Uni-Sélect Inc.
TSX : UNS

Uni-Sélect Inc.

November 13, 2007 14:28 ET

Uni-Select Inc.: Net Earnings Increase by 9.1% in the Third Quarter of 2007 and the Company Appoints a New CEO

BOUCHERVILLE, QUEBEC--(Marketwire - Nov. 13, 2007) - Uni-Select Inc. (TSX:UNS) reported a 9.1% increase in net earnings for the third quarter of 2007, reaching $10,258,000 or $0.52 per share compared to $9,402,000 or $0.48 per share last year. Sales reached $298,756,000 in the third quarter of 2007, an increase of 1.8% over sales of $293,421,000 in 2006. The increase in sales for the Company is largely due to the various acquisitions completed during the course of the last quarters partially offset by the unfavorable US exchange rate compared to the Canadian dollar. Excluding the impact of the exchange rate, sales for the Company would have increased by 5.2% and earnings would have been $0.54 per share for the quarter.

Year-to-date, sales were recorded at $885,178,000, a $41,102,000 increase or 4.9% improvement compared to the same period in 2006. Net earnings reached $27,761,000 or $1.41 per share, an increase of 8.5% compared to net earnings of $25,587,000 or $1.30 per share realized during the same period of 2006.

Sales for Automotive Group USA increased by 1.5% in the third quarter to reach $150,077,000 compared to $147,913,000 in the third quarter of 2006. Acquisitions completed in recent quarters contributed to an increase in sales of $12,722,000 in the third quarter. The operating margin of Automotive Group USA remained stable at 6.2%. Excluding the impact of the exchange rate, sales for Automotive Group USA would have increased by 8.1% and the operating margin by 6.3%. Year-to-date, sales are $457,428,000, an increase of 7.3% compared to the same period in 2006. The operating margin is 6.1% compared to 6.0% in 2006.

Automotive Group Canada enjoyed an increase in sales of 4.6% in the third quarter of 2007 to reach $133,571,000 compared to $127,738,000 during the corresponding period last year. This increase stems from the impact of acquisitions completed during the course of preceding quarters combined with organic growth of 1.4%. The operating margin of the Group improved from 7.8% in the third quarter of 2006 to 7.9% this quarter as a result of continued improvement programs on margins and costs. Year-to-date, sales are $383,788,000, an increase of 4.0% compared to same period in 2006. The operating margin improved from 7.4% in 2006 to 7.9% in 2007.

Sales for the Heavy Duty Group decreased by 15.0% during the quarter to reach $15,108,000, compared to $17,770,000 in 2006. This decrease is attributable to unseasonably mild weather, changes in the sales conditions of certain products and to the transfer in 2006 of some distribution activities to Automotive Group Canada. This transfer represents a 4.2% decrease in sales for this division. The operating margin of the Heavy Duty Group was 0.6% in the third quarter of 2007, representing an increase compared to the negative margin of (1.9%) last year. Year-to-date, sales are $43,962,000, a decrease of 9.5% compared to the same period in 2006. Excluding the aforementioned transfer, the Heavy Duty Group reports a decrease in sales of 3.6%. The operating margin is negative at (3.9%) while it was negative at (3.7%) in 2006.

"These results are the fruit of our sales efforts and continuous cost control efforts in an ever-competitive market" said Mr. Jacques Landreville, President and Chief Executive Officer of Uni-Select. "As mentioned at the end of the last quarter, a number of expansion projects were examined and three acquisitions were announced since then, two of which were completed in the third quarter. The fourth quarter results for our US operations will benefit from the contribution of Consumer Auto Parts acquired in August and of Parts Distributors acquired in September. We continue our search for expansion projects in the United States in order to benefit from the strength of the Canadian dollar versus the US dollar. At the actual rate of $1,03, the exchange rate fluctuation will affect the results of Uni-Select for the fourth quarter. The conclusion of our latest analysis is that the impact would be $0.05 per share. This impact, strictly accounting in nature, does not in the least affect our business development plan in the United States."

The Board of Directors of Uni-Select Inc. has declared a quarterly dividend of $0.1075 per common share payable on January 21, 2008 to shareholders of record as at December 31, 2007.

