UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended June 30, 2004

For the transition period from ________ to ________

Commission File Number: 333-107219

UNITED COMPONENTS, INC.

(812) 867-4156
(Registrant’s Telephone Number, Including Area Code)

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

     Yes o No x

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

     Yes o No x

     The registrant had 1,000 shares of its $0.01 par value common stock outstanding as of August 11, 2004.

Index

United Components, Inc.

FORWARD-LOOKING STATEMENTS

In this periodic report on Form 10-Q, United Components. Inc. (“UCI”) makes some “forward-looking” statements. These statements are included throughout this report on Form 10-Q and relate to, among other things, analyses and other information based on forecasts of future results and estimates of amounts not yet determinable. These forward-looking statements are identified by their use of terms and phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “continue,” and other similar terms and phrases, including references to assumptions.

These forward-looking statements are based on UCI’s expectations and beliefs concerning future events affecting UCI. They are subject to uncertainties and factors relating to UCI’s operations and business environment, all of which are difficult to predict and many of which are beyond UCI’s control. Although UCI believes that the expectations reflected in its forward-looking statements are reasonable, it does not know whether the expectations will prove correct. They can be affected by inaccurate assumptions UCI might make or by known or unknown risks and uncertainties. Many factors mentioned in UCI’s discussion in this report will be important in determining future results.

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Although UCI believes the expectations reflected in its forward-looking statements are based upon reasonable assumptions, UCI can give no assurance that UCI will attain these expectations or that any deviations will not be material. Because of these factors, UCI cautions that investors should not place undue reliance on any of these forward-looking statements.

Except as otherwise required by the federal securities laws, UCI disclaims any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this periodic report on Form 10-Q to reflect any change in its expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

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PART I
FINANCIAL INFORMATION

Item 1. Financial Statements

United Components, Inc. (“UCI”)

Condensed Balance Sheets

(in thousands)

The accompanying notes are an integral part of these statements.

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United Components, Inc.

Condensed Income Statements (unaudited)
(in thousands)

The accompanying notes are an integral part of these statements.

4

United Components, Inc.

Condensed Income Statements (unaudited)
(in thousands)

The accompanying notes are an integral part of these statements.

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United Components, Inc.

Condensed Statements of Cash Flow (unaudited)
(in thousands)

The accompanying notes are an integral part of these statements

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United Components, Inc.

Statements of Changes in Shareholder’s Equity (unaudited)
(in thousands)

The accompanying notes are an integral part of these statements.

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United Components, Inc.

Notes to Condensed Financial Statements (unaudited)

NOTE A — GENERAL AND BASIS OF FINANCIAL STATEMENT PRESENTATION

General

United Components, Inc. is a wholly owned subsidiary of UCI Acquisition Holdings, Inc. UCI Acquisition Holdings, Inc. and United Components, Inc. are corporations formed at the direction of The Carlyle Group (“Carlyle”). Affiliates of Carlyle own 99.2% of UCI Acquisition Holdings, Inc.’s common stock, and the remainder is owned by certain members of senior management and a member of the Company’s Board of Directors.

On June 20, 2003, United Components, Inc. (“UCI”) purchased, from UIS, Inc. and UIS Industries, Inc. (together “UIS”), the vehicle parts business of UIS, consisting of all of the issued and outstanding common stock or other equity interests in Champion Laboratories, Inc., Wells Manufacturing Corporation, Neapco Inc., Pioneer, Inc., Wells Manufacturing Canada Limited, UIS Industries Ltd. (which is the owner of 100% of the capital stock of Flexible Lamps, Ltd. and Airtex Products Ltd.), Mid-South Mfg., Inc., Airtex Products S.A., Airtex Products, Inc. (currently, Airtex Mfg., Inc.), Talleres Mecanicos Montserrat S.A. de C.V., Brummer Seal de Mexico, S.A. de C.V., Brummer Mexicana en Puebla, S.A. de C.V., Automotive Accessory Co. Ltd. and Airtex Products, LLC, a limited liability company that owns the assets of the Airtex Products business of UIS, Inc. (See Note B.)

