Samuel Manu-Tech Inc. - Third Quarter Results



    TORONTO, Oct. 24 /CNW/ -

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    RESULTS OF OPERATIONS
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    In order to conform to the current year presentation, the comparative
figures have been restated due to the discontinuance of the Company's U.S.
distribution operations as a result of selling its subsidiary, Energy Steel
Products, Inc.
    Effective for the quarter ending September 30, 2007, the segment formerly
known as Distribution has been combined with the Packaging segment. The change
is the result of the completion of the sale of Energy Steel Products Inc. on
July 31, 2007. Comparative figures have been restated accordingly.

    Net Sales

    Sales for the third quarter ended September 30, 2007 were $226.7 million,
which represents an increase of $0.6 million or 0.2% over the $226.1 million
achieved in the comparable quarter of last year. Sales for the nine months to
September 30, 2007 were $690.5 million which represents an increase of
$43.6 million or 6.7% over the $646.9 million achieved in the comparable
period of last year. In both cases, the increase is attributable to the
acquisitions completed in 2006 and 2007.
    Carbon steel pricing remained stable in the U.S., while decreasing
slightly in Canada, in the third quarter; however, demand remained relatively
weak in certain key sectors. Sales levels also continued to be negatively
impacted by the strength of the Canadian dollar which increased compared to
the U.S. dollar between the second and third quarters of this year. The
average exchange rate of the U.S. dollar in the second quarter of 2007 was
Cdn. $1.10 compared to $1.04 in the third quarter of this year.
    Sales of the Packaging segment in the third quarter, at $113.8 million,
were down $4.7 million or 3.9% compared to last year due mainly to lower
volumes and selling prices reflecting increased competition and the continued
slowdown in the forestry and construction sectors. In addition, the change in
the exchange rate continued to negatively impact Canadian exports and U.S.
based sales. Metal Processing sales for the quarter were $112.9 million, which
is up $5.2 million or 4.8% compared to last year. This was primarily due to
higher sales of stainless steel tubular products and steel pressure vessels
reflecting the recent acquisitions of Dofasco Elizabethtown, Inc. effective
August 17, 2007 and Northland Stainless, Inc. effective August 14, 2007. In
addition, higher sales of stainless steel tubular products were positively
impacted by higher surcharges compared to last year. These increases were
partially offset by lower steel pickling sales reflecting a declining
manufacturing environment in Canada and the continued reduction in Canadian
steel pickling demand. Sales of roll formed products were also lower compared
to last year.

    Earnings

    Net earnings from continuing operations for the third quarter were
$4.1 million or $0.12 per share compared to $11.8 million or $0.37 per share
in the comparable quarter of last year. Net earnings from continuing
operations for the nine months to September 30, 2007 were $18.1 million or
$0.56 per share compared to $34.4 million or $1.08 per share last year.
    On July 31, 2007, the Company sold the operations and net assets of its
subsidiary, Energy Steel Products, Inc. The results from this subsidiary,
which were previously included in the Distribution segment, have been
reclassified as discontinued operations in the accompanying interim
consolidated financial statements. The Company received consideration of U.S.
$25 million, subject to certain adjustments for working capital items.
Included in net earnings from discontinued operations is an estimated after
tax gain of U.S. $3.3 million or $0.11 per share. Additional details are
outlined in Note 6 - Discontinued Operations to the interim consolidated
financial statements.
    Net earnings for the third quarter were $7.8 million or $0.24 per share
compared to $12.4 million or $0.39 per share in the comparable quarter of last
year. Net earnings for the nine months to September 30, 2007 were
$24.0 million or $0.75 per share compared to $35.5 million or $1.11 per share
last year. The results for the third quarter and nine months this year include
a pre-tax restructuring charge of $1.0 and $6.0 million respectively to cover
the closure of the Scarborough, Ontario strapping manufacturing facility as
outlined in Note 4 to the interim consolidated financial statements. This
restructuring charge of $0.7 million and $3.9 million after tax negatively
impacted earnings in the quarter and first nine months this year by $0.02 and
$0.12 per share respectively.
    Operating profit (see below for cautionary language regarding non-GAAP
measures) for the third quarter amounted to $8.8 million compared to
$19.5 million in the comparable quarter of last year with decreases in both
the Packaging and Metal Processing segments.
    The Packaging segment had an operating profit of $2.9 million, which was
$7.2 million lower than the $10.1 million earned last year with decreases
occurring in both Canada and the U.S. offset in part by the contribution from
the GO Packaging acquisition since October 2006. The decreased profitability
reflects the continued slowdown in the forestry and construction sectors in
North America, increased competition and the negative impact of the stronger
Canadian dollar. The U.S. operations were also negatively impacted by certain
start-up costs incurred related to the new steel strapping facility in Heath
County, Ohio which is not scheduled to be fully operational until the fourth
quarter of this year.
    The Metal Processing segment generated profits of $8.8 million, which was
$3.2 million lower than the $12.0 million earned last year. Profits from roll
formed products were down reflecting a more unfavourable product mix compared
to last year as well as the start-up costs related to the new manufacturing
facility in Iuka, Mississippi. In addition, profits from steel pickling
operations were down reflecting lower overall volumes primarily as a result of
a reduction in manufacturing in Southern Ontario.