Mr. Jean-Louis Dulac, Chair of the Board is pleased to announce, on behalf of the directors, the appointment of Richard G. Roy as President and Chief Executive Officer of Uni-Select effective as at January 1, 2008. He will succeed Jacques Landreville who will remain a member of the Board and will act as a special advisor to the President.

Mr. Roy, who will be invited to join the Board, is Chief Operating Officer since 2007 and a member of management since 1991; he has held the offices of Vice President and Chief Financial Officer from 1999 to 2006. His appointment is in keeping with the management succession plan of Uni-Select and is reflective of the desire of the Board and Mr. Landreville to ensure a smooth and seamless transition at the helm.

"The appointment of Richard G. Roy heralds renewed continuity. Jacques Landreville has dynamically guided Uni-Select since 1991 and the Board is certain that his successor will step in and lead the Company to new heights." Jean-Louis Dulac thusly addressed his message to the employees after having warmly thanked Jacques Landreville for his contribution as President and Chief Executive Officer.

Uni-Select is Canada's second largest distributor of automotive replacement parts, equipment, tools and accessories and through Uni-Select USA, Inc.; the company also provides services to customers in the United States where it is the 8th largest distributor. Its subsidiary, Palmar Inc., sells replacement parts, tools and accessories for heavy-duty vehicles and wheels in Canada. The Uni-Select Network includes over 2,000 independent jobbers and services over 3,100 points of sale in Canada and the United States. Uni-Select is headquartered in Montreal. Uni-Select shares (UNS) are traded on the Toronto Stock Exchange (TSX).



CONSOLIDATED EARNINGS
THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2007 AND 2006
(in thousands of dollars, except earnings per share, unaudited)

3RD QUARTER 9 MONTHS
2007 2006 2007 2006
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$ $ $ $

SALES 298,756 293,421 885,178 844,076
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Earnings before the
following items 19,965 18,800 56,505 51,345
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Interests (Note 4) 1,390 1,041 4,345 2,525
Amortization (Note 4) 2,332 2,073 6,972 5,987
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3,722 3,114 11,317 8,512
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Earnings before income taxes
and non-controlling interest 16,243 15,686 45,188 42,833
Income taxes
Current 4,750 5,758 15,874 15,177
Future 584 (220) (536) (87)
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5,334 5,538 15,338 15,090
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Earnings before
non-controlling interest 10,909 10,148 29,850 27,743
Non-controlling interest 651 746 2,089 2,156
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Net earnings 10,258 9,402 27,761 25,587
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Basic earnings per share
(Note 5) 0.52 0.48 1.41 1.30
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Diluted earnings per share
(Note 5) 0.52 0.48 1.41 1.30
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Number of issued and
outstanding shares 19,736,558 19,699,334 19,736,558 19,699,334
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CONSOLIDATED RETAINED EARNINGS
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2007 AND 2006
(in thousands of dollars, unaudited)

9 MONTHS
2007 2006
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$ $
Balance, beginning of period 255,355 220,966
Net earnings 27,761 25,587
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283,116 246,553
Dividends 6,363 5,905
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Balance, end of period 276,753 240,648
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CONSOLIDATED COMPREHENSIVE INCOME
THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2007 AND 2006
(in thousands of dollars, unaudited)

3RD QUARTER 9 MONTHS
2007 2006 2007 2006
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$ $ $ $
Net earnings 10,258 9,402 27,761 25,587
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Other comprehensive income:

Gain on a derivative financial
instrument designated as cash flow
hedges prior to January 1, 2007,
transferred to net earnings in the
current period (net of income taxes of
$20 and $62 for the three-month
and the nine-month periods
respectively) (45) - (134) -

Unrealized losses on translating
financial statements of
self-sustaining foreign operations (8,440) 33 (18,879) (4,193)
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(8,485) 33 (19,013) (4,193)
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Comprehensive income for the period 1,773 9,435 8,748 21,394
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The accompanying notes are an integral part of the interim consolidated
financial statements.



