UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 333-107219

UNITED COMPONENTS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		04-3759857
(State or Other Jurisdiction of		(I.R.S. Employer Identification No.)
Incorporation or Organization)
14601 Highway 41 North
Evansville, Indiana		47725
(Address of Principal Executive Offices)		(Zip Code)

(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 þ

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller Reporting Company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     The registrant had 1,000 shares of its $0.01 par value common stock outstanding as of November 13, 2009.

 

 

United Components, Inc.

Index

Part I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)				3
Condensed consolidated balance sheets — September 30, 2009 and December 31, 2008				3
Condensed consolidated income statements — Three and nine months ended September 30, 2009 and 2008				4
Condensed consolidated statements of cash flows — Nine months ended September 30, 2009 and 2008				5
Condensed consolidated statements of changes in equity — Nine months ended September 30, 2009 and 2008				6
Notes to condensed consolidated financial statements				7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations				27
Item 3. Quantitative and Qualitative Disclosures About Market Risk				42
Item 4. Controls and Procedures				43
Part II OTHER INFORMATION				44
Item 1. Legal Proceedings				44
Item 1A. Risk Factors				44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds				44
Item 3. Default Upon Senior Securities				44
Item 4. Submission of Matters to Vote of Security Holders				44
Item 5. Other Information				44
Item 6. Exhibits				44
Signatures				45
Exhibits

PART I
FINANCIAL INFORMATION

Item 1.		Financial Statements

United Components, Inc.

Condensed Consolidated Balance Sheets
(in thousands)

		September 30,				December 31,
		2009				2008
		(unaudited)				(audited)
Assets
Current assets
Cash and cash equivalents		$	115,065			$	46,612
Accounts receivable, net			271,209				261,624
Inventories, net			128,312				159,444
Deferred tax assets			26,171				24,245
Other current assets			21,285				19,452
Total current assets			562,042				511,377
Property, plant and equipment, net			154,938				167,906
Goodwill			241,461				241,461
Other intangible assets, net			68,516				74,606
Deferred financing costs, net			2,004				2,649
Restricted cash			9,400				—
Other long-term assets			6,028				1,823
Total assets		$	1,044,389			$	999,822
Liabilities and equity
Current liabilities
Accounts payable		$	105,800			$	104,416
Short-term borrowings			6,111				25,199
Current maturities of long-term debt			262				422
Accrued expenses and other current liabilities			110,425				85,730
Total current liabilities			222,598				215,767
Long-term debt, less current maturities			418,333				418,025
Pension and other postretirement liabilities			74,970				79,832
Deferred tax liabilities			6,526				3,560
Due to Holdco			26,405				17,535
Other long-term liabilities			7,970				2,540
Total liabilities			756,802				737,259
Contingencies — Note J
Equity
United Components, Inc. shareholder’s equity
Common stock			—				—
Additional paid in capital			278,648				278,430
Retained earnings			43,415				21,243
Accumulated other comprehensive loss			(36,455	)			(39,600	)
Total United Components, Inc. shareholder’s equity			285,608				260,073
Noncontrolling interest			1,979				2,490
Total equity			287,587				262,563
Total liabilities and equity		$	1,044,389			$	999,822

The accompanying notes are an integral part of these statements.

United Components, Inc.

Condensed Consolidated Income Statements (unaudited)
(in thousands)

		Three Months ended September 30,								Nine Months ended September 30,
		2009				2008				2009				2008
Net sales		$	228,913			$	218,136			$	666,197			$	676,695
Cost of sales			173,099				170,621				521,847				531,430
Gross profit			55,814				47,515				144,350				145,265
Operating expense
Selling and warehousing			(14,051	)			(15,679	)			(42,435	)			(47,210	)
General and administrative			(11,058	)			(13,028	)			(34,521	)			(38,367	)
Amortization of acquired intangible assets			(1,398	)			(1,545	)			(4,359	)			(4,802	)
Restructuring costs, net (Note B)			(394	)			(196	)			(1	)			(684	)
Operating income			28,913				17,067				63,034				54,202
Other expense
Interest expense, net			(7,220	)			(8,282	)			(23,012	)			(25,838	)
Management fee expense			(500	)			(500	)			(1,500	)			(1,500	)
Miscellaneous, net			(1,011	)			(920	)			(4,165	)			(2,429	)
Income before income taxes			20,182				7,365				34,357				24,435
Income tax expense			(7,200	)			(3,164	)			(12,696	)			(9,772	)
Net income			12,982				4,201				21,661				14,663
Less: Loss attributable to noncontrolling interest			(132	)			(239	)			(511	)			(559	)
Net income attributable to United Components, Inc.		$	13,114			$	4,440			$	22,172			$	15,222

The accompanying notes are an integral part of these statements.

United Components, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)

		Nine Months ended September 30,
		2009				2008
Cash flows from operating activities
Net income attributable to United Components, Inc.		$	22,172			$	15,222
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of other intangible assets			27,994				27,397
Amortization of deferred financing costs and debt discount			1,119				1,280
Deferred income taxes			(565	)			391
Other non-cash, net			(606	)			270
Changes in operating assets and liabilities:
Accounts receivable			(9,179	)			(8,649	)
Inventories			31,587				(26,710	)
Other current assets			(1,765	)			12,297
Accounts payable			1,128				1,022
Accrued expenses and other current liabilities			24,562				(3,326	)
Other long-term assets			711				118
Due to Holdco			8,870				5,563
Other long-term liabilities			(409	)			(324	)
Net cash provided by operating activities			105,619				24,551
Cash flows from investing activities
Capital expenditures			(10,893	)			(25,977	)
Proceeds from sale of property, plant and equipment			2,483				366
Increase in restricted cash			(9,400	)			—
Net cash used in investing activities			(17,810	)			(25,611	)
Cash flows from financing activities
Issuances of debt			9,728				22,798
Debt repayments			(29,142	)			(21,718	)
Net cash (used in) provided by financing activities			(19,414	)			1,080
Effect of currency exchange rate changes on cash			58				68
Net increase in cash and cash equivalents			68,453				88
Cash and cash equivalents at beginning of year			46,612				41,440
Cash and cash equivalents at end of period		$	115,065			$	41,528

The accompanying notes are an integral part of these statements.

United Components, Inc.

