Garneau Inc. third quarter results ended September 30, 2007



    Garneau Inc. announces results for three and nine months ended
    September 30, 2007

    NIKSU, AB, Nov. 14 /CNW/ - Garneau Inc. (GAR-TSX) announced operating
results for three and nine months ended September 30, 2007. A summary of those
results are as follows;

    

    (In thousands, except    Three months ended         Nine months ended
     per share data,        September    September    September    September
     unaudited)              30, 2007     30, 2006     30, 2007     30, 2006
    -------------------------------------------------------------------------
    Revenue                $    3,793   $   11,078   $   15,810   $   42,908
    Margin                      1,095        1,658        2,741        8,045
    Margin %                    28.9%        15.0%        17.3%        18.7%
    Earnings (loss) before
     income taxes              (1,034)        (334)      (3,621)       1,515

    Net earnings (loss)        (1,034)          53       (3,015)         910
    Earnings (loss) per
     share - basic              (0.09)        0.00        (0.25)        0.08
    Earnings (loss) per
     share - diluted            (0.09)        0.00        (0.25)        0.08
    

    This report includes forward looking statements that are based on
Garneau's current expectations and therefore are subject to uncertainties such
as the level of industry drilling and coating activity, foreign exchange
fluctuations and world wide economic conditions that may cause actual results
to differ materially.
    Additional information and Managements Discussion and Analysis are
available on SEDAR (www.sedar.com).
    Certain statements contained in this press release, including statements
which may contain words such as "could", "should", "expect", "anticipate",
"believe", "will", and similar expression and statements relating to matters
that are not historical facts are forward looking statements. Such forward
looking statements involve known and unknown risk and uncertainties which may
cause the actual results, performances or achievements of Garneau Inc. to be
materially different from any future results, performances or achievements
expressed or implied by such forward looking statements. Such factors include,
but are not limited to, fluctuations in oil and gas activity levels, political
and economic conditions, the demand for services provided by Garneau Inc.,
Garneau Inc.'s ability to attract and retain key personnel and other factors.
    This analysis should be read in conjunction with the unaudited interim
consolidated financial statements of the Corporation for the nine months ended
September 30, 2007 and 2006 and in conjunction with the audited consolidated
financial statement and Annual Management Discussion and Analysis for the year
ended December 31, 2006.
    Third quarter revenue for the period ended September 30, 2007, totalled
$3.8 million which was a $7.3 million decrease from the $11.1 million recorded
for the comparative quarter ended September 30, 2006, a direct result of
decreased Camrose coating activity and Nisku manufacturing activity
experienced in the third quarter. Year to date revenue for the period ended
September 30, 2007 totalled $15.8 million which is $27.1 million below the
September 30, 2006 comparative period total of $42.9 million, also a direct
result of decreased overall coating and manufacturing activity.
    Margin for the third quarter ended September 30, 2007 totalled
$1.1 million, which is $0.6 million below the $1.7 million recorded for the
comparative period. The margin decrease is directly attributed to decreased
revenue generated from both segmented operations as overall industry activity
slowed down significantly. Year to date margin of $2.7 million (17.3%) is
$5.3 million below the $8.0 million (18.7%) recorded for the comparative nine
month period and reflects the curtailment in overall activity.
    Funds used by operations, before changes in non-cash working capital, for
the quarter ended September 30, 2007 totalled ($0.4) million, compared to the
$0.2 million generated for the comparative period, a decrease attributed to
decreased overall operational revenue and margins generated by both segments
of the Corporation in the third quarter of 2007. Year to date operating funds,
before non-cash working capital used for the period ended September 30, 2007,
totalled ($1.9) million, $4.9 million below the $3.0 million generated over
the comparative period and reflects the cash flow used during the slowdown in
business activity for both segments of Garneau operations.
    The decrease in coating revenue and gross margin there-from resulted in
net losses totalling $1.0 million for the three month period ended
September 30, 2007, a decrease of $1.1 million from the $53 thousand net
earnings reflected in the comparative period ended September 30, 2006. No
future income tax recovery was recorded in the third quarter of 2007. Year to
date net loss of $3.0 million is a $3.9 million decline from the $0.9 million
net earnings generated from the nine months comparative period ended September
30, 2006 and reflects the overall decrease in revenue and margins recorded
during 2007.
    During the second quarter period ended June 30, 2007 new credit
facilities were approved by the Corporation's bank. Operating and loan payable
credit facilities available to the Corporation included a demand revolving
operating line of credit of $18.0 million ($2.7 million utilized), a demand
revolving evergreen loan of $5.0 million ($1.9 million utilized), a loan lease
facility for $1.8 million ($0.4 million utilized pertaining to the manufacture
of polyethylene pipe and acquisition of forklifts) and a demand loans facility
in the amount of $9.0 million ($3.8 million utilized). The operating line of
credit continues to fluctuate within authorized limits. Terms and conditions
for the new credit facilities authorized include requirements for the
