SPECTRA PREMIUM INDUSTRIES INC.
TSX : SPD

SPECTRA PREMIUM INDUSTRIES INC.

December 13, 2006 08:00 ET

Spectra Premium Announces its Results for the Third Quarter of Fiscal 2006-2007

BOUCHERVILLE, QUEBEC--(CCNMatthews - Dec. 13, 2006) - Spectra Premium Industries Inc. (TSX:SPD), a North American leader in the manufacture of automobile, light-truck and heavy-duty truck aftermarket parts and manufacturer of high-pressure die cast magnesium alloy parts and steel fuel tanks in the Original Equipment Manufacturer ("OEM") market, announces today, its third quarter results of fiscal 2006-2007 ended October 31, 2006.



---------------------------------------------------------------------
Financial Highlights
(in thousands of dollars except for per-share data)

Three months ended Nine months ended
October 31, October 31,
---------------------------------------------------------------------
2006 2005 2006 2005
---------------------------------------------------------------------
(unaudited) (unaudited)

Sales 59,944 68,300 190,642 204,391

Operating income before
privatization costs 1,807 2,818 7,373 8,404
Privatization costs (838) - (838) -
Operating income 969 2,818 6,535 8,404
Gain on change of the
fair value of derivative
financial instruments - 94 - 186
Net income 297 1,552 3,212 3,581
Basic and diluted
earnings per share 0.01 0.05 0.10 0.11
Weighted average number
of outstanding
participating shares
diluted ('000) 31,643 31,613 31,634 31,590
---------------------------------------------------------------------


Consolidated Results for the Third Quarter and Nine-Month Period of Fiscal 2006-2007

During the third quarter, consolidated sales reached $59.9 million, a 12.3% decline, compared to $68.3 million a year earlier. If we exclude the negative impact of the exchange rate variations, sales would have declined by 9.3%, compared to a year earlier. This sales decline results mainly from the sale of the U.S. warehouse distribution network in May 2006, which had a negative impact of about $6.4 million on sales for the third quarter.

Consolidated operating income before privatization costs stood at $1,807,000 for the third quarter, compared to $2,818,000 a year earlier. This variance in profitability, compared to a year earlier, mainly results from lower profit levels generated from tooling, prototype and engineering services' sales in the OEM segment during the quarter, compared to a year earlier, and from the negative impact of about $345,000 due to the fact that the Corporation is no longer benefiting from foreign exchange contracts on the U.S. dollar at very advantageous rates, net of the impact of the exchange rate variations.

"The results of the third quarter reflect the temporary slowdown of our operations in the OEM segment, as we are currently in a transition phase and planning for the production start-up of certain programs during the next year, and we were affected by the impact of the drop in demand of our main client in this segment. The solid radiator sales growth in the United States in the aftermarket segment enabled us to offset a good portion of the sharp rise in purchase costs of raw material, components and copper finished products in our radiator manufacturing operations, following the record increase of about 75% of the price of copper since the beginning of the year," declared Mr. Jacques Mombleau, CA, President and Chief Executive Officer of Spectra Premium Industries Inc.

This third quarter thus ends with a net income of $297,000, or $0.01 per share, compared to $1,552,000, or $0.05 per share a year earlier. These third quarter results of the current fiscal year take into account a charge of $838,000 related to the costs incurred in the scope of the privatization process of the Corporation announced on November 13th, 2006.

For the first nine months of the current fiscal year, consolidated sales stood at $190.6 million, a 6.7% decline, compared to $204.4 million for the same period a year earlier. If we exclude the negative impact of the exchange rate variations, this drop would have represented 3%. The sales decline related to the sale of the U.S. warehouse distribution network amounted to $15.6 million since the beginning of the fiscal year. If we exclude the negative impact of the exchange rate variations and the impact of the sale of the warehouses, consolidated sales would have increased by 5% since the beginning of the fiscal year.

Consolidated operating income before privatization costs stood at $7,373,000 for the nine-month period of the fiscal year, compared to $8,404,000 a year earlier. This shortfall in operating income related to the sale of the U.S. warehouse distribution network is of about $1 million for the nine-month period of the fiscal year, compared to the previous year. Furthermore, for this same period, the negative impact on operating income due to the fact that the Corporation is no longer benefiting from foreign exchange contracts on the U.S. dollar at very advantageous rates, net of the impact of the exchange rate variations, amounted to about $1.5 million.

Net income stands at $3,212,000 after nine months, or $0.10 per share, compared to $3,581,000, or $0.11 per share for the same period a year earlier. The results of the current fiscal year include a charge of $838,000 related to the privatization process.