CONSOLIDATED CASH FLOWS
THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2007 AND 2006
(in thousands of dollars, except dividends paid per share, unaudited)

3RD QUARTER 9 MONTHS
2007 2006 2007 2006
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$ $ $ $
OPERATING ACTIVITIES
Net earnings 10,258 9,402 27,761 25,587
Non-cash items
Amortization 2,332 2,073 6,972 5,987
Amortization of deferred gain (57) - (122) -
Future income taxes 584 (220) (536) (87)
Non-controlling interest 651 746 2,089 2,156
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13,768 12,001 36,164 33,643
Changes in working capital items (10,622) 2,121 (10,547) 12,897
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CASH FLOWS FROM OPERATING
ACTIVITIES 3,146 14,122 25,617 46,540
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INVESTING ACTIVITIES
Temporary investments - - 6,897 4,942
Business acquisitions (Note 6) (55,279) (4,971) (71,335) (61,349)
Non-controlling interest - - (178) -
Advances to merchant members (388) (979) (1,535) (4,136)
Receipts on advances to merchant
members 938 1,807 2,795 6,113
Fixed assets (2,656) (1,766) (6,643) (4,796)
Disposal of fixed assets 27 26 7,583 262
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CASH FLOWS FROM
INVESTING ACTIVITIES (57,358) (5,883) (62,416) (58,964)
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FINANCING ACTIVITIES
Bank indebtedness 16,913 (13,286) 3,025 (1,016)
Balance of purchase price (108) - (1,006) -
Long-term debt 39,890 616 41,708 1,516
Repayment of long-term debt (321) (813) (1,807) (2,389)
Merchant members' deposits in
guarantee fund (19) (67) (333) (134)
Issuance of shares -- 10 528 1,288
Dividends paid (2,122) (1,970) (6,211) (5,503)
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CASH FLOWS FROM FINANCING
ACTIVITIES 54,233 (15,510) 35,904 (6,238)
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Increase (decrease) in cash and
cash equivalents 21 (7,271) (895) (18,662)
Cash and cash equivalents,
beginning of period 214 7,717 1,130 19,108
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Cash and cash equivalents,
end of period 235 446 235 446
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Dividends paid per share 0.108 0.100 0.315 0.280
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The accompanying notes are an integral part of the interim consolidated
financial statements.



CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2007 AND 2006 AND DECEMBER 31, 2006
(in thousands of dollars, unaudited)

SEPT. 30, SEPT. 30, DEC. 31,
2007 2006 2006
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$ $ $
ASSETS
CURRENT ASSETS
Cash and cash equivalents 235 446 1,130
Temporary investment - - 6,897
Accounts receivable 151,831 147,180 136,834
Income taxes receivable 7,533 1,839 7,398
Inventory 325,496 300,385 313,384
Prepaid expenses 5,705 5,230 4,737
Derivative financial instrument 58 - -
Future income taxes 6,628 2,768 6,332
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497,486 457,848 476,712
Investments and volume discounts
receivable 6,311 7,250 6,575
Fixed assets 40,033 38,137 41,714
Financing costs 560 965 893
Covenants not to compete 372 - 578
Goodwill 59,301 36,044 44,257
Future income taxes 1,806 2,094 1,806
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605,869 542,338 572,535
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LIABILITIES
CURRENT LIABILITIES
Bank indebtedness 27,097 2,588 27,860
Accounts payable 146,105 163,042 136,197
Income taxes payable - - 8,268
Dividends payable 2,122 1,970 1,970
Instalments on long-term debt and
on merchant
members' deposits in guarantee fund 101 166 529
Future income taxes 501 - 19
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175,926 167,766 174,843
Deferred gain on a sale-leaseback
arrangement (Note 3) 2,429 - -
Deferred government grants - 368 -
Long-term debt 92,854 60,838 63,275
Merchant members' deposits in
guarantee funds 7,783 8,266 7,814
Future income taxes 4,817 4,773 5,082
Non-controlling interest 27,041 27,933 29,588
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310,850 269,944 280,602
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SHAREHOLDERS' EQUITY
Capital stock 49,872 49,344 49,344
Retained earnings 276,753 240,648 255,355
Accumulated other comprehensive
income (Note 7) (31,606) (17,598) (12,766)
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295,019 272,394 291,933
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605,869 542,338 572,535
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The accompanying notes are an integral part of the interim consolidated
financial statements.


