Phoenix Technology Income Fund
TSX : PHX.UN

Phoenix Technology Income Fund

February 28, 2007 18:36 ET

Phoenix Technology Income Fund: Report on Financial Results for the Three-Month Period and Year Ended December 31, 2006

CALGARY, ALBERTA--(CCNMatthews - Feb. 28, 2007) - Phoenix Technology Income Fund (TSX:PHX.UN):

Phoenix is pleased to report on its record financial results for the year ended December 31, 2006. In 2006, the Fund continued to invest in capital expansion and was successful in gaining market share in Canada and the US and as a result, demand for its services and its financial results were at record levels. Phoenix in 2006 was strongly diversified geographically, with 40 percent of its revenue generated from the US. In addition, the Fund had a good level of diversification between oil and natural gas well drilling services. Despite the slow down in drilling activity in Canada in the fourth quarter, the Fund's financial results for the three-month period ended December 31, 2006 were the second best quarterly result in the organization's history.

Cash flow increased by 36 percent to $28.9 million for the 2006 year from $21.2 million in 2005 and the Fund's payout ratio to unitholders for the 2006 year was 56 percent.



FINANCIAL HIGHLIGHTS
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(Stated in thousands
of dollars except
per unit amounts, Three months ended
percentages and December 31 Year ended December 31
units outstanding) 2006 2005 % Chg. 2006 2005 % Chg.
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Operating Results
Revenue 28,882 21,646 33 99,346 69,483 43
Net earnings 6,273 4,810 30 20,638 14,063 47
Earnings per unit -
diluted 0.28 0.21 33 0.92 0.66 39
EBITDA 8,608 7,290 18 29,950 21,301 41
EBITDA per unit -
diluted 0.38 0.32 19 1.34 1.00 34
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Cash Flow
Cash flow 8,402 7,657 10 28,909 21,236 36
Cash flow per unit -
diluted 0.37 0.33 12 1.29 1.00 29
Capital expenditures 2,222 2,804 (21) 12,750 9,390 36
Cash distributions
made 4,343 3,037 43 16,326 10,789 51
Cash distributions
per unit (1) 0.195 0.14 39 0.735 0.515 43
Cash payout ratio (2) 52% 40% 56% 51%
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Dec 31, Dec. 31,
Financial Position 2006 2005
Working capital 19,611 18,217 8
Long-term debt (3) 1,775 1,775 -
Unitholders' equity 58,908 53,588 10
Fund units
outstanding 22,274,773 22,120,564 1
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(1) Cash distributions on a per unit basis paid in the period.
(2) Phoenix defines its cash payout ratio as cash distributions made in the
applicable period divided by cash flow for the same period.
(3) Excludes current portion of long-term debt.


Non-GAAP measures

The Fund uses certain performance measures that are not recognizable under Canadian generally accepted accounting principles ("GAAP"). These performance measures include, earnings before interest, taxes, depreciation and amortization ("EBITDA"), EBITDA per unit, cash flow, cash flow per unit, and cash distributions per unit. Management believes that these measures provide supplemental financial information that is useful in the evaluation of the Fund's operations. Investors should be cautioned, however, that these measures should not be construed as alternatives to measures determined in accordance with GAAP as an indicator of Phoenix's performance. Phoenix's method of calculating these measures may differ from that of other organizations and, accordingly, these may not be comparable. Please refer to the Non-GAAP measures section.

RESULTS OF OPERATIONS

Year ended December 31, 2006

Phoenix expanded its job capacity in 2006 by adding 15 MWD systems in order to meet the exceptionally strong demand for services that were placed upon it from new and existing customers. Market share penetration continued in 2006 with the Canadian segment adding over 45 new clients. The US segment added a new operation in Traverse City, Michigan and continued its expansion within the Barnett Shale region in Texas. Despite solid gains in market share in Canada and the US, Phoenix has a diversified client base with its largest customer representing just over 8 percent of consolidated revenue in 2006.

Record revenue of $99.3 million was achieved for the year ended December 31, 2006 as compared to $69.5 million in 2005, an increase of 43 percent. Consolidated MWD guidance equipment utilization for the year was 35 percent as compared to 41 percent in 2005. Lower utilization was caused by fleet expansion, where in 2006 the average number of systems deployed was 74 compared to an average of 51 in 2005. Due to the time requirements to service and mobilize equipment, Phoenix considers the maximum achievable utilization rate for its operations to be 67 percent. Utilization within Canada and the US was not as high as expected in 2006 due to field labour shortages that existed in Canada during the first three quarters of the year and in the US during the entire year. These shortages directly impacted the Fund's ability to service additional work. Since year-end, labour shortages in Canada have eased significantly however, within the US it is still an ongoing challenge.