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    FINANCIAL CONDITION
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    Liquidity and Capital Resources

    Cash flow from continuing operations before changes in non-cash working
capital for the first nine months of 2007 amounted to $31.6 million which was
down $20.6 million from $52.2 million in the comparable period of last year
with the decrease primarily attributable to lower earnings. Overall, cash flow
used in operating activities from continuing operations was $1.1 million
compared to cash flow from operating activities of $14.2 million last year.
This reflects decreased levels of profitability offset in part by decreased
requirements for non-cash working capital.
    Cash used for investing activities from continuing operations at
$68.8 million was above last year's $62.7 million and is due to higher
spending on capital assets this year offset in part by decreased spending on
business acquisitions. Cash flow generated from financing activities amounted
to $18.5 million in the nine months compared to $38.9 million last year with
the decrease in cash this year due to a lower net increase in long-term debt.
During the nine months, 53,000 stock options were exercised which resulted in
the issuance of 53,000 common shares in exchange for proceeds of $0.4 million.
Dividends paid on common shares for the nine months amounted to $9.6 million
or $0.30 per share which was the same as last year. Cash flow from
discontinued operations was $25.2 million compared to $0.9 million last year
reflecting proceeds on the sale of discontinued operations. In aggregate, the
cash position decreased by $26.0 million compared to an $8.5 million decrease
last year. The Company continues to maintain credit facilities with various
banks and, at September 30, 2007, had available unused credit facilities of
approximately $97 million.

    Business Acquisitions

    On August 14, 2007, the Company acquired 100% of the shares of Northland
Stainless, Inc. for consideration of U.S. $8.75 million subject to certain
adjustments for working capital items. On August 17, 2007, the Company
acquired 100% of the shares of Dofasco Elizabethtown Inc. for consideration of
U.S. $28.5 million subject to certain adjustments for working capital items.
The Company is pleased with the performance of both acquisitions to date. Both
of these strategic acquisitions are reported under the Metal Processing
segment, and have been accounted for under the purchase method of accounting.
Additional details are outlined in the Business Acquisitions Note 7 of the
interim financial statements.

    Capital Expenditures

    Capital expenditures in the nine months to September 30, 2007 were
$27.2 million compared to $18.5 million during the comparable period last
year. Expenditures in the current nine months related primarily to equipment
for our new steel strapping manufacturing facility in Heath, Ohio, and our new
roll forming facility in Iuka, Mississippi.

    Discontinued Operations

    On July 31, 2007 the Company sold the operations and net assets of its
U.S. distribution business, Energy Steel Products, Inc., as discussed above
under Earnings. Additional details are outlined in Note 6 - Discontinued
Operations to the interim consolidated financial statements.

    Working Capital

    Working capital at September 30, 2007 was $222.0 million, a decrease of
$14.3 million from the year-end position due to the impact of discontinued
operations and higher bank indebtedness more than offsetting higher
receivables and inventories. Overall, the working capital ratio decreased to
2.8 from the year-end position of 3.3.

    Net Borrowings to Capitalization

    The Company's net borrowings as at September 30, 2007 amounted to
$147.8 million, an increase of $39.4 million from $108.4 million at
December 31, 2006. This increase reflects the reduced cash flow from
operations during the first nine months due to lower profits and increased
spending on business acquisitions and capital assets. The net debt to
capitalization ratio at the end of the quarter increased to 30.4% compared to
24.0% at year-end and 19.4% at the end of the third quarter last year.

    Capital Stock

    Details of issued and outstanding common shares are outlined in Note 2 to
the interim consolidated financial statements. As at the date of this report
the number of outstanding common shares is 32,123,445. No stock options were
issued during the third quarter; however, 6,600 stock options were exercised,
resulting in the issuance of 6,600 common shares in exchange for proceeds of
$0.1 million.

    Outlook

    Carbon steel pricing levels remained stable in the U.S., while decreasing
slightly in Canada in the third quarter of 2007 after softening in the second
quarter. Real demand however remains relatively weak as the collapse of the
sub-prime part of the U.S. mortgage market has served to deepen the weakness
in U.S. manufacturing industries. Price levels are expected to increase
slightly in the U.S. and decline in Canada for the balance of the year.
However, there is the potential for prices to pick up overall in 2008 due to a
potential tightening of supply for steel as customers start to replenish their
low inventories.
    Stainless steel base prices declined marginally in the U.S. and more
significantly in Canada in the third quarter of 2007 as underlying demand
remained relatively stable despite the recent economic uncertainties. As
forecasted however, stainless steel nickel surcharges decreased significantly
in the third quarter of 2007. After reaching peak levels in July as a result
of nickel prices hitting all time high levels in May, nickel surcharges began
to decline in August and continued to decline into the fourth quarter. Nickel
prices appear to have stabilized. Despite this improvement, many buyers are
continuing to only purchase based on immediate needs to avoid potentially
replenishing stocks too early.
    In addition, the Canadian dollar continued to strengthen relative to its
U.S. counterpart in the third quarter. This has a negative impact on the
Company's results and is expected to continue in the fourth quarter.
    The Company is disappointed with the results for the first nine months.
The Company anticipates further start-up costs at its greenfield plants in
Ohio and Mississippi and challenging conditions in certain of its served
markets for the balance of the year. We will continue to reposition our
businesses to reduce costs and improve productivity and will focus our efforts
on pursuing growth opportunities in the marketplace.