Condensed Consolidated Statements of Changes in Equity (unaudited)
(in thousands)

		United Components, Inc. Shareholder’s Equity
														Accumulated
						Additional								Other
		Common				Paid In				Retained				Comprehensive				Noncontrolling								Comprehensive
		Stock				Capital				Earnings				Income (Loss)				Interest				Total Equity				Income (Loss)
Balance at January 1, 2008		$	—			$	277,741			$	11,316			$	6,762			$	3,308			$	299,127
Recognition of stock based compensation expense							687																687
Tax effect of exercise of Holdco stock options							(144	)															(144	)
Comprehensive income
Net income (loss)											15,222								(559	)			14,663			$	14,663
Other comprehensive income
Interest rate swaps (after $3 of income taxes)															4								4				4
Foreign currency adjustment (after $(104) of income taxes)															(322	)							(322	)			(322	)
Total comprehensive income																										$	14,345
Balance at September 30, 2008		$	—			$	278,284			$	26,538			$	6,444			$	2,749			$	314,015
Balance at January 1, 2009		$	—			$	278,430			$	21,243			$	(39,600	)		$	2,490			$	262,563
Recognition of stock based compensation expense							218																218
Comprehensive income
Net income (loss)											22,172								(511	)			21,661			$	21,661
Other comprehensive income
Foreign currency adjustment (after $96 of income taxes)															711								711				711
Pension liability (after $1,505 of income taxes)															2,434								2,434				2,434
Total comprehensive income																										$	24,806
Balance at September 30, 2009		$	—			$	278,648			$	43,415			$	(36,455	)		$	1,979			$	287,587

The accompanying notes are an integral part of these statements.

United Components, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE A — GENERAL AND BASIS OF FINANCIAL STATEMENT PRESENTATION

General

United Components, Inc. is an indirect wholly-owned subsidiary of UCI Holdco, Inc. (“Holdco”). Holdco and United Components, Inc. are corporations formed at the direction of The Carlyle Group. At September 30, 2009, affiliates of The Carlyle Group (“Carlyle”) owned 90.9% of Holdco’s common stock, and the remainder was owned by certain current and former members of United Components, Inc.’s senior management and board of directors. At September 30, 2009, Holdco had $316.7 million of Floating Rate Senior PIK Notes (the “Holdco Notes”) outstanding. While United Components, Inc. has no direct obligation under the Holdco Notes, United Components, Inc. is the sole source of cash generation for Holdco. The Holdco Notes do not appear on United Components, Inc.’s balance sheets, and the related interest expense is not included in United Components, Inc.’s income statements. See Note I.

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

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of United Components, Inc., its wholly-owned subsidiaries and a 51% owned joint venture. All significant intercompany accounts and transactions have been eliminated. In these notes to the financial statements, the term “UCI” refers to United Components, Inc. and its subsidiaries. The term “United Components” refers to United Components, Inc. without its subsidiaries.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States 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, 2008 consolidated balance sheet has been derived from the audited financial statements included in UCI’s annual report on Form 10-K for the year ended December 31, 2008. The financial statements at September 30, 2009 and for the three and nine months ended September 30, 2009 and 2008 are unaudited. In the opinion of UCI, these financial statements include all adjustments necessary for a fair presentation of the financial position and results of operations for such periods.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. They also include estimates of cost accruals, environmental liabilities, warranty and other product returns, insurance reserves, income taxes, pensions and other postretirement benefits 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 UCI’s annual report on Form 10-K for the year ended December 31, 2008.

Operating results for the three and nine months ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.

United Components, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE B — RESTRUCTURING COSTS

2009 Capacity Consolidation and European Realignment Actions

To further align UCI’s cost structure with customers’ spending and current market conditions, UCI implemented restructuring plans in 2009. The restructuring plans target excess assembly and aluminum casting capacity and restructuring costs of the plan include workforce reductions, facility closures, consolidations and realignments. During the nine months ended September 30, 2009, UCI recorded asset write-offs of $1.0 million associated with this capacity consolidation, recognized a gain of $1.5 million on the sale of a facility and incurred other costs of $0.2 million.

Costs of Previously Closed Water Pump Facility

In the three and nine months ended September 30, 2009, UCI incurred $0.1 million and $0.3 million, respectively, of costs for the maintenance and security of the land and building related to a previously closed water pump facility. In the three and nine months ended September 30, 2008, these costs were $0.2 million and $0.5 million, respectively. This land and building is held for sale. In the first quarter of 2008, UCI also incurred $0.2 million of pension termination expense related to the closure of the facility.

NOTE C — SALES OF RECEIVABLES

UCI has agreements to sell undivided interests in certain of its receivables with factoring companies, which in turn have the right to sell an undivided interest to a financial institution or other third party. UCI enters into these agreements at its discretion as part of its overall cash management activities. Pursuant to these agreements, UCI sold $42.6 million and $40.5 million of receivables during the three months ended September 30, 2009 and 2008, respectively, and $165.4 million and $158.0 million for the nine months ended September 30, 2009 and 2008, respectively.

If receivables had not been sold, $134.6 million and $80.1 million of additional receivables would have been outstanding at September 30, 2009 and December 31, 2008, respectively. UCI retained no rights or interest, and has no obligations, with respect to the sold receivables. UCI does not service these receivables after they are sold.

The sales of receivables were accounted for as a sale and were removed from the balance sheet at the time of the sales. The costs of the sales were discounts to the purchase price deducted by the factoring companies. These costs were $1.0 million and $0.9 million in the three months ended September 30, 2009 and 2008, respectively, and $4.2 million and $2.4 million for the nine months ended September 30, 2009 and 2008, respectively. These costs are recorded in the income statements in “Miscellaneous, net.”

NOTE D — INVENTORIES

The components of inventory are as follows (in millions):

		September 30,				December 31,
		2009				2008
Raw materials		$	44.6			$	55.3
Work in process			26.0				34.6
Finished products			74.3				84.4
Valuation reserves			(16.6	)			(14.9	)
		$	128.3			$	159.4

United Components, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE E — RESTRICTED CASH

In June 2009, UCI posted $9.4 million of cash to collateralize a letter of credit required by UCI’s workers compensation insurance carrier. Historically, assets pledged pursuant to the terms of UCI’s senior credit facility provided the collateral for the letters of credit. As a result of the termination of UCI’s revolving credit facility (see further discussion in Note I), these assets were no longer allowed to be pledged for this purpose and, accordingly, UCI was required to post the cash as collateral. This cash is recorded as “Restricted cash” and is a component of long-term assets on UCI’s balance sheet at September 30, 2009. This cash is not available for general operating purposes as long as the letter of credit remains outstanding or until alternative collateral is posted.