The Fund's financial strength was improved during 2006. Cash flow generated in 2006 increased to $28.9 million from $21.2 million or 36 percent. This level of cash flow was sufficient to allow the Fund to pay distributions of $16.3 million, and spend $12.7 million in capital equipment without it adding any long-term debt or issuing new equity.

Due to the strong cash flows achieved, the Fund early in 2006 approved the increase in its cash distributions to unitholders by 30 percent to $0.065 per unit from $0.05 per unit. This equated to an annualized payout of $0.78 per unit from $0.60 per unit. This increase was effective for the Fund's March distribution, payable on April 14, 2006. The Fund's cash payout ratio following the increase was 56 percent for the year ended December 31, 2006.

Net earnings of $20.6 million, $0.92 per unit diluted, and EBITDA of $30.0 million, $1.34 per unit diluted, were both at record levels for the Fund in 2006. EBITDA as a percentage of revenue was slightly lower at 30 percent compared to 31 percent in 2005 due primarily to slightly lower gross profit margins.

The Fund reports one operating segment on a geographical basis throughout the western Canadian provinces of Alberta, Saskatchewan and British Columbia and throughout the Gulf Coast, Northeast and Rocky Mountain regions of the US.

Canadian revenue

Phoenix's Canadian revenue increased by 34 percent to a record $59.6 million for the year ended December 31, 2006, from $44.4 million in 2005. Oil well diversification greatly contributed to Phoenix's success in 2006. Approximately 41 percent of the segment's activity involved the provision of oil well drilling services, predominantly in the southern regions of Saskatchewan. This drilling activity was robust for the Fund in 2006 and it offset some of the decreased natural gas well drilling activity that occurred in the last half of the year. Due to the high level of demand experienced by Phoenix in 2006, the Fund was able to maintain its price levels to it customers throughout the year. There have been some price decreases of up to 5 percent early in 2007 due to industry market pressures.

Phoenix's growth in Canadian market share in 2006 is evident when comparing its growth in activity to overall horizontal and directional industry drilling activity from 2005. Overall Canadian industry activity in 2006 as measured by the number of horizontal and directional wells drilled increased by only 4 percent to 7,108 wells drilled compared to 6,847 in 2005. (Source: Daily Oil Bulletin)

United States revenue

Nevis operates predominantly in the natural gas drilling market, which was very strong in 2006 and as a result, customer pricing remained firm throughout the year. For the year ended December 31, 2006, Nevis reported record revenue of $39.7 million, compared to $25.1 million in 2005, a 58 percent increase. The US segment doubled its operations within the Barnett Shale play located in the Fort Worth, Dallas, and Denton areas of Texas in 2006 and, has become the operator of choice for several customers. The opening of a sales and service facility in Traverse City, Michigan in April 2006 greatly contributed to Nevis's overall activity in the year. The Fund was able to deploy its CLT EM system in the region and the US segment added new customers from the Northeast states of Michigan, Ohio, West Virginia, Pennsylvania and New York. Nevis expanded the provision of coal bed methane ("CBM") drilling services in this Northeast region in 2006. CBM work accounted for approximately 35 percent of this regions activity.

Due to increases in activity and the goal to achieve greater profitability, Nevis has continued to reduce the number of MWD rentals provided to other horizontal and directional service providers by concentrating on full-service work. MWD rentals represented approximately 25 percent of activity in 2006 as compared to 40 percent in 2005. It is expected that this trend will continue in 2007.

Unlike the Canadian marketplace, gas well drilling activity in the US was strong throughout 2006. Field labour shortages that eased in Canada late in 2006 still remain a challenge in the US. In 2006 the average horizontal and directional rig count increased by 28 percent to 669 rigs from 521 in 2005 (Source: Baker Hughes).

The US operation has grown significantly over the past three years. In the 2003 year, the first full year of operations after the acquisition of US based Nevis Energy Services Inc., the US segment achieved revenue of $8.6 million. Since that time, revenue has grown organically by close to five times or 362 percent. For the year ended December 31, 2006, the US segment accounted for approximately 40 percent of consolidated revenue as compared to only 24 percent in 2003. Phoenix has benefited from this geographical diversification immensely in 2006 and the US market is still seen as providing Phoenix with a tremendous growth opportunity in 2007.