    
    Quarterly Results

    (in thousands of dollars except per share amounts)

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                                          2007      2007      2007      2006
                                            Q3        Q2        Q1        Q4
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    Net Sales from continuing
     operations                       $226,663  $229,235  $234,608  $211,434
    Net Earnings from continuing
     operations                          4,104     8,028     5,938     9,763
    - Basic Earnings per Share            0.12      0.25      0.19      0.30
    - Diluted Earnings per Share          0.12      0.24      0.19      0.29
    Net Earnings                         7,800     9,197     7,024    11,254
    - Basic Earnings per Share            0.24      0.29      0.22      0.35
    - Diluted Earnings per Share          0.24      0.28      0.22      0.34
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                                          2006      2006      2006      2005
                                            Q3        Q2        Q1        Q4
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    Net Sales from continuing
     operations                       $226,126  $219,001  $201,789  $196,005
    Net Earnings from continuing
     operations                         11,820    12,689     9,934    12,604
    - Basic Earnings per Share            0.37      0.39      0.32      0.40
    - Diluted Earnings per Share          0.37      0.39      0.31      0.40
    Net Earnings                        12,384    12,997    10,081    12,702
    - Basic Earnings per Share            0.39      0.40      0.32      0.40
    - Diluted Earnings per Share          0.39      0.40      0.31      0.40
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    Samuel Manu-Tech Inc. (SMT-TSX) is a leading North American industrial
products and technology company producing and distributing a wide range of
steel, plastic and related industrial products and services from locations in
Canada, the United States, and Mexico.

    Mark C. Samuel
    Chairman
    & CEO

    October 24, 2007

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    The "Third Quarter Results" utilize the term "operating profit (EBIT)"
    which is a non-GAAP measure. Securities regulations require that
    corporations caution readers that these terms do not have standardized
    meanings under GAAP and are unlikely to be comparable to similar measures
    used by other companies. Operating profit (EBIT) is defined as earnings
    from continuing operations before restructuring charge, interest and
    income taxes.

    Operating profit (EBIT) should not be construed as a substitute for net
    earnings or cash flows from operations (each as determined in accordance
    with generally accepted accounting principles) for the purpose of
    analyzing the Company's operating performance, financial position or cash
    flows. The Company believes that, in addition to cash flow from
    operations and net earnings, operating profit is a useful financial
    performance measurement for assessing operating performance as it
    provides investors with an additional basis to evaluate the ability of
    the Company to incur and service debt and to fund capital expenditures.

    This report may contain forward-looking information that is subject to
    risks, uncertainties and assumptions. Such information represents our
    current views based on information as at the date of issuing this report.
    We do not intend to update this information and disclaim any legal
    obligation to the contrary.
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    CONSOLIDATED STATEMENTS OF EARNINGS
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    Nine Months ended September 30, 2007 and 2006 (unaudited)
    (in thousands of dollars except per share amounts)

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                                     3RD QUARTER             NINE MONTHS
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                                    2007        2006        2007        2006
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    NET SALES                  $ 226,663   $ 226,126   $ 690,506   $ 646,916
    COSTS AND EXPENSES
     (INCOME):
      Cost of sales, selling &
       administration            211,680     200,775     634,295     574,136
      Depreciation and
       amortization                5,483       5,852      16,672      16,860
      Foreign exchange loss
       (gain)                        661         (14)      1,491       1,095
      Interest on long-term
       debt                        1,844         975       5,235       1,728
      Interest on short-term
       debt                          351         146         896         299
      Interest income                (23)        (17)        (56)        (43)
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                                 219,996     207,717     658,533     594,075
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    EARNINGS FROM CONTINUING
     OPERATIONS BEFORE
     RESTRUCTURING CHARGE AND
     INCOME TAXES                  6,667      18,409      31,973      52,841

    RESTRUCTURING CHARGE (note 4)    997           -       5,989           -
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    EARNINGS FROM CONTINUING
     OPERATIONS BEFORE
     INCOME TAXES                  5,670      18,409      25,984      52,841

    INCOME TAXES:
      Current                      1,810       6,370       8,367      17,024
      Future                        (244)        219        (453)      1,374
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                                   1,566       6,589       7,914      18,398
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    NET EARNINGS FROM
     CONTINUING OPERATIONS         4,104      11,820   $  18,070   $  34,443
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    NET EARNINGS FROM
     DISCONTINUED OPERATIONS
     (note 6)                      3,696         564       5,951       1,019
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    NET EARNINGS               $   7,800   $  12,384   $  24,021   $  35,462
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    BASIC EARNINGS PER SHARE
      From continuing
       operations                   0.12        0.37        0.56        1.08
      From discontinued
       operations                   0.12        0.02        0.19        0.03
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                               $    0.24   $    0.39   $    0.75   $    1.11
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    DILUTED EARNINGS PER SHARE
      From continuing
       operations                   0.12        0.37        0.55        1.07
      From discontinued
       operations                   0.12        0.02        0.19        0.03
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                               $    0.24   $    0.39   $    0.74   $    1.10
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    See accompanying notes to consolidated financial statements.



    CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
    -------------------------------------------------------------------------
    Nine Months ended September 30, 2007 and 2006 (unaudited)
    (in thousands of dollars)

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                                                             3RD QUARTER
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                                                            2007        2006
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    RETAINED EARNINGS, BEGINNING OF PERIOD             $ 327,472   $ 293,533
    NET EARNINGS                                          24,021      35,462
    DIVIDENDS PAID ON COMMON SHARES                       (9,633)     (9,570)
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    RETAINED EARNINGS, END OF PERIOD                   $ 341,860   $ 319,425
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    See accompanying notes to consolidated financial statements.