completion of new security documentation, updated appraisals on corporate
buildings and land owned in Camrose and Nisku and ongoing covenants set by the
bank. At September 30, 2007, the Corporation was not in compliance with the
debt service covenant related to its bank credit facility. The covenant is
determined quarterly based on the trailing four quarters ending on each
determination date. The Corporation has obtained forbearance from the lenders
for the breach of this covenant as of September 30, 2007 until December 31,
2007. There is uncertainty with respect to the ability of the Corporation to
comply with its debt covenants during the next twelve months without an
amendment or waiver of the covenants. Management expects them to be modified,
if they are not, future violation of the covenants could result in a
requirement to immediately repay the operating and demand loans. The $20.0
million increase in credit facilities authorized will be used to fund new
strategic initiatives expected to be undertaken by the Corporation. The
Corporation's bank working capital covenants have been adjusted. For the
purposes of the working capital covenant calculation, principal payments on
the loans payable scheduled to be repaid after 12 months are not included in
the working capital.
    Net additions to capital equipment were $328 thousand for the quarter end
September 30, 2007, compared to $473 thousand for the period ended
September 30, 2006 and totaled $1.2 million year to date compared to the $1.7
million recorded in the comparative period ended September 30, 2006. Capital
expenditures for 2007 were primarily related to additional fabrication,
mobile, equipment under construction, and coating equipment betterments
required in the normal course of business to support operations during the
third quarter of 2007.
    Small diameter coating activity for the third quarter of 2007 was well
below the activity recorded in 2006 as only one coating line was in operation
for most of the third quarter with only one shift employed. The order book
remained soft during the third quarter of 2007 as overall drilling activity
remains slow. Design and fabrication work continued on the plant upgrades
capital program announced in the fall of 2006 for the Camrose plant. Camrose
setup for the distribution of pipe occurred during the third quarter with
initial orders received in late September.
    Domestic manufacturing activity also remain slow in the third quarter of
2007 as project bidding and activity were well below 2006 levels in Nisku.
Garneau manufacturing operations plant hours continued at 8-10 hour shifts
throughout the third quarter and staff cutbacks incurred during the second
quarter were not replenished as project activity remained curtailed.
    The significant 2007 industry slowdown has continued into the third
quarter of 2007 with both coating and manufacturing activity being curtailed
substantially. This continued reduction in industry activity impacted
Garneau's third quarter financial results substantially as both coating and
manufacturing revenue recorded were well below 2006 comparisons.
    Design and fabrication on the major Camrose capital expenditure program
continued during the third quarter of 2007 and is progressing as originally
planned. This major upgrade to the Camrose facility is projected to improve
production efficiencies and reduce downtime and maintenance costs in the
plant. We project improved capabilities for future client orders through these
upgrades.
    Discussions on proceeding with the Commercial Coating Services
International joint venture agreement signed in the fall of 2005 continued
during the third quarter of 2007. The venture is working towards bringing cold
weather application to the coating process and will resume activity in late
2007. If proven successful, this could lead to new revenue streams for the
Corporation on future large diameter projects.
    The Corporation announced major expansion plans on August 14, 2007
wherein the Corporation is diversifying their Pipeline business segment into
the distribution of oil country tubular goods and line pipe products. This
expansion enables Garneau to offer tubular and line pipe procurement and
inventory management to our clients, in addition to the existing coating
services provided from our 65,000 sq ft Camrose facility. Increased marketing
efforts and infrastructure realignment procedures are underway to support this
aggressive initiative. The expansion will not require significant changes to
the plant or yard infrastructure in the Camrose operation. Negotiation for
initial supply of tubular products is complete and authorized bank credit
lines have been increased by $20 million to support this new strategic
initiative. The tubular and line pipe in Western Canada industry is estimated,
by management to exceed over $1.0 billion dollars annually in recent years and
Garneau is anticipating that it can successfully penetrate the existing market
based on the Corporation's ability to now offer consolidated "one stop
shopping" for these services. This announcement marks a major step in
Garneau's commitment to providing the oil and gas industry with additional
value added services and further reflects Garneau's commitment to increasing
corporate growth and long term profitability for our shareholders. Bare pipe
inventory has been purchased for resale and initial pipe orders are now being
received as the Garneau marketing team pursues new business.
    Garneau will continue to invest in research and development, while
actively pursuing potential new markets and focusing on profitable growth by
offering specialty products and services to complement our core coating and
manufacturing operation.

    The TSX Exchange does not accept responsibility for the accuracy of this
    release.





For further information:

For further information: Frank Deys, CFO, frankd@garneau-inc.com, Phone:
(780) 955-2396, Fax: (780) 955-7715

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