SEGMENTED RESULTS

Aftermarket Segment

During the third quarter, this segment generated $47.3 million in sales, a 4% decline, compared to $49.3 million a year earlier. If we exclude the impact of the exchange rate variations, sales would have been comparable to sales generated a year earlier in this segment. The shortfall in sales of this quarter related to the sale of the U.S. warehouse distribution network amounted to $6.4 million. If we exclude these two elements, sales would have increased by 14.6% in this third quarter, compared to a year earlier, as a result of the sharp rise in radiator sales in the United States.

Operating income amounted to $1,042,000 for the third quarter in this segment, an amount comparable to $1,043,000 recorded a year earlier. In addition to the negative impact as a result of the maturity of foreign exchange contracts at very advantage rates, which amounted to $345,000, net of the impact of the exchange rate variations, the rise in purchase costs for copper, components and copper finished products, and a 23% rise in aluminum purchase costs during the third quarter, compared to the same period a year earlier, affected the gross profit margin on radiator sales. Considering the intense competition for this product line, the Corporation was not able to transfer all of these increases to its clientele.

The solid radiator sales growth in the United States, which is directly related to the new U.S. market penetration strategy established by management of the Corporation following the sale of the U.S. warehouse distribution network, enabled the Corporation to offset these negative elements and maintain the same profitability as last year during the third quarter in this segment.

For the first nine months of the fiscal year, consolidated sales reached $147.2 million, a 7% decline, compared to $158.3 million a year earlier. If we exclude the impact of the exchange rate variations for which the negative impact was of 2.8% on sales, compared to a year earlier, and the shortfall following the sale of the U.S. warehouse distribution network, sales would have increased by 7.8% for the first nine months of the fiscal year in this segment.

Operating income reached $5,536,000 for the nine-month period, compared to $5,978,000 for the same period a year earlier. The negative impact of the maturity of foreign exchange contracts at very advantageous rates and the shortfall in operating income related to the sale of the U.S. warehouse distribution network amounted to approximately $2.4 million, net of the impact of the exchange rate variations, since the beginning of the current fiscal year, compared to a year earlier.

Original Equipment Manufacturer Segment ("OEM")

This segment generated $13.3 million in sales during the third quarter, a 30.2% decline, compared to $19.1 million a year earlier. This sales decline is the result of the following three elements:

(i) Tooling, prototype and engineering services' sales which are included in the overall sales of this segment, only amounted to about $900,000 during the third quarter, compared to $3.4 million for the same period a year earlier;

(ii) The Corporation is currently in a transition period relative to steel fuel tanks sales since the termination of the Pontiac GTO program last year and is planning for the start-up of a new program with DaimlerChrysler next year. The shortfall in fuel tanks sales amounted to $2.6 million in the OEM segment, compared to a year earlier; and

(iii) Magnesium part sales have declined by 16% at Trimag, compared to a year earlier, as the Corporation is currently affected by the decline in sales of its main client.

This segment recorded an operating income of $741,000, compared to $1,775,000 a year earlier. The decline in profitability in this segment mainly results from Trimag's operations.

For the first nine months of the fiscal year, this segment generated $44.4 million in sales, a 4.5% decline, compared to $46.5 million a year earlier. Tooling, engineering service and prototype sales amounted to $10.0 million this year, compared to $7.6 million for the same period a year earlier.

The first three quarters of fiscal 2006-2007 in this segment thus end with an operating income of $1,844,000, compared to $2,246,000 a year earlier.

OUTLOOK

Aftermarket Segment

While benefiting from its new strategic position, which reinforces the manufacturing status of the Corporation following the sale of certain U.S. warehouses, management plans on pursuing its efforts to continue to increase radiator sales in the United States in upcoming months.

To offset the sharp rise in copper costs, the Corporation is currently in the process of transferring certain components and finished products from copper to aluminum in order to restore its gross profit margin on radiators.

Original Equipment Manufacturer Segment ("OEM")

This segment is in a transition period and has been planning for the production start-up of new programs. Following the termination of the Pontiac GTO program with Holden in Australia last April, the Corporation has been planning for the production start-up of a first program with DaimlerChrysler for fuel tanks. This program, which will generate about $6.0 million in annual sales, will enter into production in the Spring of 2007. The Corporation is also in the process of developing tooling for different programs with DaimlerChrysler and Ford, which will enter into production in 2008. In the summer of 2008, the OEM steel fuel tank production line of the Boucherville plant in Quebec should thus generate more than $20.0 million in annual sales.

As for Trimag and magnesium parts, the decline in market share of its main client will continue to have a short-term impact on sales growth. Sales growth will resume at Trimag as of the beginning of the next fiscal year, now that production of the new Lambda "crossover" vehicle platform has begun at General Motors. Trimag manufactures magnesium instrument panel beams and certain other components for this platform.