NOTES TO FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2007 AND 2006

(in thousands of dollars, except for per share amounts, unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited interim consolidated financial statements are in accordance with Canadian generally accepted accounting principles for interim financial statements and do not include all the information required for complete financial statements. They are also consistent with the accounting policies outlined in the Company's audited financial statements for the year ended December 31, 2006. The interim financial statements and related notes should be read in conjunction with the Company's audited financial statements for the year ended December 31, 2006. When necessary, the financial statements include amounts based on informed estimates and management's best judgements. The operating results for the interim periods reported are not necessarily indicative of results to be expected for the year.

2. CHANGES IN ACCOUNTING POLICIES

Financial instruments, hedges, comprehensive income and equity

On January 1, 2007, in accordance with the applicable transitional provisions, the Company retroactively adopted, without restatement of prior periods, the new recommandations of CICA Handbook included in Section 3855 Financial Instruments - Recognition and Measurement , 3865 Hedges , 1530 Comprehensive Income , 3861 Financial Instruments - Disclosure and Presentation and 3251 Equity . Sections 3855 and 3861 establish standards for the classification, recognition, measurement and identification of information that should be disclosed about financial instruments (including derivatives) and non-financial derivatives in financial statements. Section 3865 describes when and how hedge accounting may be applied. Section 1530 establishes standards for reporting and display of comprehensive income and its components including net income and accumulated other comprehensive income and Section 3251 establishes standards for the presentation of equity and changes in equity during the reporting period.

The adoption of these new standards translated into the following changes on classification and measurement of financial instruments of the Company which were previously recorded at cost.

- Cash and cash equivalents are classified as assets held for trading. They are measured at fair value and fair value variations are accounted for in net income.

- The temporary investment is classified as held-to-maturity investment. It is measured at cost, which upon its initial measurement is equal to its fair value.

Subsequent measurements are recorded at amortized cost using the effective interest method less impairment.

- Accounts receivable, investments and volume discounts receivable are classified as loans and receivables. Accounts receivable are recorded at cost, which upon their initial measurement is equal to their fair value. Subsequent measurements are recorded at amortized cost, which is generally equal to the initial measurement less allowance for doubtful accounts. Investments and volume discounts receivable are recorded at cost, which upon their initial measurement is equal to its fair value. Subsequent measurements are recorded at amortized cost using the effective interest method less impairment.

- Bank indebtedness, accounts payable, dividends payable, long-term debt and merchant members' deposits in guarantee fund are classified as other financial liabilities. They are initially measured at their fair value. Subsequent measurements are recorded at amortized cost using effective interest method.

- As stipulated in Section 3855 - Financial Instruments - Recognition and Measurement, the Company elected to apply hedge accounting on an interest rate swap as cash flow hedge. This derivative is measured at fair value at the end of each period and the gains or losses resulting from remeasurement are recognized in other comprehensive income when the hedge is deemed effective. Any ineffective portion is recognized in net income.

The adjustments related to the adoption of the new standards described above translated into an increase of balance sheet accounts as of January 1, 2007 as follows:



Derivative financial instrument $254
Current future income taxes 81
Accumulated other comprehensive income 173

Accounting changes (Note 11)


On January 1, 2007, in accordance with the applicable transitional provisions, the Company adopted the new recommandations of CICA Handbook included in Section 1506, Accounting Changes . Section 1506 establishes standards for disclosure of changes in accounting policies, changes in accounting estimates and corrections of errors.



3. ACCOUNTING POLICIES

Deferred gain on a sale-leaseback arrangement
This gain is amortized on a straight-line basis over the lease term.

Comparative figures
Certain comparative figures have been reclassified to conform with
the presentation adopted in the current year.

4. INFORMATION INCLUDED IN THE CONSOLIDATED STATEMENT OF EARNINGS

3RD QUARTER 9 MONTHS
Interests 2007 2006 2007 2006
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$ $ $ $

Interests on bank indebtedness 628 331 2,013 665
Interests on long-term debt 1,070 980 3,042 2,791
Interests on merchant members' deposits
in guarantee funds 91 85 298 241
Interest income on cash and cash equivalents -226 -180 -603 -788
Interest income from merchant members -173 -175 -405 -384
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1,390 1,041 4,345 2,525
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Amortization
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Amortization of fixed assets 2,206 1,973 6,572 5,667
Amortization of other assets 126 100 400 320
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2,332 2,073 6,972 5,987
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5. EARNINGS PER SHARE