    CONSOLIDATED BALANCE SHEETS
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    September 30, 2007 (unaudited) and December 31, 2006 (audited)
    (in thousands of dollars)

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                                                        Sept. 30,    Dec. 31,
                                                            2007        2006
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    ASSETS

    CURRENT ASSETS:
      Cash and cash equivalents                        $   4,287   $   5,744
      Accounts receivable                                140,836     117,068
      Inventories                                        192,575     184,134
      Prepaid expenses and sundry (note 1)                 4,396       5,663
      Future income taxes                                  5,993       7,046
      Current assets of discontinued operations (note 6)       -      20,824
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                                                         348,087     340,479

    CAPITAL ASSETS                                       172,025     150,343
    ASSETS HELD FOR SALE (note 4)                          1,612           -
    ACCRUED PENSION ASSET                                 10,389       7,394
    FUTURE INCOME TAXES                                      435         489
    GOODWILL                                              49,420      51,631
    INTANGIBLE ASSETS                                     13,710      15,460
    OTHER ASSETS                                           2,635       2,600
    LONG-TERM ASSETS OF DISCONTINUED
     OPERATIONS (note 6)                                       -       1,244
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                                                       $ 598,313   $ 569,640
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    LIABILITIES AND SHAREHOLDERS' EQUITY

    CURRENT LIABILITIES:
      Bank indebtedness                                $  34,507   $  10,011
      Accounts payable and accrued liabilities            80,040      79,993
      Deferred revenue                                     6,799       4,508
      Dividends payable                                    3,245       3,234
      Income taxes payable                                 1,473       1,486
      Current liabilities of discontinued
       operations (note 6)                                     -       4,935
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                                                         126,064     104,167

    LONG-TERM DEBT                                       117,613     104,164
    POST-RETIREMENT BENEFITS OTHER THAN PENSIONS           2,300       2,285
    FUTURE INCOME TAXES                                   13,269      15,033
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                                                         259,246     225,649

    SHAREHOLDERS' EQUITY:
      Capital stock (note 2)                              29,885      29,464
      Contributed surplus                                    162         162
      Retained earnings                                  341,860     327,472
      Accumulated other comprehensive loss (note 3)      (32,840)    (13,107)
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                                                         339,067     343,991
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                                                       $ 598,313   $ 569,640
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    See accompanying notes to consolidated financial statements.



    CONSOLIDATED STATEMENTS OF CASH FLOWS
    -------------------------------------------------------------------------
    Nine Months ended September 30, 2007 and 2006 (unaudited)
    (in thousands of dollars)

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                                     3RD QUARTER             NINE MONTHS
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
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    CASH FLOWS FROM (USED IN)
     OPERATING ACTIVITIES:
      Net earnings from
       continuing operations   $   4,104   $  11,820   $  18,070   $  34,443
      Items not involving cash:
        Depreciation and
         amortization              5,483       5,852      16,672      16,860
        Loss (gain) on disposal
         of capital assets            (2)         15          54          39
        Future income taxes         (244)        219        (453)      1,374
        Increase in accrued
         pension asset              (756)       (158)     (3,057)       (544)
        Decrease in
         post-retirement
         benefits other than
         pensions                      8          47         296          69
    -------------------------------------------------------------------------
                                   8,593      17,795      31,582      52,241
      Change in non-cash
       operating working
       capital:
        Increase in accounts
         receivable               (7,693)     (9,448)    (22,503)    (28,078)
        Decrease (increase) in
         inventories              11,665      (6,241)     (8,409)    (24,824)
        Decrease (increase) in
         prepaid expenses and
         sundry                      405         666         949        (179)
        Increase (decrease) in
         accounts payable and
         accrued liabilities      (2,419)       (344)     (1,129)     18,801
        Increase (decrease) in
         deferred revenue         (1,732)       (261)     (1,832)        323
        Increase (decrease) in
         income taxes payable      1,410      (1,669)        214      (4,051)
    -------------------------------------------------------------------------
                                  10,229         498      (1,128)     14,233
    CASH FLOWS FROM (USED IN)
     INVESTING ACTIVITIES:
      Proceeds on sale of
       capital assets                 29       1,070         120       1,202
      Purchase of capital assets  (8,110)     (8,046)    (27,211)    (18,475)
      Business acquisitions
       (note 7)                  (41,664)          -     (41,664)    (45,474)
    -------------------------------------------------------------------------
                                 (49,745)     (6,976)    (68,755)    (62,747)
    CASH FLOWS FROM (USED IN)
     FINANCING ACTIVITIES:
      Increase in other assets      (108)       (628)       (462)       (656)
      Issuance of common shares
       (note 2)                       62         565         421       1,205
      Increase in long-term debt   5,776       5,723      28,135      48,282
      Repayment of long-term debt      -           -           -        (314)
      Dividends paid on common
       shares                     (3,212)     (3,196)     (9,633)     (9,570)
    -------------------------------------------------------------------------
                                   2,518       2,464      18,461      38,947
    CASH FLOWS FROM (USED IN)
     DISCONTINUED OPERATIONS
      Operating activities         1,640         683        (917)      1,049
      Investing activities        26,210         (23)     26,164        (144)
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                                  27,850         660      25,247         905

    EFFECT OF EXCHANGE RATE
     CHANGES ON CASH POSITION        186         114         222         137
    -------------------------------------------------------------------------
    INCREASE (DECREASE) IN
     CASH POSITION                (8,962)     (3,240)    (25,953)     (8,525)
    CASH POSITION, BEGINNING
     OF PERIOD                   (21,258)    (10,092)     (4,267)     (4,807)
    -------------------------------------------------------------------------
    CASH POSITION, END
     OF PERIOD                 $ (30,220)  $ (13,332)  $ (30,220)  $ (13,332)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash position is comprised of cash and cash equivalents, with maturities
    at the date of purchase of three months or less, less bank indebtedness.