NOTE F — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

“Accrued expenses and other current liabilities” consists of the following (in millions):

		September 30,				December 31,
		2009				2008
Salaries and wages		$	4.4			$	2.7
Bonuses and profit sharing			6.6				3.5
Vacation pay			4.5				4.4
Product returns			36.5				32.0
Rebates, credits and discounts due customers			14.8				10.8
Insurance			12.3				11.5
Taxes payable			8.2				4.8
Interest			7.1				2.1
Other			16.0				13.9
		$	110.4			$	85.7

NOTE G — PRODUCT RETURNS LIABILITY

The liability for product returns is included in “Accrued expenses and other current liabilities.” This liability includes accruals for estimated parts to be returned under warranty and for parts to be returned because of customer excess quantities. UCI provides warranties for its products’ performance. Warranty periods vary by category of part. In addition to returns under warranty, UCI allows its customers to return quantities of parts that the customer determines to be in excess of its current needs. Customer rights to return excess quantities vary by customer and by product category. Generally, these returns are contractually limited to 3% to 5% of the customer’s purchases in the preceding year. While UCI does not have a contractual obligation to accept excess quantity returns from all customers, common practice for UCI and the industry is to accept periodic returns of excess quantities from on-going customers. If a customer elects to cease purchasing from UCI and change to another vendor, it is industry practice for the new vendor, and not UCI, to accept any inventory returns resulting from the vendor change and any subsequent inventory returns. UCI routinely monitors returns data and adjusts estimates based on this data.

In the second quarter of 2008, UCI identified an unusually high level of warranty returns related to one category of parts. When these parts are subjected to certain conditions, they experience a higher than normal failure rate. As a result of the higher than normal failure rate, a $5.8 million warranty loss provision was recorded in the second quarter of 2008. This loss provision is included in the line captioned “Additional reductions to sales” in the table below. UCI has modified the design of these parts to eliminate this issue.

Changes in UCI’s product returns accrual were as follows (in millions):

		Nine Months ended September 30,
		2009				2008
Beginning of year		$	32.0			$	28.1
Cost of unsalvageable parts			(37.6	)			(39.4	)
Additional reductions to sales			42.1				40.9
End of period		$	36.5			$	29.6

United Components, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE H — PENSION

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

		Three Months ended September 30,								Nine Months ended September 30,
		2009				2008				2009				2008
Service cost		$	1.1			$	1.2			$	3.4			$	3.8
Interest cost			3.3				3.3				9.8				9.7
Expected return on plan assets			(3.6	)			(3.7	)			(10.9	)			(11.1	)
Amortization of prior service cost and unrecognized loss			0.1				—				0.4				0.1
Curtailment loss			—				—				0.2				—
Special termination benefits			—				—				—				0.2
		$	0.9			$	0.8			$	2.9			$	2.7

In the nine months ended September 30, 2009, UCI recorded $0.2 million of curtailment losses related to headcount reductions as part of specific actions taken to align UCI’s cost structure with current market conditions. In the nine months ended September 30, 2008, UCI recorded $0.2 million of expense for special pension benefits for employees terminated as a result of the closure of a former water pump manufacturing facility.

In connection with the determination of the aforementioned curtailment losses, actuarial valuations were prepared as of June 30, 2009 for the affected post employment plans. In accordance with these valuations, the following changes were recorded in the September 30, 2009 balance sheet: (i) long-term “pension and other post retirement liabilities” was decreased by $3.8 million; (ii) “deferred tax liabilities” was increased by $1.5 million; and (iii) “accumulated other comprehensive loss” was reduced by $2.3 million.

NOTE I — DEBT

UCI’s debt is summarized as follows (in millions):

		September 30,				December 31,
		2009				2008
Short-term borrowings		$	6.1			$	5.2
Revolving credit line borrowings			—				20.0
Capital lease obligations			1.0				1.2
Term loan			190.0				190.0
Senior subordinated notes			230.0				230.0
Unamortized debt issuance costs			(2.4	)			(2.8	)
			424.7				443.6
Less:
Short-term borrowings			6.1				5.2
Revolving credit line borrowings			—				20.0
Current maturities			0.3				0.4
Long-term debt		$	418.3			$	418.0

UCI’s balance sheet does not include the Holdco Notes. While UCI has no direct obligation under the Holdco Notes, UCI is the sole source of cash generation for Holdco. Interest on the Holdco Notes is payable “in kind” through December 2011, therefore Holdco has no cash interest payments until after that date.

United Components, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

Senior credit facility — The senior credit facility includes a term loan and included a revolving credit facility which terminated in June 2009.

          Term loan

In the three month period ended March 31, 2008, UCI used cash on hand to voluntarily repay $10.0 million of its term loan. As a result of this voluntary early repayment, UCI recorded $0.1 million of accelerated write-offs of deferred financing costs. This cost is included in “Interest expense, net” in the income statement. Because of previous early payments of the term loan, there are no scheduled repayments due until December 2011. The term loan matures in June 2012.

While there are no scheduled repayments until December 2011, the senior credit facility does require mandatory prepayments of the term loan when UCI generates Excess Cash Flow as defined in the senior credit facility. Based upon current cash flow forecasts, UCI expects to generate Excess Cash Flow in the year ending December 31, 2009 resulting in a mandatory prepayment in the range of $10.0 to $20.0 million, payable within 95 days of December 31, 2009.

          Revolving credit facility

UCI’s $75.0 million revolving credit facility terminated in June 2009. Prior to the scheduled maturity of the revolving credit facility, UCI conducted an evaluation with respect to extending the facility, analyzing the size of a commitment that could be secured against the total cost of obtaining the commitment, including the related credit facility amendment. Based upon this evaluation, UCI concluded that the size of the potential commitment did not justify the cost and, accordingly, the revolving credit facility was terminated.

At December 31, 2008, revolving credit facility borrowings were $20.0 million, all of which were repaid during the six months ended June 30, 2009. Additionally, $9.4 million of revolving credit facility capacity was used to support an outstanding letter of credit related to workers compensation insurance liabilities. Historically, the assets pledged pursuant to the terms of the senior credit facility provided the collateral for the letter of credit. As a result of the revolving credit facility termination, UCI was required to post $9.4 million of cash to collateralize the letter of credit. (See further discussion in Note E.)

          Covenants and other provisions

The senior credit facility requires UCI to maintain certain financial covenants and requires mandatory prepayments upon the occurrence of certain events as defined in the agreement. Also, the facility includes certain negative covenants restricting or limiting UCI’s ability to, among other things: declare dividends or redeem stock; prepay certain debt; make loans or investments; guarantee or incur additional debt; make certain capital expenditures; engage in acquisitions or other business combinations; sell assets; and alter UCI’s business. UCI is in compliance with all of these covenants and is not currently required to make any mandatory prepayments.

Senior subordinated notes (the “Notes”) — The Notes bear interest at 9 3/8%. Interest is payable semi-annually, in arrears on June 15 and December 15 of each year. The Notes are unsecured and rank equally in right of payment with any of UCI’s future senior subordinated indebtedness. They are subordinated to indebtedness and other liabilities of UCI’s subsidiaries that are not guarantors of the Notes. They are guaranteed on a full and unconditional and joint and several basis by UCI’s domestic subsidiaries. The Notes mature on June 15, 2013.