The Company operates in one business segment through its subsidiaries. The Company manufactures and distributes vehicle parts, primarily servicing the vehicle replacement parts market in North America and Europe.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of UCI and its subsidiaries. The accompanying combined financial statements include the accounts of the vehicle parts businesses of UIS, consisting of the aforementioned entities, which are collectively referred to in these financial statements as the “Predecessor Company” or “Predecessor.” In these notes to the financial statements, the term the “Company” refers to both UCI and the Predecessor Company. The aforementioned June 20, 2003 acquisition is referred to in these notes to the financial statements as the “Acquisition.”

The accompanying unaudited condensed consolidated and combined financial statements have been prepared in accordance with accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

The December 31, 2003 consolidated balance sheet has been derived from the audited financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2003. The December 31, 2003 consolidated balance sheet reflects the preliminary allocation of the June 20, 2003 Acquisition purchase price. The June 30, 2004 consolidated balance sheet has been reclassified to reflect the impact of the final allocation of the June 20, 2003 Acquisition purchase price. Such changes had no impact on previously reported results of operations.

The financial statements at June 30, 2004 and for the three and six month periods ended June 30, 2004 and 2003 are unaudited. In the opinion of management, these financial statements include all adjustments necessary for a fair presentation of the financial position and results of operations for such periods. All significant intercompany transactions and balances have been eliminated.

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United Components, Inc.

Notes to Condensed Financial Statements (unaudited)

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting period. The estimates and assumptions include estimates of the collectibility of accounts receivable and the realizability of inventory, goodwill and other intangible assets, cost accruals, insurance reserves, income taxes and other factors. Management has exercised reasonableness in deriving these estimates; however, actual results could differ from these estimates.

These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2003.

Operating results for the three and six month periods ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ended December 31, 2004.

Reclassifications

The December 31, 2003 consolidated balance sheet reflects the preliminary allocation of the June 20, 2003 Acquisition purchase price. The June 30, 2004 consolidated balance sheet has been reclassified to reflect the impact of the final allocation of the June 20, 2003 Acquisition purchase price. Such changes had no impact on previously reported results of operations. The income statement for the 2003 period has been reclassified to conform to the 2004 presentation.

NOTE B — ACQUISITION

Overview

On June 20, 2003, UCI purchased from UIS the vehicle parts businesses of UIS, consisting of all of the issued and outstanding common stock or other equity interests of the Predecessor Company.

The acquisition purchase price was $808 million. In addition, the Company assumed $2 million of debt and capital lease obligations. Fees and expenses associated with the acquisition (excluding financing fees) were $18.2 million and are accounted for as additional purchase price. Financing for the acquisition was comprised of a $260 million equity contribution by Carlyle, proceeds from $585 million of debt, and an $8 million accrued liability, which was paid in January 2004. In addition to funding the purchase price, proceeds from the borrowings were also used to pay for the aforementioned $18.2 million of acquisition-related fees and expenses and $21.6 million of financing fees.

Change in Income Tax Filing Status

As discussed in Note C, the Predecessor Company had elected for certain of its subsidiaries to be taxed as S Corporations pursuant to the Internal Revenue Code. In connection with the Acquisition, the Company terminated its S corporation elections and became a C corporation and, consequently, became subject to Federal and additional state and local income taxes. As part of the allocation of the Acquisition purchase price, net deferred tax assets have been calculated based on UCI’s higher effective tax rate. The pro forma information presented below includes adjustments for, among other things, the change in the Company’s income tax filing status. The pro forma income tax amounts include income taxes as if the Company had been filing as a C corporation for the entire period.

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United Components, Inc.

Notes to Condensed Financial Statements (unaudited)

Allocation of the Acquisition Purchase Price
and Pro Forma Information

The Acquisition is accounted for under the purchase method of accounting, and accordingly, the results of operations of the acquired companies are included in the results of UCI beginning on the June 20, 2003 acquisition date.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition.

