-term financial liabilities 4 1,861 2,191
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(1) EBITDA is not a recognized measure under GAAP and consequently does not
have a standard prescribed meaning. EBITDA is equal to Net Income
adjusted to exclude amortization expense, depreciation expense,
interest expense, impairment charges related to goodwill and
intangibles and income taxes. EBITDA includes stock based
compensation expense. EBITDA is commonly used by investors and
financial analysts in the oilfield services industry as a supplementary
non-GAAP financial measure in order to evaluate a company's operating
performance. Phoenix's method of calculating EBITDA may differ from
other companies, and accordingly, it may not be comparable to a
similarly described measure used by another company.
(2) The Company changed its financial year end from July 31 to December 31.
Information is for the five months ended December 31, 2005.


EBITDA (1) is calculated by the Company as follows:

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Five months
Year ended Year ended ended
December 31, December 31, December 31,
(In thousands of dollars) 2007 2006 2005
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Net income (loss) $ (15,797) $ 3,420 $ 1,326
Add (Deduct):
Depreciation 3,206 1,561 355
Interest on long-term debt 1,214 392 98
Other interest (income) 68 (19) 8
Amortization of intangible
assets 1,351 316 -
Impairment of goodwill and
intangible assets 15,864 - -
Income taxes (1,375) 1,479 859
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EBITDA (1) $ 4,531 $ 7,149 $ 2,646
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Results of Operations

The Company operates in one dominant industry segment, which involves the transportation of products, materials, and equipment required for the exploration, development and production of petroleum resources. All of the Company's assets are located in Western Canada.



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Year ended Year ended
December 31, December 31,
(In thousands of dollars) 2007 2006
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Revenue $ 25,936 $ 25,063
Operating expenses 16,406 14,374
Operating expenses, % of revenue 63.3% 57.4%
Selling, general and administrative
expenses 4,386 3,604
Due diligence costs respecting
abandoned acquisition 330 -
Gain on disposal of assets 283 (64)
EBITDA (1) 4,531 7,149
EBITDA % 17.5% 28.5%
Depreciation 3,206 1,561
Interest on long-term debt 1,214 392
Other interest (income) 68 (19)
Amortization of intangible assets 1,351 316
Impairment of goodwill and intangible assets 15,864 -
Income taxes (1,375) 1,479
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Net income (loss) $ (15,797) $ 3,420
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Results of Operations for the Year Ended December 31, 2007

Revenue

Revenue for the year ended December 31, 2007 was $25.9 million versus $25.1 million for the year ended December 31, 2006. The Company operates exclusively in the Western Canadian Sedimentary Basin ("WCSB") where many economic fundamentals, including a rising Canadian dollar relative to the U.S. dollar, generally low commodity prices for natural gas, and uncertainty for exploration companies surrounding the changing royalty regime in Alberta collectively contributed to sharply reduced drilling activity in 2007 which directly affected demand for the Company's services. The acquisitions of Marcels and Finnie in the fourth quarter and the full year contribution of the Ability and Robins acquisitions that occurred in 2006 contributed revenue that offset a decline in revenue, on a directly comparable basis, had those acquisitions not occurred.

Operating Expenses

Operating expenses were $16.4 million or 63.3% of revenue for the year ended December 31, 2007. Comparable operating expenses were $14.4 million or 57.4% for the year ended December 31, 2006. The Company's operating costs were negatively affected by rising fuel costs and the operating cost ratio was also negatively impacted by pricing pressure which was particularly acute in the later part of the year. Operating expenses, which are not all variable costs, are highest in the second and third quarters when utilization of the fleet is at its lowest.

The Company's principle expenses are variable costs paid to owner operators, wages paid to drivers and the cost of insuring, maintaining and operating its fleet.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") were $4.4 million or 16.9% of revenue for the year ended December 31, 2007. Comparative SG&A expenses were $3.6 million or 14.4% of revenue for the year ended December 31, 2006. The increase in SG&A expenses as a percentage of revenue versus 2006 relates to lower utilization of the Company's fleet in weaker industry conditions where largely fixed SG&A increased in proportion to sales volumes.

Depreciation

Depreciation expense was $3.2 million for the year ended December 31, 2007 versus comparative expense of $1.6 million for the year ended December 31, 2006. Increased depreciation expense reflects the purchase of capital equipment and the purchase of equipment in connection with the acquisition of Marcels on October 2, 2007 and Finnie on October 16, 2007.

Interest on Long-term Debt

Interest on long-term debt was $1.2 million for the year ended December 31, 2007 versus comparative expense of $392,000 for the year ended December 31, 2006. Interest expense reflects interest charges on debt used to fund that portion of equipment purchases and business acquisitions not funded through cash flow from operations. The Company has demand loans, long-term debt and obligations under capital lease, including current portion, of $27.9 million as at December 31, 2007.