Short-term borrowings — At September 30, 2009, short-term borrowings included $0.4 million of a Spanish subsidiary’s notes payable and $5.7 million of the Chinese subsidiaries’ notes payable to foreign credit institutions. At December 31, 2008, short-term borrowings included $2.3 million of a Spanish subsidiary’s notes payable and $2.9 million of the Chinese subsidiaries’ notes payable to foreign credit institutions. The Spanish subsidiary’s notes payable are collateralized by certain accounts receivable related to the amounts financed. The Chinese subsidiaries’ notes payable are secured by receivables.

NOTE J — CONTINGENCIES

Insurance Reserves

UCI purchases insurance policies for workers’ compensation, automobile and product and general liability. These policies include high deductibles for which UCI is responsible. These deductibles are estimated and recorded as expenses in the period incurred. Estimates of these expenses are updated each quarter and are adjusted accordingly. These estimates are subject to substantial uncertainty because of several factors that are difficult to predict, including actual claims experience, regulatory changes, litigation trends and changes in inflation. Estimated unpaid losses for which UCI is responsible are included in the balance sheet in “Accrued expenses and other current liabilities.”

United Components, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

Environmental

UCI is subject to a variety of federal, state, local and foreign environmental laws and regulations, including those governing the discharge of pollutants into the air or water, the management and disposal of hazardous substances or wastes, and the cleanup of contaminated sites. UCI has been identified as a potentially responsible party for contamination at two sites. One of these sites is a former facility in Edison, New Jersey (the “New Jersey Site”), where a state agency has ordered UCI to continue with the monitoring and investigation of chlorinated solvent contamination. The New Jersey Site has been the subject of litigation to determine whether a neighboring facility was responsible for contamination discovered at the New Jersey Site. A judgment has been rendered in that litigation to the effect that the neighboring facility is not responsible for the contamination. UCI has moved for reconsideration of the judgment but, while that motion is pending, UCI is analyzing what further investigation and remediation, if any, may be required at the New Jersey Site. The second site is a previously owned site in Solano County, California (the “California Site”), where UCI, at the request of the regional water board, is investigating and analyzing the nature and extent of the contamination and is conducting some remediation. Based on currently available information, management believes that the cost of the ultimate outcome of the environmental matters related to the New Jersey Site and the California Site will not exceed the $1.7 million accrued at September 30, 2009 by a material amount, if at all. However, because all investigation and analysis has not yet been completed, and because of the inherent uncertainty in such environmental matters, it is reasonably possible that the ultimate outcome of these matters could have a material adverse effect on results for a single quarter.

In addition to the two matters discussed above, UCI has been named as a potentially responsible party at a site in Calvert City, Kentucky (“the Kentucky Site”). UCI estimates settlement costs at $0.1 million for this site. Also, UCI is involved in regulated remediation at two of its manufacturing sites (the “Manufacturing Sites”). The combined cost of the remediation at such Manufacturing Sites is $0.5 million. UCI anticipates that the majority of the $0.6 million reserved for settlement and remediation costs will be spent in the next year. To date, the expenditures related to the Kentucky Site and the Manufacturing Sites have been immaterial.

Antitrust Litigation

As of April 21, 2009, United Components and its wholly-owned subsidiary, Champion Laboratories, Inc. (“Champion”), were named as two of multiple defendants in 23 complaints originally filed in the District of Connecticut, the District of New Jersey, the Middle District of Tennessee and the Northern District of Illinois alleging conspiracy violations of Section 1 of the Sherman Act, 15 U.S.C. § 1, related to aftermarket oil, air, fuel and transmission filters. Eight of the complaints also named The Carlyle Group as a defendant, but those plaintiffs voluntarily dismissed Carlyle from each of those actions without prejudice. Champion, but not United Components, was also named as a defendant in 13 virtually identical actions originally filed in the Northern and Southern Districts of Illinois, and the District of New Jersey. All of these complaints are styled as putative class actions on behalf of all persons and entities that purchased aftermarket filters in the U.S. directly from the defendants, or any of their predecessors, parents, subsidiaries or affiliates, at any time during the period from January 1, 1999 to the present. Each case seeks damages, including statutory treble damages, an injunction against future violations, costs and attorney’s fees.

United Components and Champion were also named as two of multiple defendants in 17 similar complaints originally filed in the District of Connecticut, the Northern District of California, the Northern District of Illinois and the Southern District of New York by plaintiffs who claim to be indirect purchasers of aftermarket filters. Two of these complaints also named The Carlyle Group as a defendant, but the plaintiffs in both of those actions voluntarily dismissed Carlyle without prejudice. Champion, but not United Components, was also named in 3 similar actions originally filed in the Eastern District of Tennessee, the Northern District of Illinois and the Southern District of California. These complaints allege conspiracy violations of Section 1 of the Sherman Act and/or violations of state antitrust, consumer protection and unfair competition law. They are styled as putative class actions on behalf of all persons or entities who acquired indirectly aftermarket filters manufactured and/or distributed by one or more of the defendants, their agents or entities under their control, at any time between January 1, 1999 and the present; with the exception of three complaints which each allege a class period from January 1, 2002 to the present, and one complaint which alleges a class period from the “earliest legal permissible date” to the present. The complaints seek damages, including statutory treble damages, an injunction against future violations, disgorgement of profits, costs and attorney’s fees.

On August 18, 2008, the Judicial Panel on Multidistrict Litigation (“JPML”) issued an order transferring the U.S. direct and indirect purchaser aftermarket filters cases to the Northern District of Illinois for coordinated and consolidated pretrial proceedings before the Honorable Robert W. Gettleman pursuant to 28 U.S.C. § 1407. On November 26, 2008, all of the direct purchaser plaintiffs filed a Consolidated Amended Complaint. This complaint names Champion as one of multiple defendants, but it does not name United Components. The complaint is styled as a putative class action and alleges conspiracy violations of Section 1 of the Sherman Act. The direct purchaser plaintiffs seek damages, including statutory treble damages, an injunction against future violations, costs and attorney’s fees. On February 2, 2009, Champion filed its answer to the direct purchasers’ Consolidated Amended Complaint.

United Components, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

On December 1, 2008, all of the indirect purchaser plaintiffs, except Gasoline and Automotive Service Dealers of America (“GASDA”), filed a Consolidated Indirect Purchaser Complaint. This complaint names Champion as one of multiple defendants, but it does not name United Components. The complaint is styled as a putative class action and alleges conspiracy violations of Section 1 of the Sherman Act and violations of state antitrust, consumer protection and unfair competition law. The indirect purchaser plaintiffs seek damages, including statutory treble damages, penalties and punitive damages where available, an injunction against future violations, disgorgement of profits, costs and attorney’s fees.