Operating costs and expenses

Direct costs are comprised of field and shop expenses and include current period research and development ("R&D") expenditures. Direct costs for the year ended December 31, 2006 increased by 45 percent to $59.9 million from $41.3 million in 2005. Gross profit as a percentage of revenue decreased 1 percent for the 2006 year to 40 percent from 2005. The cost increases were due to several factors:

- With the expansion into the US Northeast, the Fund incurred costs associated with a new regional centre including office, shop and field personnel;

- Additional personnel were added to set up new mud motor service facilities in Traverse City and Calgary;

- Although a large amount of equipment was deployed into the Northeast region to avoid costly third-party rentals, significant rentals were still incurred due to long equipment delivery lead times. The Fund's strategy is to minimize third-party downhole equipment rentals wherever possible;

- Increases in field labour costs were realized due in part to industry labour shortages that existed in Canada and the US during the year;

- The Casper shop was expanded in 2006 to handle additional work; and,

- R&D projects and activities increased in 2006. Gross research costs increased by 41 percent to $898,000 from $636,000 in 2005. R&D tax credits from Canada Revenue Agency helped to offset these costs by $190,000 in 2006 and $37,000 in 2005.

The Fund in 2007 is expected to improve its profitability through its initiative to service and repair a portion of its mud motor fleet. A motor repair facility was established in Calgary in late 2006 to service a large percentage of the Canadian motor fleet and another facility was set up in Traverse City, Michigan to service that regions motor fleet commencing in January 2007.

SG&A costs for the year ended December 31, 2006 increased by approximately $2.5 million to $10.0 million from $7.5 million in 2005. Stock-based compensation costs increased by $552,000 in 2006 from unit options issued in 2005 and 2006. The balance of the increase is due to higher insurance costs associated with the Fund's asset expansion and marketing costs associated with the increased level of revenue-generating activity.

As a result of current and past year's capital expenditures, depreciation and amortization for the year ended December 31, 2006 increased to $6.1 million from $5.1 million in 2005. Amortization costs related to intangible assets that were recognized on a 2005 acquisition were $37,500 in 2006 compared to $262,500 in 2005.

The Fund realized a gain on disposal of drilling equipment of $598,000 for the 2006 year as compared to $789,000 in 2005. The disposals relate primarily to equipment lost in well bores and are uncontrollable in nature. The gain reported is net of any asset retirements that are made before the end of their useful lives and self-insured downhole equipment losses.

Income taxes

The effective income tax rate for the year ended December 31, 2006 was 13 percent compared to an expected federal and provincial rate of 32.5 percent. The difference in the two rates of $4.65 million was primarily the result of the following:

- A reduction of $4.61 million due to the deductibility of declared cash distributions that are allowable in calculating taxable income of the Fund;

- A reduction of $439,000 due to the benefit received from enacted federal and provincial income tax rate reductions; and,

- An increase of $350,000 due to the non-deductibility of stock-based compensation expenses.

As an investment trust, the Fund is subject to income taxes under the Income Tax Act only on income not distributed to its unitholders. The Fund, unlike its subsidiaries will not recognize any future tax assets or liabilities on differences between the accounting and tax basis of its assets and liabilities.

Federal income tax considerations

On October 31, 2006 the Federal Minister of Finance proposed to apply a tax at the trust level on distributions of certain income from publicly traded mutual fund trusts at rates of tax comparable to the combined federal and provincial corporate tax and to treat such distributions as dividends to the unitholders (the "October 31 Proposals"). On December 21, 2006 the Federal Minister of Finance released draft legislation to implement the October 31 Proposals pursuant to which, commencing January 1, 2011 (provided the Trust only experiences "normal growth" and no "undue expansion" before then) certain distributions from the Trust which would have otherwise been taxed as ordinary income generally will be characterized as dividends in addition to being subject to tax at corporate rates at the trust level. Assuming the October 31 Proposals are ultimately enacted in their form, the implementation of such legislation would be expected to result in adverse tax consequences to the Trust and certain unitholders (including particularly, unitholders who are tax-deferred or are non-residents of Canada) and may impact cash distributions from the Trust. It is not known at this time when the October 31 Proposals will be enacted by Parliament, if at all, or whether the October 31 Proposals will be enacted in the form currently proposed. Given the four-year grace period before existing trusts will be taxed, Phoenix has an opportunity to examine its strategy and if warranted, modify its structure to provide the best possible return for its unitholders.