Trimag is pursuing its plan to diversify its clientele in the OEM segment and is actively involved in the quoting process with many different automobile manufacturers and Tier 1 suppliers for high-pressure die cast magnesium alloy parts.

The sharp rise of gas prices throughout North America during the past year should influence automobile manufacturers to convert to lightweight materials to reduce vehicle gas consumption and thus, should enable magnesium parts to make a breakthrough with the majority of automobile manufacturers.

Spectra Premium is part of a restricted group of North American manufacturers of high-pressure die cast magnesium alloy parts and steel fuel tanks with a complete service of design, tooling development and part production for automobile manufacturers.

SUBSEQUENT EVENT

Proposed Privatization

On November 13, 2006, the Corporation announced that it has entered into an amalgamation agreement with a newly formed company, 6551399 Canada Inc. ("Newco"), pursuant to which shareholders of the Corporation, other than Newco, will be entitled to receive $2.85 in cash for each Subordinate Voting Share and Multiple Voting Share held (the "Shares") for a total of approximately $90.0 million. Newco's shareholders shall consist of Jacques Mombleau, Denis Poirier and Kerry Best, members of senior management of the Corporation and Fonds de solidarite des travailleurs du Quebec (F.T.Q.), Desjardins Capital Regional et Cooperatif and Groupe Camada Inc., a company controlled by Mr. Placide Poulin, a director of the Corporation. The offered price for the Shares represents a premium of 10 % over the closing price of $2.60 per Subordinate Voting Share on November 10, 2006, and 22 % over the 90-day volume-weighted average trading prices ending on November 10, 2006.

Mr. Denis Charest, founder and chairman of the board of directors of the Corporation, and the company he controls, 2988062 Canada Inc. (together the "Principal Shareholders"), which jointly hold more than 17 million Shares (approximately 54% of all issued and outstanding Shares), have entered into a lock-up and voting agreement with Newco in which they agreed, among other things, to vote their Shares in favor of the proposed transaction. In addition, in order to complete the equity financing required by Newco to finalize this transaction, Mr. Charest agreed to provide an indirect economic interest in Newco in the form of non-voting fixed rate Redeemable Preferred Shares of Newco.

The amalgamation agreement between the Corporation and Newco and the lock-up and voting agreement executed by the Principal Shareholders contain customary provisions prohibiting the Corporation or the Principal Shareholders from soliciting any other acquisition proposal, although they may respond to an unsolicited superior proposal, subject to termination fees of $1.6 million payable by the Corporation and $2.0 million payable by the Principal Shareholders.

The merger transaction will be carried out by way of an amalgamation under the Canada Business Corporation Act and is subject to certain conditions such as the funding by different lenders including BMO Bank of Montreal and CIT Business Credit Canada inc. under firm debt commitments, the approvals by 66 2/3% of the votes cast by the Corporation's Shareholders at the meeting and also to obtain the simple majority of the votes cast by shareholders other than the related parties of the Corporation.

A proxy circular was mailed to the Corporation's shareholders on December 11, 2006 in connection with the special shareholder's meeting that will be held on January 9, 2007 to approve the transaction. The Board of Directors of the Corporation has unanimously recommended that the Corporation's shareholders vote their Shares in favor of the amalgamation as it is fair to the Corporation's Shareholders and in the best interests of the Corporation. Subject to the satisfaction of the conditions of the merger transaction, the closing is expected to occur around January 11, 2007.

As of October 31, 2006, the Corporation had incurred $0.8 million related to costs incurred in the process of its privatization.

EARNINGS MEASURES NOT DEFINED BY GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)

This press release is based on the reported earnings in accordance with Canadian generally accepted accounting principles (GAAP). Financial highlights refer to operating income before privatization costs, a measure that is not defined based on GAAP. Management of the Corporation considers that these non-recurring costs do not arise as part of the normal day-to-day business operations and are excluded to evaluate profitability of each segment of activity on an individual and consolidated basis. These earnings measures do not have a standardized meaning prescribed by GAAP and are therefore not readily comparable to other Corporations.

PROFILE

Spectra Premium is the world leader in the manufacture of fuel tanks and related components for the automobile and light-truck aftermarkets. The Corporation ranks first in Canada and is a North American leader in the aftermarket for automotive and industrial radiators, radiator components and oil pans. It also maintains a presence in such markets as sending units, fuel pumps, body panels, condensers, compressors, complete heater cores and other air-conditioning parts. Over the past years, the Corporation expanded its activities in the OEM market by concluding agreements to supply steel fuel tanks and aluminum radiators and in addition, to supply radiators for industrial applications and heavy equipment. The Corporation has increased its presence in the OEM segment, following the acquisition of Trimag, one of the most important North American manufacturers of high-pressure die cast magnesium alloy parts. It currently employs approximately 1,300 people in its nine (9) plants and 18 distribution centers, which are located throughout Canada, the United States and Europe. Its shares are traded on the Toronto Stock Exchange (ticker symbol: SPD).