The following table presents a reconciliation of basic and diluted earnings
per share:

3RD QUARTER
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2007 2006
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Weighted Weighted
average Earnings average Earnings
Net number per Net number per
earnings of shares share earnings of shares shares
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$ $ $ $

Basic
earnings per
share 10,258 19,736,558 0.52 9,402 19,699,299 0.48

Impact of
stock options
exercised 27,346 46,967

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Diluted
earnings per
share 10,258 19,763,904 0.52 9,402 19,746,266 0.48
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9 MONTHS
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2007 2006
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Weighted Weighted
average Earnings average Earnings
Net number per Net number per
earnings of shares share earnings of shares shares
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$ $ $ $

Basic
earnings per
share 27,761 19,724,742 1.41 25,587 19,666,490 1.30

Impact of
stock options
exercised 33,533 66,678
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Diluted
earnings per
share 27,761 19,758,275 1.41 25,587 19,733,168 1.30
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6. BUSINESS ACQUISITIONS

During the year 2007, the Company acquired the assets and assumed a portion of the liabilities of ten companies operating in the Automotive USA segment and three companies in the Automotive Canada segment as well as the shares of two companies in the Automotive Canada segment.

In addition, the Company increased its interest by 1.92 % in its joint venture, Uni-Select Pacific Inc.. Following this transaction, the interest of the Company in its joint venture increased to 65.38 %.

The operating results are consolidated in the statement of earnings since the acquisition date.

The following purchase price allocation is preliminary and is subject to changes based on the finalization of acquired assets' valuation and on the final determination of direct costs associated with the transaction.



Total
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----------------------------------------------------------------------
$
Current assets 57,592
Fixed assets 5,228
Other long-term assets 9
Goodwill 18,780
Assumed current liabilities (8,162)
Assumed long-term liabilities (554)
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72,893
Settlement of accounts receivable of
companies acquired (1,515)
Balance of purchase price payable (43)
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Total consideration paid 71,335
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Uni-Select USA Inc.
The Company acquired a non-controlling interest for a cash
consideration of $178. Following this acquisition, the Company's
interest in its U.S. subsidiary increased by 0.09%, from 85.86% to 85.95%.

7. ACCUMULATED OTHER COMPREHENSIVE INCOME

SEPT. 30, 2007 DEC. 31, 2006
----------------------------------------------------------------------
----------------------------------------------------------------------
$ $
Balance, beginning of period - -
Unrealized losses on translation of
financial statements of self-sustaining
foreign operations (12,766) (13,405)
Cumulative impact of accounting changes
relating to financial instruments (net
of income taxes of $81) (Note 2) 173 --
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Adjusted balance, beginning of period (12,593) (13,405)
Other comprehensive income for the period (19,013) 639
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Balance, end of period (31,606) (12,766)
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8. EMPLOYEE FUTURE BENEFITS

As at September 30, 2007, the Company's pension plans are defined benefit and defined contributions plans.

For the three-month period ended September 30, 2007, the total expense for the defined contribution pension plans was ($33) ($330 in 2006) and $575 ($545 in 2006) for the defined benefit pension plans.

For the nine-month period ended September 30, 2007, the total expense for the defined contribution pension plans was $879 ($959 in 2006) and $1,780 ($1,567 in 2006) for the defined benefit pension plans.

9. GUARANTEES

The Company has made a commitment to financial institutions to repurchase inventories from some of its customers at a rate of 60% to 75% of the value of cost of the inventories for a maximum amount of $64,571 ($68,286 as at December 31, 2006). In the event of proceedings, the inventories would be liquidated in the normal course of the Company's business. These agreements are for an undetermined period of time. In management's opinion, the likelihood of major payments being made and losses being incurred is low, since the value of the assets held in guarantee is significantly higher than the Company's commitments.

As at September 30, 2007, the Company was contingently liable for letters of credit issued in the aggregate amount of $4,722 ($5,118 in 2006).