RESULTS OF OPERATIONS

Three-month period ended December 31, 2006

The financial results for the three-month period ended December 31, 2006 are at record levels for a fourth quarter and, are the second best result for any quarter in Phoenix's history.

Revenue

Overall revenue for the three-month period ended December 31, 2006 increased by 33 percent to $28.9 million from $21.6 million in the corresponding 2005 period. Despite a slow down in horizontal and directional natural gas drilling activity in the fourth quarter of 2006, Phoenix's revenue of $16.3 million in Canada was its best ever fourth quarter result and the second best result for any quarter. This represented an increase of 12 percent from the 2005 period. The industry in Canada reported a decline of horizontal and directional wells drilled in the fourth quarter of 2006 with only 1,828 wells drilled as compared to 2,158 wells drilled in 2005. This represented a decline of 15 percent. (Source: Daily Oil Bulletin) The Fund's diversification into oil well drilling services was important in achieving strong activity levels.

In the fourth quarter the Fund estimates that 47 percent of Phoenix's revenue was achieved through the drilling of oil wells predominantly in southern Saskatchewan.

In the US, drilling activity remained strong in all regional centres and revenue increased to a record $12.6 million in the 2006-quarter or 77 percent from $7.1 million for the 2005 comparable quarter. Due to the strength in this segment, US revenue accounted for 43 percent of consolidated revenue. In comparison the average number of active rigs in the fourth quarter of 2006 in the US increased by 25 percent to 704 rigs as compared to 564 rigs in 2005. (Source: Baker Hughes)

Operating costs and expenses

Direct costs increased by $5.1 million or 43 percent to $17.2 million for the quarter-ended December 31, 2006 from $12.1 million in 2005. As the increase in costs was higher than the increase in revenue, gross profit as a percentage of revenue declined from 44 percent in 2005 to 40 percent in 2006. This result was due to the following:

- Additional staff and costs were added in the fourth quarter of 2006 related to the set up of the mud motor service facilities in Calgary and Traverse City. As servicing activities did not commence on a large scale until January 2007, significant cost savings did not eventuate until 2007; and,

- Other increases were experienced in field labour costs due to the tight US labour market and costs relating to new office and shop facilities in Traverse City and Casper.

The increase in SG&A by $0.8 million or 34 percent, to $3.2 million in 2006 was due to increases in marketing related costs associated with a higher level of activity and, an increase in bad debt provisions of $0.2 million. It is anticipated that going forward into 2007 SG&A costs will be between 10 percent and 11 percent of revenue.

Despite large capital expenditure programs in the past few periods depreciation increased by only 9 percent to $1.7 million in the 2006-quarter from $1.6 million in 2005. Some downhole equipment had reached its residual value, lowering the overall depreciation charge to operations.

Income taxes

For the quarter ended December 31, 2006, the Fund reported a provision for income taxes of $0.6 million as compared to $0.9 million in 2005. The effective tax rate in the 2006-quarter was 9 percent as compared to 16 percent in the 2005 period. The difference in rates was due primarily to the recognition of lower future enacted federal and provincial income tax rates in the 2006-quarter.

INVESTMENT

The Fund did not complete any business acquisitions in 2006. However, operations were expanded internally within Canada and the US in the year. The most significant development was the addition of a new operation in Traverse City, Michigan, which services new geographical areas in the Northeast US.

Phoenix continued to invest in capital equipment in 2006 spending $12.7 million on drilling and other equipment. This allowed Phoenix to expand its MWD fleet by 15 systems and helped the Fund to minimize expensive third-party equipment rentals, thereby improving profitability. The capital expenditure program undertaken in the year was financed entirely from cash flow from operations. In 2005, $9.4 million in capital additions were undertaken again for fleet and downhole tool expansion. The Fund realized proceeds from the involuntary disposal of drilling equipment in well bores of $2.0 million in 2006, compared to $2.3 million in 2005.

The 2007 capital budget has been set at $7.9 million and this includes the additional of a further five MWD systems. The planned capital expenditures will be financed from cash flow from operations and by the Fund's unused credit facilities if necessary. If future growth opportunities present themselves the Fund would not hesitate to expand this planned capital expenditure amount. Conversely, if a sustained downturn in activity occurred the Fund would modify its capital expenditure and acquisition strategies accordingly.