On February 2, 2009, Champion and the other defendants jointly filed a motion to dismiss the Consolidated Indirect Purchaser Complaint. On that same date, Champion, United Components and the other defendants jointly filed a motion to dismiss the GASDA complaint. On April 13, 2009, GASDA voluntarily dismissed United Components from its case without prejudice. On November 5, 2009, the U.S. District Court for the Northern District of Illinois (the “Illinois District Court”) granted the motion to dismiss the GASDA complaint. Also on November 5, 2009, the Illinois District Court denied in part and granted in part the motion to dismiss the Consolidated Indirect Purchaser Complaint. In particular, the Illinois District Court granted the defendants’ motion to dismiss Count II — the indirect purchaser plaintiffs’ nationwide claim for unjust enrichment — limited the damages periods for claims based on the antitrust laws of Nebraska, New Hampshire, Utah and Wyoming and granted the defendants’ motion to dismiss the indirect purchaser plaintiffs’ consumer protection law claims under the laws of Kansas, Maine, West Virginia, Wisconsin, New York and Rhode Island. Champion and the other defendants must file their answer to the remaining claims in the Consolidated Indirect Purchaser Complaint by December 28, 2009 and the Illinois District Court scheduled a status conference for January 13, 2010.

On January 12, 2009, Champion, but not United Components, was named as one of ten defendants in a related action filed in the Superior Court of California, for the County of Los Angeles on behalf of a purported class of direct and indirect purchasers of aftermarket filters. On March 5, 2009, one of the defendants filed a notice of removal to the U.S. District Court for the Central District of California, and then subsequently requested that the JPML transfer this case to the Northern District of Illinois for coordinated pre-trial proceedings.

Champion, but not United Components, was also named as one of five defendants in a class action filed in Quebec, Canada. This action alleges conspiracy violations under the Canadian Competition Act and violations of the obligation to act in good faith (contrary to art. 6 of the Civil Code of Quebec) related to the sale of aftermarket filters. The plaintiff seeks joint and several liability against the five defendants in the amount of $5.0 million in compensatory damages and $1.0 million in punitive damages. The plaintiff is seeking authorization to have the matter proceed as a class proceeding, which motion has not yet been ruled on.

Champion, but not United Components, was also named as one of 14 defendants in a class action filed on May 21, 2008, in Ontario, Canada. This action alleges civil conspiracy, intentional interference with economic interests, and conspiracy violations under the Canadian Competition Act related to the sale of aftermarket filters. The plaintiff seeks joint and several liability against the 14 defendants in the amount of $150 million in general damages and $15 million in punitive damages. The plaintiff is also seeking authorization to have the matter proceed as a class proceeding, which motion has not yet been ruled on.

The Antitrust Division of the Department of Justice (DOJ) is also investigating the allegations raised in these suits and certain current and former employees of the defendants, including Champion, have testified pursuant to subpoenas. The Company is fully cooperating with the DOJ investigation.

On July 30, 2008, the Office of the Attorney General for the State of Florida issued Antitrust Civil Investigative Demands to Champion and UCI requesting documents and information related to the sale of oil, air, fuel and transmission filters. We are cooperating with the Attorney General’s requests. On April 16, 2009, the Florida Attorney General filed a civil complaint against Champion and eight other defendants in the Northern District of Illinois. The complaint alleges violations of Section 1 of the Sherman Act and Florida law related to the sale of aftermarket filters. The complaint asserts direct and indirect purchaser claims on behalf of Florida governmental entities and Florida consumers. It seeks damages, including statutory treble damages, penalties, fees, costs and an injunction.

The Company intends to vigorously defend against these claims. It is too soon to assess the possible outcome of these proceedings. No amounts, other than ongoing defense costs, have been recorded in the financial statements for these matters.

Value-added Tax Receivable

UCI’s Mexican operation has outstanding receivables denominated in Mexican pesos in the amount of $3.5 million from the Mexican Department of Finance and Public Credit, which are included in the balance sheet in “Other current assets”. The receivables relate to refunds of Mexican value-added tax, to which UCI believes it is entitled in the ordinary course of business. The local Mexican tax authorities have rejected UCI’s claims for these refunds, and UCI has commenced litigation in the regional federal administrative and tax courts in Monterrey to order the local tax authorities to process these refunds.

United Components, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

Patent Litigation

Champion is a defendant in litigation with Parker-Hannifin Corporation pursuant to which Parker-Hannifin claims that certain of Champion’s products infringe a Parker-Hannifin patent. Champion has denied that it infringes the patent, and has moved for summary judgment on the grounds that the patent is invalid and that Champion does not infringe. The motion has not been decided by the court, and trial has been scheduled for November 2009. Champion is vigorously defending this matter, however there can be no assurance with respect to the outcome of litigation. No amounts, other than ongoing defense costs, have been recorded in the financial statements for this matter.

Other Litigation

UCI is subject to various other contingencies, including routine legal proceedings and claims arising out of the normal course of 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, UCI believes that the outcome of any currently existing proceedings, even if determined adversely, would not have a material adverse effect on UCI’s financial condition or results of operations.

NOTE K — GEOGRAPHIC INFORMATION

UCI had the following net sales by country (in millions):

		Three Months ended September 30,								Nine Months ended September 30,
		2009				2008				2009				2008
United States		$	196.1			$	183.5			$	571.7			$	566.6
Mexico			6.0				6.1				18.3				22.6
Canada			7.3				7.3				21.1				23.2
United Kingdom			2.8				2.7				8.1				10.2
France			1.6				2.0				5.9				7.8
Venezuela			0.1				2.0				1.7				3.5
Germany			1.6				1.4				3.9				4.2
Spain			1.2				1.2				3.1				3.5
Other			12.2				11.9				32.4				35.1
		$	228.9			$	218.1			$	666.2			$	676.7

Net long-lived assets by country are as follows (in millions):

		September 30,				December 31,
		2009				2008
United States		$	198.6			$	201.5
China			30.4				33.2
Mexico			8.7				9.9
Spain			3.0				2.3
France			0.1				—
Goodwill			241.5				241.5
		$	482.3			$	488.4

United Components, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE L — OTHER INFORMATION

At September 30, 2009, 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.

Cash payments (receipts) for interest and income taxes (net of refunds) are as follows (in millions):

		Three Months ended September 30,								Nine Months ended September 30,
		2009				2008				2009				2008
Interest		$	1.6			$	2.7			$	16.9			$	20.2
Income taxes (net of refunds)			0.4				(2.0	)			1.4				(3.1	)

For federal and certain state tax purposes, UCI is included in the consolidated tax returns of Holdco. To the extent UCI’s tax on its current taxable income is offset by Holdco’s current taxable losses, UCI records that portion of its tax expense as a payable to Holdco. Other income tax liabilities and refunds receivable are reported as income taxes payable and receivable. At September 30, 2009 and December 31, 2008, income tax-related payables to Holdco were $31.0 million and $19.2 million, respectively. These amounts are included in the net “Due to Holdco” amounts in the respective balance sheets.