10. SEGMENTED INFORMATION

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3RD QUARTER
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Automotive Canada Automotive USA
2007 2006 2007 2006
$ $ $ $
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Sales 133,571 127,738 150,077 147,913
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Earnings before interests,
amortization, income taxes and non-
controlling interest 10,531 9,978 9,336 9,155
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Assets 230,637 221,053 339,029 274,094

Acquisition of fixed assets 1,720 1,515 5,380 1,451

Acquisition of goodwill (42) 2,814 15,720 200
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3RD QUARTER
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Heavy Duty Consolidated
2007 2006 2007 2006
$ $ $ $
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Sales 15,108 17,770 298,756 293,421
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Earnings before interests,
amortization, income taxes and non-
controlling interest 98 (333) 19,965 18,800
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Assets 36,203 47,191 605,869 542,338

Acquisition of fixed assets 22 65 7,122 3,031

Acquisition of goodwill - (2,890) 15,678 124
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9 MONTHS
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Automotive Canada Automotive USA
2007 2006 2007 2006
$ $ $ $
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Sales 383,788 369,094 457,428 426,390
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Earnings before interest,
amortization, income taxes and
non-controlling interest 30,418 27,354 27,794 25,794
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Assets 230,637 221,053 339,029 274,094

Acquisition of fixed assets 3,648 3,818 8,142 4,388

Acquisition of goodwill 1,464 16,240 17,316 4,909
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9 MONTHS
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Heavy Duty Consolidated
2007 2006 2007 2006
$ $ $ $
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Sales 43,962 48,592 885,178 844,076
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Earnings before interest,
amortization, income taxes and
non-controlling interest (1,707) (1,803) 56,505 51,345
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Assets 36,203 47,191 605,869 542,338

Acquisition of fixed assets 81 171 11,871 8,377

Acquisition of goodwill - (2,890) 18,780 18,259
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The Automotive USA segment includes fixed assets for an amount of $16,273
($16,142 as at September 30, 2006) and goodwill for an amount of $31,487
($10,910 as at September 30, 2006).


11. FUTURE ACCOUNTING CHANGES

Financial Instruments - Disclosures

In December 2006, CICA issued Section 3862, Financial Instruments - Disclosures . This Section applies to fiscal years beginning on or after October 1, 2007. It describes the required disclosures related to the significance of financial instruments on the entity's financial position and performance and the nature and extent of risks arising for financial instruments to which the entity is exposed and how the entity manages those risks. This Section complements the principles of recognition, measurement and presentation of financial instruments of Sections 3855 Financial Instruments - Recognition and Measurement , 3863 Financial instruments - Presentation and 3865 Hedges . The Company is currently evaluating the impact of the adoption of this new Section on the consolidated financial statements.

Financial Instruments - Presentation

In December 2006, CICA issued Section 3863 Financial Instruments - Presentation . This Section applies to fiscal years beginning on or after October 1, 2007. It establishes standards for presentation of financial instruments and non-financial derivatives. It complements standards of Section 3861 Financial Instruments - Disclosure and Presentation . The Company is currently evaluating the impact of the adoption of this new Section on the consolidated financial statements.

Capital Disclosures

In December 2006, CICA issued Section 1535 Capital Disclosures . This Section applies to fiscal years beginning on or after October 1, 2007. It establishes standards for disclosing information about an entity's capital and how it is managed to enable users of financial statements to evaluate the entity's objectives, policies and procedures for managing capital. The Company is currently evaluating the impact of the adoption of this new Section on the consolidated financial statements.

Inventory

In June 2007, CICA issued Section 3031 Inventories . This Section applies to fiscal years beginning on or after January 1, 2008. It is providing guidance on the determination of cost and its subsequent recognition as an expense, including any write-down to the net realizable value as well as on the cost formulas that are used to assign costs to inventories. The Company is currently evaluating the impact of the adoption of this new Section on the consolidated financial statements.

12. SUBSEQUENT EVENT

On October 25, 2007, the Company has entered into an agreement to purchase on January 3, 2008, the assets of Replacement Parts Depot Limited. This company operates one distribution center in the Automotive Canada segment, totalling sales of $25,000.

Contact Information

  • Uni-Select Inc.
    Mr. Jacques Landreville
    President and Chief Executive Officer
    450-641-2440
    www.uni-select.com
    or
    Uni-Select Inc.
    Mr. Denis Mathieu
    Vice President and Chief Financial Officer
    450-641-2440
    www.uni-select.com