CAPITAL RESOURCES

As at December 31, 2006 the Fund had working capital of $19.6 million which was $1.4 million higher than $18.2 million reported at December 31, 2005. From increases in activity and from the initiative to commence repairing a portion of the Fund's mud motor fleet in-house, accounts receivable and inventory balances increased in the year. Higher accounts payable and income tax payable balances also created by the increase in activity offset a portion of this. The change in the current portion of long-term debt resulted from Phoenix entering into a new extendible debt facility with its banker at the end of the year.

The Fund has access to a demand revolving loan facility of up to $5.0 million. This facility would bear interest at the Fund's option at the bank's prime rate plus 0.375 percent or the bank's bankers' acceptance rate plus a stamping fee of 1.25 percent. No amount on the facility was drawn as at December 31, 2006.

On December 15, 2006 the Fund entered into a $20 million, 364-day extendible revolving facility with its bank. This bears interest at the Fund's option at the bank's prime rate plus 0.375 percent or the bank's bankers' acceptance rate plus a stamping fee of 1.25 percent. The facility is renewable at the option of the lender. Should this facility not be extended, outstanding amounts will be transferred to a four-year term facility repayable at 1/25 of the amount outstanding for 15 quarters with the remaining balance paid on the sixteenth quarter. On December 31, 2006 $1.775 million was drawn on this facility.

MWD FLEET

As at December 31, 2006, the Fund had the capability of running 86 concurrent jobs. Currently, 56 MWD systems are based in Canada with 30 in the United States. It is expected that the Fund will add a minimum of five MWD systems in 2007. This expansion may change in response to the level of customer demand that eventuates during the year.

OUTLOOK

Due to weaknesses in oil and natural gas prices, Canadian industry analysts are predicting a decrease in completed wells in 2007. A recent PSAC forecast is predicting that there will be 21,000 wells drilled in Canada in 2007, which is a decrease of 10 percent from 2006. However, as the Fund is currently operating at or near record levels in both Canada and the US, management remains cautiously optimistic about the upcoming year. The Fund has positioned itself with strong geographical diversification in the US and with oil well drilling in Saskatchewan and, it foresees successes continuing in these regions. The US market is perceived as having exceptional growth opportunities that the Fund hopes to capitalize on in 2007 thereby further increasing its market share.

The Fund's capital expenditure plans in 2007 will be reviewed as the year progresses but with Phoenix's low level of debt, management considers it to be well-positioned to spend capital where necessary and take advantage of new opportunities as they present themselves.

Research and development efforts will intensify in 2007 in order that Phoenix can continue to provide leading edge technology to its customers into the future. The Fund's efforts to enter the SAG-D oil well drilling market will continue with additional field trials of its inclination at bit technology. Additional tests of the Fund's coil tubing orienter are also scheduled for 2007. The Fund expects to commercialize several projects in 2007 that will allow it to further gain market share and enter unconventional lucrative drilling markets.

It is expected that with Phoenix's in-house servicing of mud motors in the Calgary and Michigan regions the Fund will be able to realize important increases in profitability in 2007 through decreases in motor service costs. Other cost saving initiatives will be implemented where appropriate that in aggregate may help to lessen the impact of weaker drilling activity that may eventuate.

Forward-Looking Statements

Certain information set forth in this document including a discussion of future plans and operations, contains forward-looking statements that involve substantial known and unknown risks and uncertainties. These forward-looking statements include statements relating to Phoenix's plans, strategies, objectives, expectations, intentions, resources and business activities, which are not guarantees as to future results since there are inherent difficulties in predicting these future results. The use of any of the words: "anticipate", "expect", "project", "may", "will", "should", "believe", "estimate", "forecast", "intends" and similar expressions identify forward-looking statements. Such statements are subject to known and unknown risks and uncertainties, many of which are beyond the Fund's control. These would include the impact of the general state of the economy, oil and natural gas energy price fluctuations, industry conditions, competition from other organizations, weather conditions and the seasonal nature of business, access to third-party suppliers and contractors, changes in government regulation, access to competent employees including senior management, and currency and interest rate fluctuations. In particular, if there is a material downturn in activity levels in the oil and gas industry, there may also be a sudden impact to the Fund's level of cash flow and distributions. The Fund's assumptions used in these forward-looking statements are believed to be reasonable at the time of preparation; however, no assurance can be given that these assumptions will prove to be correct and consequently, the Fund's actual results could differ materially from those implied by or contained in any forward-looking statement. As a result, readers should be cautioned about placing any undue reliance on any forward-looking statement included in this report.