Please note that a conference call will not take place.

PROSPECTIVE FINANCIAL INFORMATION

This press release contains implicit or explicit forecasts, as well as forward-looking statements on the objectives, strategies, financial position, operating results and activities of Spectra Premium. These statements are forward-looking to the extent that they are based on expectations relative to markets in which the Corporation exercises its activities and on various assessments and assumptions. These expectations seemed reasonable to us at the time when this press release was diffused. Our actual results could however differ significantly from management's expectations if recognized or unrecognized risks affect our results or if our assessments or assumptions are inaccurate. That is why we cannot guarantee the realization of these forward-looking statements. You will find in the 2006 annual report on page 26 a non exhaustive presentation of risks which could result in an important variance between our actual results and our actual expectations, which can be consulted on the following websites: http://www.sedar.com and http://www.spectrapremium.com.



SPECTRA PREMIUM INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)


October 31, January 31,
2006 2006
---------------------------------------------------------------------
(unaudited) (audited)
ASSETS
Current assets
Cash $2,767 $4,240
Accounts receivable 61,790 40,949
Income taxes receivable 1,311 982
Inventories (note 2) 60,178 60,960
Tooling and engineering services 5,544 3,823
Prepaid expenses 2,964 2,747
Future income taxes 4,612 5,546
---------------------------------------------------------------------
139,166 119,247

Property, plant and equipment 96,954 96,006
Property, plant and equipment held for sale 3,552 3,596
Goodwill 17,845 17,896
Future income taxes 12,226 12,148
Other assets 11,075 6,028
---------------------------------------------------------------------
$ 280,818 $ 254,921
---------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness (note 3) $13,616 $1,557
Accounts payable and accrued liabilities 34,349 32,201
Deferred revenue 181 308
Current portion of long-term debt 4,043 2,492
Current portion of the convertible debenture 7,385 -
---------------------------------------------------------------------
59,574 36,558

Long-term debt (note 3) 15,530 8,886
Convertible debenture - 7,329
Liability related to the minority interest
in a subsidiary 633 633
Deferred gain on sale and leaseback, net
of amortization 7,062 7,347
Future income taxes 10,707 10,411
Other liabilities 891 345

Shareholders' equity
Share capital (note 4) 188,777 188,777
Conversion option of the convertible debenture 500 500
Contributed surplus 2,160 1,966
Retained earnings 10,814 7,602
Cumulative translation adjustment (15,830) (15,433)
---------------------------------------------------------------------
186,421 183,412
---------------------------------------------------------------------
$280,818 $254,921
---------------------------------------------------------------------

See accompanying notes to consolidated financial statements.



SPECTRA PREMIUM INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of dollars, except earnings per share data)


For the three-month For the nine-month
periods ended periods ended
October 31, October 31,
---------------------------------------------------------------------

2006 2005 2006 2005
---------------------------------------------------------------------
(unaudited) (unaudited)

Sales $59,944 $68,300 $190,642 $204,391

Cost of goods sold 43,235 45,465 134,665 136,577
---------------------------------------------------------------------

16,709 22,835 55,977 67,814

Selling, distribution
and administrative
expenses 12,242 16,628 40,361 49,261
Amortization (note 5) 2,682 3,121 8,370 9,657
Foreign exchange
(gain) loss (22) 268 (127) 492
Privatization costs 838 - 838 -
---------------------------------------------------------------------

Operating income 969 2,818 6,535 8,404

Net financial charges
(note 6) 649 620 1,493 2,922
Gain on change in the
fair value of
derivative financial
instruments - (94) - (186)
---------------------------------------------------------------------

Income before income
taxes 320 2,292 5,042 5,668

Income taxes
Current 1 18 7 213
Future 22 722 1,823 1,874
---------------------------------------------------------------------
23 740 1,830 2,087
---------------------------------------------------------------------

Net income $297 $1,552 $3,212 $3,581
---------------------------------------------------------------------

Earnings per share
(note 9)

Basic and diluted $0.01 $0.05 $0.10 $0.11
---------------------------------------------------------------------

Weighted average
number of outstanding
participating shares
(in thousands):

Basic 31,577 31,577 31,577 31,577
Diluted 31,643 31,613 31,634 31,590
---------------------------------------------------------------------

See accompanying notes to consolidated financial statements.