    See accompanying notes to consolidated financial statements.



    SEGMENTED INFORMATION
    -------------------------------------------------------------------------
    Nine Months ended September 30, 2007 and 2006 (unaudited)
    (in thousands of dollars)

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                                     3RD QUARTER             NINE MONTHS
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    NET SALES                       2007        2006        2007        2006
    -------------------------------------------------------------------------

    Packaging                  $ 113,813   $ 118,468   $ 352,977   $ 359,524
    Metal Processing             112,850     107,658     337,529     287,392
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    Consolidated               $ 226,663   $ 226,126   $ 690,506   $ 646,916
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                                     3RD QUARTER             NINE MONTHS
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    EARNINGS FROM CONTINUING
    OPERATIONS BEFORE
    RESTRUCTURING CHARGE,
    INTEREST AND INCOME TAXES       2007        2006        2007        2006
    -------------------------------------------------------------------------

    Packaging                  $   2,913   $  10,086   $  14,106   $  29,743
    Metal Processing               8,812      12,027      32,054      33,383
    Corporate                     (2,886)     (2,600)     (8,112)     (8,301)
    -------------------------------------------------------------------------
    Earnings from continuing
     operations before
     restructuring charge,
     interest and income taxes     8,839      19,513      38,048      54,825
    Restructuring charge             997           -       5,989           -
    Interest on long-term debt     1,844         975       5,235       1,728
    Interest on short-term debt      351         146         896         299
    Interest income                  (23)        (17)        (56)        (43)
    -------------------------------------------------------------------------
    Earnings from continuing
     operations before income
     taxes                     $   5,670   $  18,409   $  25,984   $  52,841
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to consolidated financial statements.



    CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME (LOSS)
    -------------------------------------------------------------------------
    Nine Months ended September 30, 2007 and 2006 (unaudited)
    (in thousands of dollars)

    -------------------------------------------------------------------------
                                     3RD QUARTER             NINE MONTHS
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------

    NET EARNINGS               $   7,800   $  12,384   $  24,021   $  35,462

    OTHER COMPREHENSIVE
     INCOME (LOSS), net of tax:
      Unrealized gain (loss)
       on translation of net
       foreign operations         (8,965)        458     (20,225)     (4,733)
      Change in unrealized
       derivative gain (loss)
       on derivatives
       designated as cash flow
       hedges (net of taxes of
       $267 for the 3rd Quarter;
       $306 for the nine months)     511           -         586           -
      Reclassification of
       losses (earnings) on
       cash flow hedges (net
       of taxes of $18 for the
       3rd Quarter; $202 for
       the nine months)              (35)          -         388           -
    -------------------------------------------------------------------------
    TOTAL OTHER COMPREHENSIVE
     INCOME (LOSS)                (8,489)        458     (19,251)     (4,733)
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    COMPREHENSIVE INCOME
     (LOSS)                    $    (689)  $  12,842   $   4,770   $  30,729
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to consolidated financial statements.



    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    Nine Months ended September 30, 2007 and 2006 (unaudited)
    (in thousands of dollars except per share amounts)

    1. SIGNIFICANT ACCOUNTING POLICIES:

    The unaudited consolidated financial statements are prepared in
    accordance with accounting principles generally accepted in Canada. These
    financial statements should be read in conjunction with the Company's
    audited annual financial statements for the year ended December 31, 2006.
    All accounting policies and methods of their application used in the
    interim financial statements are consistent with the Company's annual
    financial statements except as noted below:

    Adoption of new accounting policies

    (i) Comprehensive Income, Equity, Financial Instruments - Recognition and
        Measurement, Financial Instruments - Disclosure and Presentation, and
        Hedges

    On January 1, 2007, the Company adopted CICA Handbook Sections 1530,
    "Comprehensive Income", Section 3251, "Equity", Section 3855, "Financial
    Instruments - Recognition and Measurement", Section 3861, "Financial
    Instruments - Disclosure and Presentation" and Section 3865, "Hedges".
    Section 1530 establishes standards for reporting and presenting
    comprehensive income, which is defined as the change in equity from
    transactions and other events from non-owner sources. Other comprehensive
    income refers to items recognized in comprehensive income that are
    excluded from net income calculated in accordance with generally accepted
    accounting principles.

    Section 3861 establishes standards for presentation of financial
    instruments and non-financial derivatives, and identifies the information
    that should be disclosed about them. Under the new standards, policies
    followed for periods prior to the effective date generally are not
    reversed and therefore, the comparative figures have not been restated
    except for the requirement to restate the currency translation adjustment
    as part of other comprehensive income. Section 3865 describes when and
    how hedge accounting can be applied as well as the disclosure
    requirements. Hedge accounting enables the recording of gains, losses,
    revenues and expenses from derivative financial instruments in the same
    period as for those related to the hedged item.