Impairment of goodwill and intangible assets

The Company recognized an impairment charge on the carrying value of its goodwill of $12.9 million and an impairment charge of $3.0 million on certain intangible assets during the year. Reduced levels of exploration and development activity by oil and gas companies led to a corresponding reduction in demand for the Company's transportation services.

Income taxes

Income taxes were a recovery of $1.4 million for the year ended December 31, 2007 or 8.0% of pre-tax loss versus $1.5 million or 30.2% of pre-tax income for the year ended December 31, 2006. The income tax provision in 2007 reflects a valuation allowance on certain tax assets acquired in the transaction with Marine of approximately $4.0 million and a reduction in tax expense of approximately $4.7 million from the realization of the deferred credit resulting from the transaction with Marine. The tax provision in the year ended December 31, 2007 includes the effect of rate changes that were substantially enacted during the year which reduced the value of net income tax assets, prior to the valuation allowance, and resulted in an expense of $490,000 during the period.

Net earnings (loss)

Net loss for the year ended December 31, 2007 was $15.8 million versus net income of $3.4 million or 13.6% of revenue for the year ended December 31, 2006.

Summary of Quarterly Results



The Company's financial information for the past eight quarters is
presented below:

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(In thousands of dollars, 2007
except per share data) Q4 Q3 Q2 Q1
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Revenue $ 7,373 4,863 3,859 9,841
Operating expenses 5,479 3,123 2,543 5,261
Operating expenses, % of revenue 74.3% 64.2% 65.8% 53.5%
Selling, general and
administrative expenses 1,363 984 948 1,091
Due diligence costs respecting
abandoned acquisition - - 330 -
Loss (gain) on disposal of assets 257 38 - (12)
EBITDA (1) 274 718 38 3,501
EBITDA, % of revenue 3.7% 14.8% 1.0% 35.6%
Net income (loss) (16,967) (265) (603) 2,038
Weighted average shares - basic 56,798 53,641 53,641 53,641
Weighted average shares - diluted 56,798 53,641 53,641 53,641
Earnings (loss) per share - basic (0.30) - (0.01) 0.04
Earnings (loss) per share -
diluted (0.30) - (0.01) 0.04
Funds flow from operations $ (834) (1,307) 4,019 2,896
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(In thousands of dollars, 2006
except per share data) Q4 Q3 Q2 Q1
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Revenue 7,572 6,018 4,605 6,868
Operating expenses 4,310 3,550 2,757 3,757
Operating expenses, % of revenue 56.9% 59.0% 59.9% 54.7%
Selling, general and administrative
expenses 1,415 970 643 576
Due diligence costs respecting
abandoned acquisition - - - -
Loss (gain) on disposal of assets 53 - (77) (41)
EBITDA (1) 1,794 1,498 1,282 2,576
EBITDA, % of revenue 23.7% 24.9% 27.8% 37.5%
Net income (loss) 723 542 659 1,495
Weighted average shares - basic 52,228 48,641 30,605 13,912
Weighted average shares - diluted . 52,228 48,830 30,674 13,912
Earnings (loss) per share - basic 0.01 0.01 0.02 0.11
Earnings (loss) per share - diluted 0.01 0.01 0.02 0.11
Funds flow from operations (538) 93 1,425 243
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The Company's financial statements are available on SEDAR.

"Reader Advisory

This news release contains certain forward-looking statements, which include assumptions with respect to (i) future operations; (ii) future economic conditions; (iii) future capital expenditures; and (iv) cash flow. The reader is cautioned that assumptions used in the preparation of such information may prove to be incorrect. All such forward looking statements involve substantial known and unknown risks and uncertainties, certain of which are beyond the Company's control. Such risks and uncertainties include, without limitation, risks associated with oil and gas exploration, development, exploitation, production, loss of markets, volatility of commodity prices, currency fluctuations, environmental risks, competition from other companies, ability to access sufficient capital from internal and external sources, the impact of general economic conditions in Canada, the United States and overseas, industry conditions, changes in laws and regulations (including the adoption of new environmental laws and regulations) and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof, and obtaining required approvals of regulatory authorities. The Company's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits, including the amount of proceeds, that the Corporation will derive therefrom. Readers are cautioned that the foregoing list of factors is not exhaustive. All subsequent forward-looking statements, whether written or oral, attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Furthermore, the forward-looking statements contained in this news release are made as at the date of this news release and the Corporation does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws."

The securities offered have not been registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any State in which such offer, solicitation or sale would be unlawful.

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy and accuracy of the contents of this news release.

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