SPECTRA PREMIUM INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(in thousands of dollars)

For the three-month For the nine-month
periods ended periods ended
October 31, October 31,
---------------------------------------------------------------------

2006 2005 2006 2005
---------------------------------------------------------------------
(unaudited) (unaudited)
Balance, beginning of
period $10,517 $6,030 $7,602 $4,001

Net income 297 1,552 3,212 3,581
---------------------------------------------------------------------

Balance, end of period $10,814 $7,582 $10,814 $7,582
---------------------------------------------------------------------

See accompanying notes to consolidated financial statements.



SPECTRA PREMIUM INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)

For the three-month For the nine-month
periods ended periods ended
October 31, October 31,
---------------------------------------------------------------------
2006 2005 2006 2005
---------------------------------------------------------------------
(unaudited) (unaudited)
Cash flows from
operating activities
Net income $297 $1,552 $3,212 $3,581
Adjustments for:
Amortization (note 5) 2,682 3,121 8,370 9,657
Amortization of
deferred financing
costs (note 6) 71 70 199 372
Loss (gain) on
disposal of
property, plant and
equipment (1) 13 (642) (8)
Future income taxes 22 722 1,823 1,874
Change in the fair
value of derivative
financial instruments - 126 - 381
Others 208 212 287 335
---------------------------------------------------------------------
3,279 5,816 13,249 16,192
Net change in operating
assets and liabilities
(note 7) (3,690) 9,867 (35,512) 5,105
---------------------------------------------------------------------
Cash flow generated by
(used for) operating
activities (411) 15,683 (22,263) 21,297

Cash flows from financing
activities
Increase of long-term
debt 2,057 - 10,516 -
Deferred financing
costs - - (221) -
(Repayment) increase of
bank indebtedness 4,969 (5,243) 11,979 (2,931)
Repayment of long-term
debt (947) (3,630) (2,321) (49,729)
---------------------------------------------------------------------
Cash flow generated by
(used for) financing
activities 6,079 (8,873) 19,953 (52,660)

Cash flows from investing
activities
Additions to property,
plant and equipment (4,310) (7,611) (12,362) (12,478)
Deferred preproduction
costs (1,489) (516) (3,691) (748)
Government grant and
tax credits - 1,749 - 1,749
Proceeds from disposal
of property, plant
and equipment 39 17 549 44,927
Proceeds from disposal
of U.S. warehouses 1,575 - 16,114 -
---------------------------------------------------------------------
Cash flow generated
(used) by investing
activities (4,185) (6,361) 610 33,450

Impact of exchange
rate fluctuations 328 450 227 489
---------------------------------------------------------------------

Net change in cash 1,811 899 (1,473) 2,576

Cash, beginning of
period 956 7,239 4,240 5,562
---------------------------------------------------------------------

Cash, end of period $2,767 $8,138 $2,767 $8,138
---------------------------------------------------------------------

See accompanying notes to consolidated financial statements.



SPECTRA PREMIUM INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three-month and the nine-month periods ended October 31, 2006
and 2005
(Tabular amounts are expressed in thousands of dollars, except for
per-share and per-option data)


1. Basis of presentation

The unaudited consolidated balance sheet as at October 31, 2006 and the related consolidated statements of earnings, retained earnings and cash flows for the three-month and nine-month periods ended October 31, 2006 and 2005, have been prepared in accordance with Canadian generally accepted accounting principles and by using accounting principles and practices consistent with those used and described in the annual financial statements, but do not include all disclosures required by Canadian generally accepted accounting principles. Accordingly, they should be read in conjunction with the Corporation's audited consolidated financial statements and notes thereto as at and for the year ended January 31, 2006, included in the Corporation's annual report to shareholders.

The results of operations for the interim periods should not necessarily be considered indicative of full-year results due to the seasonality of certain operations. Traditionally, fuel tank sales have been seasonal. From September to November, product demand is at its highest level, mainly as a result of increased vehicle maintenance activities and repairs before the winter season. From March to May, sales are at a high level, as a result of vehicle maintenance and repairs coinciding with the end of the winter season. Sales volume is lower for the remainder of the year. Sales tend to peak from June to August, since radiator, condenser, compressor and A/C part sales are closely related to warm summer weather conditions. OEM part sales are not subjected to seasonal fluctuations, but rather to sales volume fluctuations of specific vehicle models.



2. Inventories
---------------------------------------------------------------------
October 31, January 31,
2006 2006
---------------------------------------------------------------------
(unaudited) (audited)

Raw materials and supplies $17,360 $16,840
Work in process and finished goods 42,818 44,120
---------------------------------------------------------------------

$60,178 $60,960
---------------------------------------------------------------------


3. Bank indebtedness and long-term debt

Bank indebtedness:

On November 1st, 2006, the Corporation has obtained from its banking syndicate an extension of its $40 million revolving line of credit until January 14, 2008. As of October 31, 2006, the Corporation has used $13.6 million of this revolving line of credit.