    Section 3855 prescribes when a financial asset, financial liability or
    non-financial derivative is to be recognized on the balance sheet and at
    what amount, requiring fair value or cost-based measures under different
    circumstances. Under Section 3855, financial instruments must be
    classified into one of these five categories: held-for-trading, held-to-
    maturity, loans and receivables, available-for-sale financial assets and
    other financial liabilities. All financial instruments, including
    derivatives, are measured on the balance sheet at fair value except for
    loans and receivables, held-to-maturity investments and other financial
    liabilities which are measured at amortized cost. Subsequent measurement
    and changes in fair value will depend on their initial classification, as
    follows: held-for-trading financial assets are measured at fair value and
    changes in fair value are recognized in net earnings; available-for-sale
    financial instruments are measured at fair value with changes in fair
    value recorded in other comprehensive income until the investment is
    derecognized or impaired at which time the amounts would be recorded in
    net earnings.

    Under adoption of these new standards, the Company designated its cash
    and bank indebtedness as held-for-trading, which is measured at fair
    value. Accounts receivable are classified as loans and receivables, which
    are measured at amortized cost. Accounts payable and accrued liabilities
    and long-term debt are classified as other financial liabilities, which
    are measured at amortized cost.

    All derivative instruments are recorded in the consolidated statement of
    earnings at fair value unless exempted from derivative treatment as a
    normal purchase and sale. All changes in their fair value are recorded in
    earnings unless cash flow hedge accounting is used, in which case changes
    in fair value are recorded in other comprehensive income. The Company has
    elected to apply this accounting treatment for all embedded derivatives
    in host contracts entered into on or after January 1, 2003. The impact of
    the change in accounting policy related to embedded derivatives was not
    material.

    The Company enters into foreign currency forward contracts to hedge
    foreign exchange exposure on anticipated operational cash flows. The
    effective portion of changes in the fair value of derivatives that are
    designated and qualify as cash flow hedges is recognized in other
    comprehensive income. Any gain or loss in fair value relating to the
    ineffective portion is recognized immediately in the statement of
    earnings. The impact on opening retained earnings was not material. Upon
    adoption of the new standards, the Company remeasured its cash flow hedge
    derivatives at fair value. The fair value of the hedging items as at
    January 1, 2007 was an unrealized loss of $732 ($482 net of tax). The
    fair value of the contracts as at September 30, 2007 was an unrealized
    gain of $750 ($492 net of tax) and is recorded within prepaid expenses
    and sundry on the consolidated balance sheet.

    At September 30, 2007, the Company was committed to the sale of U.S.
    $10,000 under forward exchange contracts at rates of exchange ranging
    from Cdn. $1.05815 to Cdn. $1.07795 maturing from October 1, 2007 to
    December 3, 2007.

    In addition, the Company was committed to the sale of EUR 883 under
    forward exchange contracts. The contracts are at rates of exchange
    ranging from Cdn. $1.4166 to Cdn. $1.4527 maturing from October 2, 2007
    to March 31, 2008. The Company was also committed to the sale of GBP 357
    under forward exchange contracts. The contracts are at rates of exchange
    ranging from Cdn. $2.0155 to Cdn. $2.2008 maturing from October 9, 2007
    to February 13, 2008.

    (ii) Inventories

    The CICA has issued new recommendations effective January 1, 2008 which
    establishes standards for the measurement and disclosure of inventories.
    The main features of the new recommendation include the measurement of
    inventories at the lower of cost and net realizable value, with guidance
    on the determination of cost, including allocation of overheads and other
    costs to inventory. The Company plans to comply with these
    recommendations; and is currently evaluating the impact of these new
    recommendations on its consolidated financial statements.


    2. CAPITAL STOCK:
    -------------------------------------------------------------------------
                                                        Sept. 30,    Dec. 31,
                                                            2007        2006
    -------------------------------------------------------------------------
    Number of common shares outstanding               32,122,845  32,069,845
    Number of options outstanding                        431,300     484,300
    -------------------------------------------------------------------------

    The Company did not issue any stock options during the three months and
    nine months ended September 30, 2007. During the quarter ended
    September 30, 2007, 6,600 stock options were exercised, resulting in the
    issuance of 6,600 common shares in exchange for proceeds of $62. During
    the nine months ended September 30, 2007, 53,000 stock options were
    exercised, resulting in the issuance of 53,000 common shares in exchange
    for proceeds of $421.

    Weighted average number of shares:
    -------------------------------------------------------------------------
                                    3rd QUARTER             NINE MONTHS
    -------------------------------------------------------------------------
                                 2007        2006        2007        2006
    -------------------------------------------------------------------------
    Basic shares              32,118,445  31,943,478  32,102,801  31,877,534
    Effect of dilutive
     stock options               182,377     262,256     196,725     278,111
    Diluted shares            32,300,822  32,205,734  32,299,526  32,155,645
    -------------------------------------------------------------------------

    The Company applied the settlement method of accounting for stock options
    granted to employees and directors during the year ended December 31,
    2002. Accordingly no compensation cost has been recognized for the
    177,500 stock options issued during that period. For the purposes of pro
    forma disclosures, the weighted average estimated fair value for the
    177,500 stock options granted during the year ended December 31, 2002 was
    $1.77 per share, with a total compensation cost of $314, which is
    amortized to earnings over the options' vesting period. The following
    table outlines the pro forma disclosure provisions had the compensation
    costs for the Company's stock options been determined under the fair-
    value based method of accounting for awards granted from January 1, 2002
    through to December 31, 2002.