In the second quarter of 2009, UCI obtained exclusive customer contracts that provide for the incurrence of up-front costs and additional amounts during the remainder of the contracts. The aggregate up-front costs and additional amounts of approximately $6.4 million were capitalized and are being amortized over the life of the contracts as a reduction to sales. A corresponding amount was recorded as a liability that is being relieved as the amounts are funded. $4.3 million of the commitment to be amortized beyond one year is recorded as a component of “Other long-term assets” and $4.6 million of the commitment to be funded beyond one year is recorded as a component of “Other long-term liabilities” at September 30, 2009.

NOTE M — ADOPTION OF RECENTLY ISSUED ACCOUNTING GUIDANCE

On September 30, 2009, UCI adopted changes issued by the Financial Accounting Standards Board (FASB) to the authoritative hierarchy of accounting principles generally accepted in the United States of America (GAAP). These changes establish the FASB Accounting Standards Codification^TM (Codification) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead the FASB will issue Accounting Standards Updates. Accounting Standards Updates will not be authoritative in their own right as they will only serve to update the Codification. These changes and the Codification itself do not change GAAP. Other than the manner in which new accounting guidance is referenced, the adoption of these changes had no impact on UCI’s financial statements.

          Business Combinations and Consolidation Accounting

On January 1, 2009, UCI adopted changes issued by the FASB to consolidation accounting and reporting. These changes establish accounting and reporting for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This guidance defines a noncontrolling interest, previously called a minority interest, as the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. These changes require, among other items, that a noncontrolling interest be included in the consolidated statement of financial position within equity separate from the parent’s equity; consolidated net income to be reported at amounts inclusive of both the parent’s and noncontrolling interest’s shares and, separately, the amounts of consolidated net income attributable to the parent and noncontrolling interest all on the consolidated statement of operations; and if a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary to be measured at fair value and a gain or loss to be recognized in net income based on such fair value. Other than the change in presentation of noncontrolling interests, the adoption of these changes had no impact on UCI’s financial statements. The presentation and disclosure requirements of these changes were applied retrospectively.

On January 1, 2009, UCI adopted changes issued by the FASB to accounting for business combinations. While retaining the fundamental requirements of accounting for business combinations, including that the purchase method be used for all business combinations and for an acquirer to be identified for each business combination, these changes define the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control instead of the date that the consideration is transferred. These changes require an acquirer in a business combination, including business combinations achieved in stages (step acquisition), to recognize the assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions. This guidance also requires the recognition of assets acquired and liabilities assumed arising from certain contractual contingencies as of the acquisition date, measured at their acquisition-date fair values. Additionally, these changes require acquisition-related costs to be expensed in the period in which the costs are incurred and the services are received instead of including such costs as part of the acquisition price. The adoption of these changes will depend on the occurrence of future acquisitions, if any, by UCI.

United Components, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

Effective January 1, 2009, UCI adopted changes issued by the FASB on April 1, 2009 to accounting for business combinations. These changes apply to all assets acquired and liabilities assumed in a business combination that arise from certain contingencies and requires (i) an acquirer to recognize at fair value, at the acquisition date, an asset acquired or liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be determined during the measurement period otherwise the asset or liability should be recognized at the acquisition date if certain defined criteria are met; (ii) contingent consideration arrangements of an acquiree assumed by the acquirer in a business combination to be recognized initially at fair value; (iii) subsequent measurements of assets and liabilities arising from contingencies to be based on a systematic and rational method depending on their nature and contingent consideration arrangements to be measured subsequently; and (iv) disclosures of the amounts and measurement basis of such assets and liabilities and the nature of the contingencies. The adoption of these changes will depend on the occurrence of future acquisitions, if any, by UCI.

          Fair Value Accounting

On January 1, 2009, UCI adopted changes issued by the FASB to fair value accounting and reporting as it relates to nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair value in the financial statements on at least an annual basis. These changes define fair value, establish a framework for measuring fair value in GAAP, and expand disclosures about fair value measurements. This guidance applies to other GAAP that require or permit fair value measurements and is to be applied prospectively with limited exceptions. The adoption of these changes, as it relates to nonfinancial assets and nonfinancial liabilities, had no impact on UCI’s financial statements. These provisions will be applied at such time a fair value measurement of a nonfinancial asset or nonfinancial liability is required, which may result in a fair value that is materially different than would have been calculated prior to the adoption of these changes.

On June 30, 2009, UCI adopted changes issued by the FASB to fair value accounting. These changes provide additional guidance for estimating fair value when the volume and level of activity for an asset or liability have significantly decreased and includes guidance for identifying circumstances that indicate a transaction is not orderly. This guidance is necessary to maintain the overall objective of fair value measurements, which is that fair value, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The adoption of these changes had no impact on UCI’s financial statements.

On June 30, 2009, UCI adopted changes issued by the FASB to fair value disclosures of financial instruments. These changes require a publicly traded company to include disclosures about the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods. Such disclosures include the fair value of all financial instruments, for which it is practicable to estimate that value, whether recognized or not recognized in the statement of financial position; the related carrying amount of these financial instruments; and the method(s) and significant assumptions used to estimate the fair value. Other than the required disclosures (see Note O), the adoption of these changes had no impact on UCI’s financial statements.

          Other

On June 30, 2009, UCI adopted changes issued by the FASB to accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued, otherwise known as “subsequent events.” Specifically, these changes set forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. As part of the preparation of these financial statements, management has evaluated events and transactions that occurred up to the filing date of this Form 10-Q.

United Components, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

On January 1, 2009, UCI adopted changes issued by the FASB to accounting for intangible assets. These changes amend the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset in order to improve the consistency between the useful life of a recognized intangible asset outside of a business combination and the period of expected cash flows used to measure the fair value of an intangible asset in a business combination. The adoption of these changes had no impact on UCI’s financial statements.

On January 1, 2009, UCI adopted changes issued by the FASB to disclosures by public entities about transfers of financial assets and interests in variable interest entities. The changes require additional disclosures about transfers of financial assets. The required disclosures are intended to provide more transparency to financial statement users about a transferor’s continuing interest involvement with transferred financial assets and an enterprise’s involvement with variable interest entities and qualifying special purpose entities. UCI has agreements to sell undivided interests in certain of its receivables with factoring companies, which in turn have the right to sell an undivided interest to a financial institution or other third party. However, UCI retains no rights or interest, and has no obligations, with respect to the sold receivables. Furthermore, UCI does not service the receivables after the sales. Because of the terms of UCI’s sales of receivables, the adoption of the changes did not have an effect on UCI’s financial statements.