Long-term debt:

On March 29, 2006, Trimag, S.E.C. concluded an agreement with regard to the establishment of a line of credit of $13.6 million with Financement d'equipement GE Canada S.E.N.C. for the acquisition of new production equipment. This agreement stipulates that the disbursements must be made at the latest December 31, 2006, date on which the financing will no longer be available. The loans made by virtue of the agreement will be refundable over 7 years and will bear interest at a fixed rate based on the yield of Government of Canada bonds marked up by 2.40% .

As of October 31, 2006, $10.2 million of this line of credit has been used.

4. Share capital

Authorized:

An unlimited number of subordinate voting shares, participating, no par value, carrying one vote per share;

An unlimited number of multiple voting shares, participating, no par value, carrying seven votes per share, convertible at any time into subordinate voting shares on a one-to-one basis; and An unlimited number of preferred shares, no par value, issuable in one or several series.



October 31, January 31,
2006 2006
---------------------------------------------------------------------
(unaudited) (audited)

Issued and outstanding:
15,136,510 subordinate voting shares $184,644 $184,644
16,440,116 multiple voting shares 4,133 4,133
---------------------------------------------------------------------

$188,777 $188,777
---------------------------------------------------------------------

Stock option plan:

The Corporation maintains a stock option plan for its officers,
directors and employees. Under this plan, 3,157,662 subordinate
voting shares are set aside for their issuance.

The changes in the number of outstanding stock options over the
period of nine months ended October 31, 2006 are as follows:

Weighted
average
Options exercise price
---------------------------------------------------------------------

Number of options as of January 31 2006 1,799,000 $3.77
Granted 252,500 2.34
Cancelled (162,000) 3.28
---------------------------------------------------------------------

Number of options as of October 31, 2006 1,889,500 $3.62
---------------------------------------------------------------------

The following table summarizes the information about outstanding
stock options as of October 31, 2006:

Outstanding options Exercisable options
---------------------------------------------------------------------
Weighted
average
remaining Weighted Weighted
contrac- average average
tual exercise exercise
Range of exercise life price price
price Number (in (in Number (in
(in dollars) outstanding years) dollars) exercisable dollars)
---------------------------------------------------------------------
From $1.72 to $2.40 522,500 8.72 $2.05 65,750 $1.78
From $2.70 to $3.60 407,000 6.20 3.02 231,250 3.16
From $4.00 to $4.80 909,000 2.63 4.09 859,600 4.06
From $14.50 to
$18.00 51,000 1.88 16.29 51,000 16.29
---------------------------------------------------------------------

1,889,500 5.06 $3.62 1,207,600 $4.28
---------------------------------------------------------------------

The estimated fair value of each stock option award has been
calculated at the award date, based on the Black-Scholes pricing
model, using the following weighted average assumptions:

----------------------------------------------------------
Risk-free interest rate 4.27 %
Dividend yield 0 %
Volatility of stock market valuation 78.35 %
Estimated useful life 5 years
----------------------------------------------------------

The weighted average fair value at the grant date of the options
granted in the nine-month period is $1.55.

The net results of the three-month and nine-month periods ended
October 31, 2006 includes a compensation cost of nil and $0.2 million
respectively (2005 - $0.1 million and $0.2 million) and the
counterpart has been charged to contributed surplus.

5. Amortization

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

For the three-month For the nine-month
periods ended periods ended
October 31, October 31,
---------------------------------------------------------------------
2006 2005 2006 2005
---------------------------------------------------------------------
(unaudited) (unaudited)
Amortization of
property, plant,
equipment $2,538 $2,936 $7,897 $9,101
Amortization of
deferred preproduction
costs 75 116 267 322
Amortization of contracts 69 69 206 206
Amortization of deferred
development costs - - - 28
---------------------------------------------------------------------
$2,682 $3,121 $8,370 $9,657
---------------------------------------------------------------------



6. Financial charges
---------------------------------------------------------------------
For the three-month For the nine-month
periods ended periods ended
October 31, October 31,
---------------------------------------------------------------------
2006 2005 2006 2005
---------------------------------------------------------------------
(unaudited) (unaudited)
Interest on bank
indebtedness $368 $51 $680 $225
Interest on long-term debt 370 425 1,042 2,143
---------------------------------------------------------------------
738 476 1,722 2,368
Amortization of deferred
financing costs 71 70 199 372
Interest income (8) (45) (85) (98)
Bank, credit charges and
other charges 59 135 215 342
---------------------------------------------------------------------
860 636 2,051 2,984
Capitalized interest to
cost of property,
plant and equipment (211) (16) (558) (62)
---------------------------------------------------------------------