    -------------------------------------------------------------------------
                                    3rd QUARTER             NINE MONTHS
    -------------------------------------------------------------------------
                                 2007        2006        2007        2006
    -------------------------------------------------------------------------
    Net earnings as reported  $    7,800  $   12,384  $   24,021  $   35,462
    Pro forma net earnings         7,784      12,368      23,974      35,415
    Pro forma earnings per
     share  - basic           $     0.24  $     0.39  $     0.74  $     1.11
            - diluted         $     0.24  $     0.39  $     0.74  $     1.10
    -------------------------------------------------------------------------


    3. ACCUMULATED OTHER COMPREHENSIVE LOSS:

    -------------------------------------------------------------------------
                                    3rd QUARTER             NINE MONTHS
    -------------------------------------------------------------------------
                                 2007        2006        2007        2006
    -------------------------------------------------------------------------
    CUMULATIVE TRANSLATION
     ADJUSTMENT
      Balance, beginning
       of period              $  (24,367) $  (19,532) $  (13,107) $  (14,341)
      Unrealized gain (loss)
       on translation of
       net foreign
       Operations                 (8,965)        458     (20,225)     (4,733)
    -------------------------------------------------------------------------
    Balance, end of period       (33,332)    (19,074)    (33,332)    (19,074)

    UNREALIZED DERIVATIVE
     GAIN (LOSS) ON CASH
     FLOW HEDGES, net
      Balance, beginning
       of period                      16           -           -           -
      Impact of new cash
       flow hedge accounting
       rules on January 1,
       2007 (net of taxes
       of $250)                        -           -        (482)          -
      Changes in unrealized
       derivative gain (loss)
       on derivatives designated
       as cash flow hedges (net
       of taxes of $267 for the
       3rd quarter; $306 for the
       nine months)                  511           -         586           -
      Reclassification of losses
       (earnings) on cash flow
       (net of taxes of $18 for
       the 3rd quarter; $202 for
       the nine months)              (35)          -         388           -
    -------------------------------------------------------------------------
    Balance, end of period           492           -         492           -

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    ACCUMULATED OTHER
     COMPREHENSIVE LOSS       $  (32,840) $  (19,074) $  (32,840) $  (19,074)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    4.  RESTRUCTURING CHARGE:

    On January 5, 2007, the Company announced the approval of a formal plan
    to close its Warden Ave. manufacturing facility in Scarborough, Ontario.
    The Company estimates it will incur costs of $9,500 ($6,200 after income
    taxes) to provide for facility closure, disposal of certain assets,
    severance and other related items. The restructuring costs are associated
    with the Packaging segment, and are reported in the restructuring charge
    line within the consolidated statements of earnings. As of September 30,
    2007, $5,989 of restructuring cost has been recorded. The write-off of
    the machinery and equipment and other assets results from the closure of
    the facility which commenced in May 2007. Impairment of the capital
    assets was determined based on the excess of the carrying amount, over
    the fair value of the long-lived assets calculated using the estimated
    future cash flows directly related to the capital assets. Other
    restructuring costs include inventory impairment and facility closure
    costs.

    The restructuring costs do not include any potential gain on the
    disposition of the associated land and building which have a net book
    value of $1,612 and are available for sale. The following table
    highlights the activity and balance of the restructuring charge for the
    period ended September 30, 2007.

    -------------------------------------------------------------------------
                                                                    Accrued
                             Total costs     Costs                Balance at
                             expected to    incurred   Cumulative  September
    Restructuring Charge     be incurred  Year-to-date  Drawdown   30, 2007
    -------------------------------------------------------------------------
    Severance, termination
     costs & benefits, and
     retention bonuses             3,291       2,875       2,089         786
    -------------------------------------------------------------------------
    Pension settlement
     & curtailment                 4,101       1,127           -       1,127
    -------------------------------------------------------------------------
    Write-off of machinery
     and equipment and
     other assets                    537         424         424           -
    -------------------------------------------------------------------------
    Other                          1,571       1,563       1,138         425
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total Restructuring
     Charge                        9,500       5,989       3,651       2,338
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    Restructuring Accrual                Additions to
                                           Restruc-    Charges
                                            turing     against
                               Balance,     Accrual    Restruc-     Balance,
                                 June    (expensed in   turing     Sept. 30,
                               30, 2007   3rd Quarter)  Accrual       2007
    -------------------------------------------------------------------------
    Severance, termination
     costs & benefits, and
     retention bonuses        $      769  $      269  $      252  $      786
    Pension settlement
     & curtailment                 1,127           -           -       1,127
    Write-off of machinery
     and equipment and
     other assets                      -           -           -           -
    Other                            425         728         728         425
    -------------------------------------------------------------------------
    Total                     $    2,321  $      997  $      980  $    2,338
    -------------------------------------------------------------------------


    5. FUTURE BENEFIT COSTS:

    The Company has incurred pension and other post-retirement benefit costs
    as noted below.
    -------------------------------------------------------------------------
                                    3rd QUARTER             NINE MONTHS
    -------------------------------------------------------------------------
                                 2007        2006        2007        2006
    -------------------------------------------------------------------------
    Defined benefit pension
     plans                    $    1,146  $    1,332  $    4,566  $    3,997
    Defined contribution
     pension plans                   573         432       1,693       1,309
    Other benefit plans               59          71         188         214
    -------------------------------------------------------------------------
    Total                     $    1,778  $    1,835  $    6,447  $    5,520
    -------------------------------------------------------------------------