Of the $97 million of acquired intangible assets, approximately $40 million was assigned to trademarks that are not subject to amortization, $50 million was assigned to customer relationships and $7 million was assigned to technologies. The estimated useful lives of the customer relationships and technologies are 5 – 15 years. For the three and six months ended June 30, 2004, amortization expense was $1.9 and $3.8 million. Accumulated amortization at June 30, 2004 was $7 million.

The $167 million of goodwill resulting from the transaction and all but approximately $10 million of the written-up values of the other assets are deductible for income tax purposes.

Below is unaudited pro forma data for the three and six months ended June 30, 2003, after giving effect to the Acquisition as if it had occurred on January 1, 2003. The pro forma adjustments give effect to (i) the allocation of the June 20, 2003 Acquisition purchase price, (ii) the Company’s capital structure immediately after the Acquisition, (iii) the new Carlyle management fee (see Note I), and (iv) income tax expense based on a C corporation filing status. The pro forma earnings data does not purport to represent what the results of operations would have been if the Acquisition had occurred as of the dates indicated above, or what the results will be in future periods.

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United Components, Inc.

Notes to Condensed Financial Statements (unaudited)

NOTE C — INCOME TAXES

Prior to June 21, 2003, the subsidiaries comprising the Predecessor Company were treated as disregarded entities for U.S. tax purposes (Qualified Subchapter S subsidiaries, or Q subs). As Q subs of UIS, the subsidiaries were included in the U.S. Federal and certain state S corporation income tax returns of UIS. As such, the income taxes on the earnings of the Predecessor Company were paid by the sole shareholder of UIS pursuant to an election for Federal income tax purposes not to be taxed as a corporation. No tax sharing arrangement existed for the subsidiaries comprising the Predecessor Company. Accordingly, no provision has been made in the accompanying financial statements for Federal income taxes on the net earnings of these companies for the periods prior to June 21, 2003. A provision for certain state franchise and income taxes has been made.

The Q sub status and the S corporation status terminated effective with the Acquisition. (See Note B) On the Acquisition date, the Company became a C corporation and became subject to both Federal and state income taxes. UCI’s effective tax rate has increased accordingly. As part of the allocation of the Acquisition purchase price, net deferred tax assets have been established and calculated based on UCI’s higher effective tax rate.

NOTE D — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following (in thousands):

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United Components, Inc.

Notes to Condensed Financial Statements (unaudited)

NOTE E — INVENTORIES

The components of inventory consist of the following (in thousands):

Inventories are stated at the lower of cost or market. Cost is principally determined using the first-in, first-out method. Inventories are reduced by an allowance for excess and obsolete inventories, based on the Company’s assessment of on-hand inventories. The expense of inventory write-downs is included in cost of sales.

NOTE F — GEOGRAPHIC INFORMATION

The Company had the following sales by country (in thousands):

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United Components, Inc.

Notes to Condensed Financial Statements (unaudited)

The above sales include combined sales of the Predecessor Company through the June 20, 2003 Acquisition date. Approximately 90% of the six months ended June 30, 2003 amounts are combined sales of the Predecessor Company.

Net long-lived assets by country are presented below (in thousands):

NOTE G — STOCK OPTION

The Company uses the “disclosure only” provision of SFAS 123. Accordingly, stock options are accounted for by the “intrinsic value method” of APB Opinion No. 25. Below is a reconciliation to the pro forma after tax effect of compensation expense for the stock options had such expense been determined in accordance with the “fair value method” prescribed by SFAS No. 123 (in thousands):

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United Components, Inc.

Notes to Condensed Financial Statements (unaudited)

NOTE H —PENSION

The following are the components of net periodic pension expense (in thousands):

NOTE I — RELATED PARTY TRANSACTIONS

UIS maintained workers’ compensation, general liability, product liability and comprehensive automobile insurance for all of its subsidiaries, including the Predecessor Company. UIS allocated premium expense to each subsidiary based on rates charged by the insurance carrier and predicated and adjusted on estimated losses. UIS is liable for the settlement of all claims on these policies. As of the Acquisition date, the Company is no longer covered by UIS.