$649 $620 $1,493 $2,922
---------------------------------------------------------------------



7. Net changes in operating assets and liabilities
---------------------------------------------------------------------
For the three-month For the nine-month
periods ended periods ended
October 31, October 31,
---------------------------------------------------------------------
2006 2005 2006 2005
---------------------------------------------------------------------
(unaudited) (unaudited)

Accounts receivable $(2,520) $1,344 $(25,046) $(3,083)
Income taxes receivable (368) 166 (329) 376
Inventories 541 1,276 (10,125) 7,395
Tooling and engineering
services (1,811) - (1,721) -
Prepaid expenses 56 56 (417) 1,551
Accounts payable and
accrued liabilities 450 7,025 2,253 (1,134)
Others (38) - (127) -
---------------------------------------------------------------------

$(3,690) $9,867 $(35,512) $5,105
---------------------------------------------------------------------



8. Segmented information

The Corporation manages its operations in two segments, which are the
Aftermarket segment and the Original Equipment Manufacturers (OEM)
segment. The Corporation evaluates the performance of these segments
based on operating income.


For the three-month For the nine-month
periods ended periods ended
October 31, October 31,
---------------------------------------------------------------------
2006 2005 2006 2005
---------------------------------------------------------------------
(unaudited) (unaudited)
Sales
Aftermarket $47,328 $49,326 $147,166 $158,279
OEM 13,293 19,065 44,441 46,554
Elimination of
inter-segment transfers (677) (91) (965) (442)
---------------------------------------------------------------------

$59,944 $68,300 $190,642 $204,391
---------------------------------------------------------------------

Operating income (loss)
Aftermarket $1,042 $1,043 $5,536 $5,978
OEM 741 1,775 1,844 2,426
Unallocated charges (838) - (838) -
Elimination of
inter-segment transfers 24 - (7) -
---------------------------------------------------------------------

$969 $2,818 $6,535 $8,404
---------------------------------------------------------------------

Additions to property,
plant and equipment
Aftermarket $572 $1,518 $3,429 $3,894
OEM 4,400 6,339 8,624 8,441
---------------------------------------------------------------------

$4,972 $7,857 $12,053 $12,335
---------------------------------------------------------------------

Amortization
Aftermarket $2,018 $2,465 $6,353 $7,669
OEM 664 656 2,017 1,988
---------------------------------------------------------------------

$2,682 $3,121 $8,370 $9,657
---------------------------------------------------------------------


October 31, January 31,
2006 2006
---------------------------------------------------------------------
(unaudited) (audited)
Assets
Aftermarket $252,653 $237,923
OEM 73,004 66,343
Elimination of inter-segment transfers (44,839) (49,345)
---------------------------------------------------------------------

$280,818 $254,921
---------------------------------------------------------------------


Sales based on their destination, property, plant and equipment and
goodwill are allocated to the following geographic segments:

For the three-month For the nine-month
periods ended periods ended
October 31, October 31,
---------------------------------------------------------------------
2006 2005 2006 2005
---------------------------------------------------------------------
(unaudited) (unaudited)
Sales
Canada $23,339 $19,405 $68,538 $60,720
United States 33,822 43,402 111,608 129,282
Others 2,783 5,493 10,496 14,389
---------------------------------------------------------------------

$59,944 $68,300 $190,642 $204,391
---------------------------------------------------------------------


October 31, January 31,
2006 2006
---------------------------------------------------------------------
(unaudited) (audited)
Property, plant, equipment (including those
held for sale) and goodwill
Canada $104,853 $101,390
United States 9,052 11,971
Others 4,446 4,137
---------------------------------------------------------------------

$118,351 $117,498
---------------------------------------------------------------------


9. Earnings per share

The following table sets forth the computation of basic and diluted
earnings per share:

For the three-month For the nine-month
periods ended periods ended
October 31, October 31,
---------------------------------------------------------------------
2006 2005 2006 2005
---------------------------------------------------------------------
(unaudited) (unaudited)

Net income $297 $1,552 $3,212 $3,581
---------------------------------------------------------------------

Weighted average number
of outstanding
participating shares
(in thousands):

Basic 31,577 31,577 31,577 31,577
Dilutive effect of
stocks options 66 36 57 13
---------------------------------------------------------------------
Weighted average number
of shares - diluted 31,643 31,613 31,634 31,590
---------------------------------------------------------------------

Earnings per share:
Basic and diluted $0.01 $0.05 $0.10 $0.11
---------------------------------------------------------------------

The diluted earnings per share do not include the effects of the
convertible debenture, since the Corporation anticipates that the
repayment of such debenture will be in cash, and also exclude the the
dilutive effect of certain options since their effect is anti-
dilutive.