    6. DISCONTINUED OPERATIONS:

    On July 31, 2007, the Company sold the operations and net assets of its
    U.S. subsidiary, Energy Steel Products, Inc. ("ESP"), for consideration
    of U.S. $25,000, subject to certain adjustments for working capital
    items. The sale of ESP, which was previously included within the
    distribution segment, has generated an estimated after tax gain in the
    third quarter of this year of U.S. $3,300. Accordingly, the results of
    operations and financial position of ESP have been segregated and
    presented separately as discontinued operations in the consolidated
    financial statements. The net income from the discontinued operations
    included in the consolidated financial statements is as follows:

    -------------------------------------------------------------------------
                                    3rd QUARTER             NINE MONTHS
    -------------------------------------------------------------------------
                                 2007        2006        2007        2006
    -------------------------------------------------------------------------

    Net Sales                 $    3,348  $   12,298  $   29,561  $   36,480
    Cost of sales, selling
     & administration              2,978      11,373      25,494      34,809
                              ----------------------- -----------------------
    Earnings before gain on
     sale and income taxes           370         925       4,067       1,671
    Gain on sale                   6,116           -       6,116           -
                              ----------------------- -----------------------
    Income before income taxes     6,486         925      10,183       1,671
    Income taxes                   2,790         361       4,232         652
                              ----------------------- -----------------------
    Net income from
     discontinued operations  $    3,696  $      564  $    5,951  $    1,019


    The assets and liabilities of the discontinued operations presented on
    the balance sheet are as follows:

    -------------------------------------------------------------------------
                                                                 December 31,
    -------------------------------------------------------------------------
                                                                    2006
    -------------------------------------------------------------------------

    Accounts receivable                                              $3,987
    Inventories                                                      16,748
    Prepaid expenses and sundry                                          89
                                                                ------------
    Total Current Assets                                             20,824

    Capital assets                                                    1,244
                                                                ------------
    Total Assets                                                  $  22,068
                                                                ------------

    Accounts payable and accrued liabilities                          4,935

                                                                ------------
    Net assets of discontinued operations                         $  17,133
                                                                ------------

    7. BUSINESS ACQUISITIONS:

    On August 14, 2007, the Company acquired 100% of the outstanding voting
    shares of Northland Stainless, Inc. ("Northland") for consideration of
    U.S. $8,750 subject to certain adjustments for working capital items.
    Northland designs, engineers, manufactures and supplies stainless steel
    pressure vessels, tank heads and components primarily to the ethanol,
    pharmaceutical and chemical industries in North America.

    On August 17, 2007, the Company acquired 100% of the outstanding voting
    shares of Dofasco Elizabethtown Inc. ("Elizabethtown") for consideration
    of U.S. $28,500, subject to certain adjustments for working capital
    items. Elizabethtown is a leading manufacturer of stainless steel laser
    welded tubular products located in Elizabethtown, Kentucky.

    These strategic acquisitions will allow the Company to expand its product
    range and market share within the stainless steel tubular and steel
    pressure vessel industries. Both acquisitions are reported under the
    Metal Processing segment, and have been accounted for under the purchase
    method of accounting.

    Effective from the acquisition date, the results of operations have been
    included in the consolidated statements of earnings.

    The process of valuing certain assets acquired is not finalized and as
    such, the fair value allocation of the purchase price is subject to
    refinement. On a preliminary basis, details of the consideration given
    and the fair value of net assets acquired are as follows, in Canadian
    dollars:

    -------------------------------------------------------------------------
    Cash Consideration                                            $   41,284
    Acquisition Costs                                                    380
    -------------------------------------------------------------------------
    Total Purchase Price                                          $   41,664
    -------------------------------------------------------------------------
    Net assets acquired, at fair values:
      Accounts receivable                                         $   11,795
      Inventories                                                     16,008
      Prepaid expenses and sundry                                        183
      Capital assets                                                  22,319
      Intangible assets                                                2,288
      Goodwill                                                         1,021
      Accounts payable                                                (7,188)
      Deferred revenue                                                (4,762)
    -------------------------------------------------------------------------
    Net assets acquired, net of cash of $78                       $   41,664
    -------------------------------------------------------------------------

    All of the goodwill acquired is deductible for tax purposes.


    8. BUSINESS SEGMENTS:

    The Company, prior to July 31, 2007, operated in three business segments,
    Packaging, Metal Processing and Distribution, primarily within the North
    American market. Effective for the quarter ending September 30, 2007, the
    segment formerly known as Distribution has been combined with the
    Packaging segment. The change is the result of the completion of the sale
    of Energy Steel Products Inc. on July 31, 2007. Comparative figures have
    been restated accordingly.


    9. COMPARATIVE FIGURES:

    In order to conform to the current year presentation, the comparative
    figures have been restated due to the discontinuance of the Company's
    U.S. distribution operations as a result of selling its subsidiary,
    Energy Steel Products, Inc.; and the combining of the Company's
    Distribution segment into the Packaging segment, as indicated in notes 6
    and 8 to these interim financial statements.
    

    %SEDAR: 00002004E




For further information:

For further information: John D. Amodeo, Vice-President and Chief
Financial Officer, Samuel Manu-Tech Inc., 185 The West Mall, Suite 1500,
Toronto, Ontario, M9C 5L5, Telephone: (416) 626-2190, Website:
www.samuelmanutech.com, Email address: smt@samuelmanutech.com

Organization Profile

SAMUEL MANU-TECH INC.

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