UIS management fee expense charged to the Predecessor Company was $18,000 for the six months ended June 30, 2003. Occasionally, UIS extended financing to the Predecessor Company. Interest charges to the Predecessor Company on debt to UIS were $96,000 and $180,000 for the three and six months ended June 30, 2003. These charges are recorded as interest expense. In addition, the Predecessor Company extended financing to UIS. Interest income from UIS was $698,000 and $1.4 million for the three and six months ended June 30, 2003. This income is recorded as interest income.

The Company has employment agreements with certain of its executive officers providing for annual compensation amounting to approximately $0.7 million per annum plus bonuses (as defined in the employment agreements) and severance pay under certain circumstances (as defined in the employment agreements).

In connection with the Acquisition, the Company entered into a management agreement with TC Group, L.L.C., an affiliate of Carlyle, for management and financial advisory services and oversight to be provided to the Company and its subsidiaries. Pursuant to this agreement, the Company will pay an annual management fee to Carlyle of $2 million and out-of-pocket expenses, and the Company may pay Carlyle additional fees associated with financial advisory and other future transactions. Carlyle also received a one-time transaction fee of $10 million upon consummation of the Acquisition. The agreement also provides for indemnification of Carlyle against liabilities and expenses arising out of Carlyle’s performance of services under the agreement. The agreement terminates either when Carlyle or its affiliates own less than 10% of the Company’s equity interest or when the company and Carlyle mutually agree to terminate the agreement.

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United Components, Inc.

Notes to Condensed Financial Statements (unaudited)

NOTE J — CONTINGENCIES

Environmental

The Company is subject to contingencies pursuant to environmental laws and regulations that in the future may require the Company to take action to correct the effects on the environment of prior disposal practices or releases of chemical or petroleum substances by the Company or other parties. The Company has been identified as a potential responsible party for contamination at several sites. As a result, the Company has accrued liabilities for certain environmental testing and remediation activities included in the “accrued expenses and other current liabilities” line and the “other liabilities” line on the balance sheet. While there is inherent uncertainty in such matters, in management’s opinion, the amounts accrued are appropriate based on the facts and circumstances that are currently known. The Company believes that the ultimate outcome of these matters will not have a material adverse effect on the financial position of the Company or results of operations for a full year. However, adjustment to the ultimate outcome of the matters could have a material adverse effect on the results for a single quarter.

Litigation

The Company is subject to various other contingencies, including routine legal proceedings and claims arising out of its business. These proceedings primarily involve commercial claims, product liability claims, personal injury claims and workers’ compensation claims. The outcome of these lawsuits, legal proceedings and claims cannot be predicted with certainty. Nevertheless, the Company believes that the outcome of any currently existing proceedings, even if determined adversely, would not have a material adverse effect on its business, financial condition and results of operations.

NOTE K – PRODUCT RETURNS LIABILITY

The product returns liability is included in accrued expenses and other current liabilities. It includes accruals for parts returned due to manufacturing defect and for certain parts returned because of customer excess quantities. The changes in the Company’s product returns liability are as follows (in thousands):

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United Components, Inc.

Notes to Condensed Financial Statements (unaudited)

NOTE L — NEW ACCOUNTING PRONOUNCEMENTS

In December 2003, SFAS No. 132R, “Employers’ Disclosure about Pensions and Other Postretirement Benefits” was issued. SFAS No. 132R requires additional disclosures about defined benefit pension plans and other postretirement benefit plans. The standard requires, among other things, additional disclosures about the assets held in employer sponsored pension plans, disclosures relating to plan asset investment policy and practices, disclosure of expected contributions to be made to the plans and expected benefit payments to be made by the plans. Annual disclosures applicable to the Company’s U.S. pension and postretirement plans were required to be made in its financial statements for the year ended December 31, 2003. The Company has adopted this pronouncement as of December 31, 2003 for all of its U.S. plans. Annual disclosures relating to its non-U.S. plans will be adopted for the year ending December 31, 2004. Interim disclosures relating to its non-U.S. plans will be adopted for the year ending December 31, 2005.