NON-GAAP MEASURES

a) The following is a reconciliation of EBITDA to net earnings:

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Quarter ended Years ended
(stated in thousands December 31 December 31
of dollars) 2006 2005 2006 2005
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EBITDA as reported $ 8,608 $ 7,290 $ 29,950 $ 21,301
Add:
Interest income (13) 28 70 109

Deduct:
Depreciation and
amortization (1,661) (1,527) (6,190) (5,089)
Interest on long-term
debt (30) (51) (141) (178)
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6,904 5,740 23,689 16,143
Provision for income
taxes 631 930 3,051 2,080
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Net earnings $ 6,273 $ 4,810 $ 20,638 $ 14,063
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Diluted EBITDA per unit is calculated using the treasury stock method where deemed proceeds on the exercise of the unit options are considered to be used to re-acquire fund units at an average unit price. The calculation of EBITDA per unit on a dilutive basis does not include antidilutive options.



b) The following is a reconciliation of cash flow to cash flow provided by
operating activities:

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Quarter ended Years ended
(stated in thousands December 31 December 31
of dollars) 2006 2005 2006 2005
---------------------------------------------------------------------------
Cash flow $ 8,402 $ 7,657 $ 28,909 $ 21,236
Changes in non-cash
working capital 395 (4,879) (2,968) (9,882)
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Cash flow provided by
operating activities $ 8,797 $ 2,778 $ 25,941 $ 11,354
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Diluted cash flow per unit is calculated using the treasury stock method where deemed proceeds on the exercise of the unit options are considered to be used to re-acquire fund units at an average unit price. The calculation of cash flow per unit, on a dilutive basis, does not include anti-dilutive options.

PHOENIX TECHNOLOGY INCOME FUND

Phoenix is in the business of providing horizontal and directional technology and drilling services in western Canada and the United States. In addition to this core business, the Fund also rents downhole, high-performance drilling motors, drilling jars, and other ancillary equipment in western Canada. Current Loop Telemetry ("CLT") technology which was developed in Phoenix's research and development center is used to manufacture CLT guidance systems for use in the Fund's internal operations, and for short-term leases to other horizontal and directional service providers within North America. Phoenix maintains sales, service and operational centers in Calgary, Alberta; Houston, Texas; Casper, Wyoming and Traverse City, Michigan. The Fund's head office and research and development center are both located in Calgary.



Consolidated Balance Sheets
December 31, 2006 and 2005

2006 2005
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ASSETS

Current assets
Cash and cash equivalents $ 1,763,191 $ 3,964,950
Accounts receivable 30,355,422 24,481,382
Inventory 1,189,254 725,538
Prepaid expenses 1,075,697 488,246
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34,383,564 29,660,116

Drilling and other equipment 35,208,134 29,807,982
Goodwill 8,876,351 8,876,351
Cash in trust - 250,000
Intangible assets - 37,500
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$78,468,049 $68,631,949
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LIABILITIES AND UNITHOLDERS' EQUITY

Current liabilities
Accounts payable and accrued liabilities $12,130,147 $ 8,705,496
Distributions payable 1,447,861 1,106,028
Income taxes payable 1,195,000 132,000
Current portion of long-term debt - 1,500,000
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14,773,008 11,443,524

Long-term debt 1,775,000 1,775,000
Future income taxes 3,012,000 1,825,411
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19,560,008 15,043,935

Unitholders' equity
Unitholders' capital 43,509,547 43,377,923
Contributed surplus 2,042,311 1,071,465
Foreign currency adjustment (1,615,893) (1,863,172)
Retained earnings 14,972,076 11,001,798
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58,908,041 53,588,014

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$78,468,049 $68,631,949
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Consolidated Statements of Earnings

Three months ended Twelve months ended
December 31 December 31
2006 2005 2006 2005
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(unaudited) (unaudited) (audited) (audited)