On January 1, 2009, UCI adopted changes issued by the FASB to disclosures about derivative instruments and hedging activities. These changes require enhanced disclosures about an entity’s derivative and hedging activities, including (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedged items are accounted for, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Because of UCI’s insignificant, if any, use of derivatives, adoption of these changes did not have an effect on UCI’s financial statements.

NOTE N — RECENTLY ISSUED ACCOUNTING GUIDANCE, NOT YET ADOPTED

In December 2008, the FASB issued changes to employers’ disclosures about postretirement benefit plan assets. These changes provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. This guidance is intended to ensure that an employer meets the objectives of the disclosures about plan assets in an employer’s defined benefit pension or other postretirement plan to provide users of financial statements with an understanding of the following: how investment allocation decisions are made; the major categories of plan assets; the inputs and valuation techniques used to measure the fair value of plan assets; the effect of fair value measurements using significant unobservable inputs on changes in plan assets; and significant concentrations of risk within plan assets. These changes become effective for UCI on December 31, 2009. As these changes only require enhanced disclosures, management has determined that the adoption of these changes will not have an impact on UCI’s financial statements.

NOTE O — FAIR VALUE ACCOUNTING

Interest rate swap measured at fair value on a recurring basis

The only recurring fair value measurement reflected in UCI’s financial statements was the measurement of interest rate swaps. These interest rate swaps are described in Note 22 of the financial statements reported in UCI’s 2008 Annual Report on Form 10-K. The swaps expired in August 2008 and were not replaced.

When the swaps were outstanding, the fair value of the interest rate swaps were estimated at the present value of the difference between (i) interest payable for the duration of the swap at the swap interest rate and (ii) interest that would be payable for the duration of the swap at the relevant current interest rate at the date of measurement. The estimated fair value was based on Level 2 inputs.

Fair value of financial instruments

Cash and cash equivalents — The carrying amount of cash equivalents approximates fair value because the original maturity is less than 90 days.

United Components, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

Trade accounts receivable — The carrying amount of trade receivables approximates fair value because of their short outstanding terms.

Trade accounts payable — The carrying amount of trade payables approximates fair value because of their short outstanding terms.

Short-term borrowings — The carrying value of these borrowings equals fair market value because their interest rates reflect current market rates.

Long-term debt — The fair market value of the $190 million of term loan borrowings under the senior credit facility at September 30, 2009 and December 31, 2008 was $175.8 million and $131.1 million, respectively. The estimated fair value of the term loan is based on information provided by an independent third party who participates in the trading market for debt similar to the term loan. Due to the infrequency of trades, this input is considered to be a Level 2 input.

The fair market value of the $230 million senior subordinated notes at September 30, 2009 and December 31, 2008 was $183.7 million and $94.9 million, respectively. The estimated fair value of these notes is based on bid/ask prices, as reported by a third party bond pricing service. Due to the infrequency of trades of the senior subordinated notes, these inputs are considered to be Level 2 inputs.

Interest rate swaps — In connection with UCI’s senior credit facilities, UCI was party to an interest rate swap agreement that effectively converted $40 million of borrowings from variable to fixed rate debt for the 12-month period ended August 2008. The variable component of the interest rate on borrowings under the senior credit facilities is based on LIBOR. Under the swap agreement, UCI paid 4.4% and received the then current LIBOR on $40 million for the 12-month period ending August 2008. UCI did not replace the interest rate swap that expired in August 2008.

At the end of each quarter, UCI adjusted the carrying value of this interest rate swap derivative to its estimated fair value. The change was recorded as an adjustment to “Accumulated other comprehensive loss” in UCI’s stockholder’s equity.

NOTE P — GUARANTOR AND NON-GUARANTOR FINANCIAL STATEMENTS

The senior credit facility is secured by substantially all the assets of UCI. The senior subordinated notes (the “Notes”) are unsecured and rank equally in right of payment with any of UCI’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 senior credit facility borrowings are guaranteed on a full and unconditional and joint and several basis by UCI’s domestic subsidiaries.

The condensed financial information that follows includes condensed financial statements for (a) UCI, which is the issuer of the Notes and borrower under the senior credit facility, (b) the domestic subsidiaries, which guarantee the Notes and borrowings under the senior credit facility (the “Guarantors”), (c) the foreign subsidiaries (the “Non-Guarantors”), and (d) consolidated UCI. Also included are consolidating entries, which consist of eliminations of investments in consolidated subsidiaries and intercompany balances and transactions. All goodwill is included in UCI’s balance sheet.

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

United Components, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

Note P (continued)

Consolidating Condensed Balance Sheet
September 30, 2009
(in thousands)

		UCI																Non-
		Consolidated				Eliminations				UCI				Guarantors				Guarantors
Assets
Current assets
Cash and cash equivalents		$	115,065			$	—			$	104,867			$	49			$	10,149
Accounts receivable, net			271,209				—				—				253,502				17,707
Inventories, net			128,312				—				—				110,787				17,525
Deferred tax assets			26,171				—				255				26,294				(378	)
Other current assets			21,285				—				3,956				8,823				8,506
Total current assets			562,042				—				109,078				399,455				53,509
Property, plant and equipment, net			154,938				—				812				114,451				39,675
Investment in subsidiaries			—				(297,626	)			268,388				29,238				—
Goodwill			241,461				—				241,461				—				—
Other intangible assets, net			68,516				—				7,403				60,945				168
Deferred financing costs, net			2,004				—				2,004				—				—
Restricted cash			9,400				—				—				9,400				—
Other long-term assets			6,028				—				367				5,464				197
Total assets		$	1,044,389			$	(297,626	)		$	629,513			$	618,953			$	93,549
Liabilities and equity
Current liabilities
Accounts payable		$	105,800			$	—			$	2,632			$	87,492			$	15,676
Short-term borrowings			6,111				—				—				—				6,111
Current maturities of long-term debt			262				—				203				59				—
Accrued expenses and other current liabilities			110,425				—				16,532				88,223				5,670
Total current liabilities			222,598				—				19,367				175,774				27,457
Long-term debt, less current maturities			418,333				—				417,925				408				—
Pension and other postretirement liabilities			74,970				—				10,506				63,279				1,185
Deferred tax liabilities			6,526				—				20,613				(14,656	)			569
Due to Holdco			26,405				—				26,405				—				—
Other long-term liabilities			7,970				—				—				6,115				1,855
Intercompany payables (receivables)			—				—				(150,911	)			144,766				6,145
Total equity			287,587				(297,626	)			285,608				243,267				56,338
Total liabilities and equity		$	1,044,389			$	(297,626	)		$	629,513			$	618,953			$	93,549

United Components, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

Note P (continued)

Consolidating Condensed Balance Sheet
December 31, 2008
(in thousands)