10. Sale of the U.S. warehouses

In May 2006, the Corporation finalized the sale of the majority of
its warehouses in the United States (aftermarket segment). This sale
process began in the first quarter of this year.

The classification of assets and liabilities sold is detailed as
follow:

Assets related to U.S. warehouses:
Accounts receivables $ 5,260
Inventories 10,677
Fixed assets 2,644
Other assets 187
---------------------------------------------------
18,768
Liabilities related to U.S. warehouses:
Accrued liabilities 285
---------------------------------------------------

Net assets sold $18,483
---------------------------------------------------


The sale of these net assets was made for a total consideration of $20.5 million and has generated a gain on disposal of assets of $0.6 million (net of related disbursements) recognized in income and included in the selling, distribution and administrative expenses. A portion of the total inflows, in the amount of $2.8 million, will be received over a period of 10 years and the accounting policies state that this amount will have to be discounted. Following this calculation, an amount of $1.1 million will be recognized as earned interest over a period of 10 years.

The Corporation continues to operate two warehouses in the United States, specifically one warehouse in Knightstown, Indiana and the other in Phoenix, Arizona to serve national automobile part chains and U.S. warehouse distributors.

11. Subsequent event

Proposed Privatization

On November 13, 2006, the Corporation announced that it has entered into an amalgamation agreement with a newly formed company, 6551399 Canada Inc. ("Newco"), pursuant to which shareholders of the Corporation, other than Newco, will be entitled to receive $2.85 in cash for each Subordinate Voting Share and Multiple Voting Share held (the "Shares") for a total of approximately $90.0 million. Newco's shareholders shall consist of Jacques Mombleau, Denis Poirier and Kerry Best, members of senior management of the Corporation and Fonds de solidarite des travailleurs du Quebec (F.T.Q.), Desjardins Capital Regional et Cooperatif and Groupe Camada Inc., a company controlled by Mr. Placide Poulin, a director of the Corporation. The offered price for the Shares represents a premium of 10 % over the closing price of $2.60 per Subordinate Voting Share on November 10, 2006, and 22 % over the 90-day volume-weighted average trading prices ending on November 10, 2006.

Mr. Denis Charest, founder and chairman of the board of directors of the Corporation, and the company he controls, 2988062 Canada Inc. (together the "Principal Shareholders"), which jointly hold more than 17 million Shares (approximately 54% of all issued and outstanding Shares), have entered into a lock-up and voting agreement with Newco in which they agreed, among other things, to vote their Shares in favor of the proposed transaction. In addition, in order to complete the equity financing required by Newco to finalize this transaction, Mr. Charest agreed to provide an indirect economic interest in Newco in the form of non-voting fixed rate Redeemable Preferred Shares of Newco.

The amalgamation agreement between the Corporation and Newco and the lock-up and voting agreement executed by the Principal Shareholders contain customary provisions prohibiting the Corporation or the Principal Shareholders from soliciting any other acquisition proposal, although they may respond to an unsolicited superior proposal, subject to termination fees of $1.6 million payable by the Corporation and $2.0 million payable by the Principal Shareholders.

The merger transaction will be carried out by way of an amalgamation under the Canada Business Corporation Act and is subject to certain conditions such as the funding by different lenders including BMO Bank of Montreal and CIT Business Credit Canada inc. under firm debt commitments, the approvals by 66 2/3% of the votes cast by the Corporation's Shareholders at the meeting and also to obtain the simple majority of the votes cast by shareholders other than the related parties of the Corporation.

A proxy circular was mailed to the Corporation's shareholders on December 11, 2006 in connection with the special shareholder's meeting that will be held on January 9, 2007 to approve the transaction. The Board of Directors of the Corporation has unanimously recommended that the Corporation's shareholders vote their Shares in favor of the amalgamation as it is fair to the Corporation's Shareholders and in the best interests of the Corporation. Subject to the satisfaction of the conditions of the merger transaction, the closing is expected to occur around January 11, 2007.

As of October 31, 2006, the Corporation had incurred $0.8 million related to costs incurred in the process of its privatization.

Contact Information

  • Spectra Premium Industries Inc.
    Jacques Mombleau, CA
    President and Chief Executive Officer
    450-641-3656 ext. 2230
    or
    Spectra Premium Industries Inc.
    Denis Poirier, CA
    Executive Vice-President and Chief Financial Officer
    450-641-3656 ext. 2245
    or
    CG3 inc.
    Daniel Rheault
    514-286-5600 ext. 25