Revenue $28,881,813 $21,645,737 $99,346,209 $69,482,615
Direct costs 17,224,710 12,073,948 59,873,380 41,335,972
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Gross profit 11,657,103 9,571,789 39,472,829 28,146,643
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Expenses
Selling, general and
administrative 3,178,040 2,365,641 10,007,796 7,484,971
Depreciation and
amortization 1,661,020 1,526,821 6,190,325 5,089,049
Foreign exchange loss
(gain) (84,658) 44,391 113,715 149,611
Interest on long-term
debt 30,861 51,458 140,747 178,813
Other interest 12,677 (28,942) (70,649) (109,201)
Gain on disposition of
drilling equipment (44,734) (127,750) (598,223) (789,168)
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4,753,206 3,831,619 15,783,711 12,004,075
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Earnings before income
taxes 6,903,897 5,740,170 23,689,118 16,142,568
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Provision for (recovery
of) income taxes
Current 771,000 48,000 1,892,000 84,000
Future (140,000) 882,000 1,159,000 1,996,000
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631,000 930,000 3,051,000 2,080,000
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Net earnings $ 6,272,897 $ 4,810,170 $20,638,118 $14,062,568
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Earnings per unit -
basic $ 0.28 $ 0.22 $ 0.93 $ 0.67
Earnings per unit -
diluted $ 0.28 $ 0.21 $ 0.92 $ 0.66
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Consolidated Statements of Retained Earnings

Three months ended Twelve months ended
December 31 December 31
2006 2005 2006 2005
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)

Retained earnings,
beginning of period 13,042,607 9,396,726 11,001,798 8,009,997
Net earnings 6,272,897 4,810,170 20,638,118 14,062,568
Distributions (4,343,428) (3,205,098) (16,667,840) (11,070,767)
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Retained earnings, end
of period $14,972,076 $11,001,798 $14,972,076 $11,001,798
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Consolidated Statements of Cash Flows

Three months ended Twelve months ended
December 31 December 31
2006 2005 2006 2005
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)
Cash flows from
operating activities
Net earnings $ 6,272,897 $ 4,810,170 $20,638,118 $14,062,568
Add (deduct) items not
affecting cash
Depreciation and
amortization 1,661,020 1,526,821 6,190,325 5,089,049
Future income taxes (140,000) 882,000 1,159,000 1,996,000
Unrealized foreign
exchange loss (gain) (91,991) 36,876 143,829 145,518
Gain on disposition
of drilling
equipment (44,734) (127,750) (598,223) (789,168)
Stock-based
compensation 297,632 321,726 1,078,050 525,567
Provision for bad
debt 447,269 206,839 297,498 206,839
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8,402,093 7,656,682 28,908,597 21,236,373
Change in non-cash
working capital 394,802 (4,878,940) (2,967,727) (9,882,291)
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8,796,895 2,777,742 25,940,870 11,354,082
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Cash flows from
investing activities
Proceeds on
disposition of
drilling equipment 364,404 649,963 1,995,247 2,252,841
Acquisition of
drilling and other
equipment (2,222,514) (2,804,431) (12,749,770) (9,390,393)
Change in non-cash
working capital 495,986 432,278 (85,516) 432,278
Business acquisition - (4,691,555) - (4,691,555)
Cash in trust 50,000 (250,000) 50,000 (250,000)
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(1,312,124) (6,663,745) (10,790,039) (11,646,829)
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Cash flows from
financing activities
Issuance of units 11,695 10,249,020 473,418 10,612,508
Repayment of long-term
debt (375,000) (375,000) (1,500,000) (1,500,000)
Distributions to
unitholders' (4,343,115) (3,036,526) (16,326,008) (10,788,735)
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(4,706,420) 6,837,494 (17,352,590) (1,676,227)
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Increase (decrease) in
cash and cash
equivalents 2,778,351 2,951,491 (2,201,759) (1,968,974)
(Bank Indebtedness)
cash and cash
equivalents, beginning
of period (1,015,160) 1,013,459 3,964,950 5,933,924
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Cash and cash
equivalents, end of
period $ 1,763,191 $ 3,964,950 $ 1,763,191 $ 3,964,950
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Contact Information

  • Phoenix Technology Income Fund
    John Hooks
    President and CEO
    (403) 543-4466
    or
    Phoenix Technology Income Fund
    Cameron Ritchie
    Senior Vice President Finance and CFO
    (403) 543-4466
    (403) 543-6025 (FAX)
    or
    Phoenix Technology Services Inc.
    Suite 630, 435 4th Avenue SW
    Calgary, Alberta T2P 3A8
    Website: www.phoenixcan.com