In March 2004, the FASB’s Emerging Issues Task Force concluded its discussion of Issue No. 03-01, The Meaning of Other-Than-Temporary Impairments and Its Application to Certain Investments (“EITF 03-01”). EITF 03-01 provides guidance regarding the determination of when an impairment of debt and marketable equity securities and investments, which are accounted for under the cost method, should be considered other-than-temporary and recognized in earnings. EITF 03-01 also requires annual disclosures of certain quantitative and qualitative factors of debt and marketable equity securities that are classified as available-for-sale or held-to-maturity and are in an unrealized loss position at the balance sheet date, but for which an other-than-temporary impairment has not been recognized. The disclosure requirements of EITF 03-01 were effective December 31, 2003 and had no effect on the Company’s financial statements. The accounting guidance of EITF 03-01 will be effective in the third quarter of 2004 and is not expected to have a material effect on the Company’s financial statements.

NOTE M — OTHER INFORMATION

Cash payments for interest and income taxes (net of refunds) (in thousands):

On March 1, 2004, the Company made a voluntary prepayment of $40 million of outstanding senior credit facility term loan borrowings.

At June 30, 2004, 1,000 shares of common stock were authorized, issued and outstanding. The par value of each share of common stock is $0.01 per share.

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United Components, Inc.

Notes to Condensed Financial Statements (unaudited)

NOTE N — GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS

The senior credit facilities are secured by substantially all the assets of the Company. The senior subordinated notes (the “Notes”) are unsecured and rank equally in right of payment with any of the Company’s future senior subordinated indebtedness. The Notes are subordinated to indebtedness and other liabilities of UCI’s subsidiaries that are not guarantors of the Notes. The Notes and borrowings under the senior credit facilities are guaranteed on a full and unconditional and joint and several basis by UCI’s domestic subsidiaries.

The condensed financial information, which follows, includes the consolidated results of UCI subsequent to the June 20, 2003 Acquisition date and the combined results of the Predecessor Company prior to the Acquisition. This information includes condensed financial statements for (a) UCI, which is the issuer of the Notes and borrower under the senior credit facilities, (b) the domestic subsidiaries, which guarantee the Notes and borrowings under the senior credit facilities (the “Guarantors”), (c) the foreign subsidiaries (the “Non-Guarantors”), and (d) a consolidated UCI or a combined Predecessor Company, as applicable. Also included are consolidating entries, which principally consist of eliminations of investments in consolidated subsidiaries and intercompany balances and transactions. All goodwill is included in UCI’s balance sheet.

The June 30, 2004 UCI Consolidated, UCI, Guarantor and Non-Guarantor balance sheets that follow in this Note N include the final allocation of the June 20, 2003 Acquisition purchase price. For all other financial statements that follow in this Note N, step-up amounts resulting from the preliminary allocation of the Acquisition purchase price are included with UCI and were not allocated to its subsidiaries. Consequently, for those financial statements, the Guarantor and Non-Guarantor are reported on the Predecessor’s historical basis. For all financial statements in Note N, except the June 30, 2004 balance sheet, purchase price allocations were based on preliminary estimates of the fair value of assets acquired and liabilities assumed.

Separate financial statements of the Guarantor subsidiaries are not presented because their guarantees are full and unconditional and joint and several, and the Company believes separate financial statements and other disclosures regarding the Guarantor subsidiaries are not material to investors.

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United Components, Inc.

Notes to Condensed Financial Statements (unaudited)

NOTE N (continued)

Combining Condensed Balance Sheet
June 30, 2004 (unaudited)
(in thousands)

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United Components, Inc.

Notes to Condensed Financial Statements (unaudited)

NOTE N (continued)

Consolidating Condensed Balance Sheet
December 31, 2003
(in thousands)