		UCI																Non-
		Consolidated				Eliminations				UCI				Guarantors				Guarantors
Assets
Current assets
Cash and cash equivalents		$	46,612			$	—			$	39,061			$	860			$	6,691
Accounts receivable, net			261,624				—				—				246,101				15,523
Inventories, net			159,444				—				—				133,900				25,544
Deferred tax assets			24,245				—				255				23,479				511
Other current assets			19,452				—				648				8,602				10,202
Total current assets			511,377				—				39,964				412,942				58,471
Property, plant and equipment, net			167,906				—				1,006				123,579				43,321
Investment in subsidiaries			—				(253,698	)			225,275				28,423				—
Goodwill			241,461				—				241,461				—				—
Other intangible assets, net			74,606				—				9,025				65,378				203
Deferred financing costs, net			2,649				—				2,649				—				—
Other long-term assets			1,823				—				365				1,292				166
Total assets		$	999,822			$	(253,698	)		$	519,745			$	631,614			$	102,161
Liabilities and equity
Current liabilities
Accounts payable		$	104,416			$	—			$	4,140			$	86,407			$	13,869
Short-term borrowings			25,199				—				20,003				—				5,196
Current maturities of long-term debt			422				—				363				59				—
Accrued expenses and other current liabilities			85,730				—				8,356				73,448				3,926
Total current liabilities			215,767				—				32,862				159,914				22,991
Long-term debt, less current maturities			418,025				—				417,573				452				—
Pension and other postretirement liabilities			79,832				—				10,336				68,276				1,220
Deferred tax liabilities			3,560				—				18,406				(15,500	)			654
Due to Holdco			17,535				—				17,535				—				—
Other long-term liabilities			2,540				—				—				1,732				808
Intercompany payables (receivables)			—				—				(237,040	)			207,173				29,867
Total equity			262,563				(253,698	)			260,073				209,567				46,621
Total liabilities and equity		$	999,822			$	(253,698	)		$	519,745			$	631,614			$	102,161

United Components, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

Note P (continued)

Consolidating Condensed Income Statement
Three Months Ended September 30, 2009
(in thousands)

		UCI																Non-
		Consolidated				Eliminations				UCI				Guarantors				Guarantors
Net sales		$	228,913			$	(25,466	)		$	—			$	217,992			$	36,387
Cost of sales			173,099				(25,466	)			—				166,876				31,689
Gross profit			55,814				—				—				51,116				4,698
Operating (expense) income
Selling and warehousing			(14,051	)			—				(251	)			(12,317	)			(1,483	)
General and administrative			(11,058	)			—				(3,944	)			(5,929	)			(1,185	)
Amortization of acquired intangible assets			(1,398	)			—				(2	)			(1,420	)			24
Restructuring costs			(394	)			—				—				(93	)			(301	)
Operating income (loss)			28,913				—				(4,197	)			31,357				1,753
Other (expense) income
Interest expense, net			(7,220	)			—				(7,169	)			(6	)			(45	)
Intercompany interest			—				—				6,334				(6,221	)			(113	)
Management fee expense			(500	)			—				(500	)			—				—
Miscellaneous, net			(1,011	)			—				—				(1,011	)			—
Income (loss) before income taxes			20,182				—				(5,532	)			24,119				1,595
Income tax (expense) benefit			(7,200	)			—				1,749				(8,057	)			(892	)
Increase (decrease) before equity in earnings of subsidiaries			12,982				—				(3,783	)			16,062				703
Equity in earnings of subsidiaries			—				(17,958	)			16,897				1,061				—
Net income (loss)			12,982				(17,958	)			13,114				17,123				703
Less: Loss attributable to noncontrolling interest			(132	)			—				—				—				(132	)
Net income (loss) attributable to United Components, Inc.		$	13,114			$	(17,958	)		$	13,114			$	17,123			$	835

United Components, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

Note P (continued)

Consolidating Condensed Income Statement
Nine Months Ended September 30, 2009
(in thousands)

		UCI																Non-
		Consolidated				Eliminations				UCI				Guarantors				Guarantors
Net sales		$	666,197			$	(80,582	)		$	—			$	633,835			$	112,944
Cost of sales			521,847				(80,582	)			—				502,469				99,960
Gross profit			144,350				—				—				131,366				12,984
Operating (expense) income
Selling and warehousing			(42,435	)			—				(410	)			(37,886	)			(4,139	)
General and administrative			(34,521	)			—				(11,883	)			(18,802	)			(3,836	)
Amortization of acquired intangible assets			(4,359	)			—				—				(4,359	)			—
Restructuring gains (costs), net			(1	)			—				—				(449	)			448
Operating income (loss)			63,034				—				(12,293	)			69,870				5,457
Other (expense) income
Interest expense, net			(23,012	)			—				(22,837	)			(19	)			(156	)
Intercompany interest			—				—				19,382				(18,978	)			(404	)
Management fee expense			(1,500	)			—				(1,500	)			—				—
Miscellaneous, net			(4,165	)			—				—				(4,165	)			—
Income (loss) before income taxes			34,357				—				(17,248	)			46,708				4,897
Income tax (expense) benefit			(12,696	)			—				6,514				(16,795	)			(2,415	)
Increase (decrease) before equity in earnings of subsidiaries			21,661				—				(10,734	)			29,913				2,482
Equity in earnings of subsidiaries			—				(35,472	)			32,906				2,566				—
Net income (loss)			21,661				(35,472	)			22,172				32,479				2,482
Less: Loss attributable to noncontrolling interest			(511	)			—				—				—				(511	)
Net income (loss) attributable to United Components, Inc.		$	22,172			$	(35,472	)		$	22,172			$	32,479			$	2,993

United Components, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

Note P (continued)

Consolidating Condensed Income Statement
Three Months Ended September 30, 2008
(in thousands)

		UCI																Non-
		Consolidated				Eliminations				UCI				Guarantors				Guarantors
Net sales		$	218,136			$	(23,368	)		$	—			$	207,878			$	33,626
Cost of sales			170,621				(23,368	)			—				161,387				32,602
Gross profit			47,515				—				—				46,491				1,024
Operating expense
Selling and warehousing			(15,679	)			—				(299	)			(14,002	)			(1,378	)
General and administrative			(13,028	)			—				(4,428	)			(6,993	)			(1,607	)
Amortization of acquired intangible assets			(1,545	)			—				—				(1,545	)			—
Restructuring costs			(196	)			—				—				(196	)			—
Operating income (loss)			17,067				—				(4,727	)			23,755				(1,961	)
Other (expense) income
Interest expense, net			(8,282	)			—				(8,271	)			(7	)			(4	)
Intercompany interest			—				—				6,511				(6,304	)			(207	)
Management fee expense			(500	)			—				(500	)			—				—
Miscellaneous, net			(920	)			—				—				(945	)			25
Income (loss) before income taxes			7,365				—				(6,987	)			16,499				(2,147	)
Income tax (expense) benefit			(3,164	)			—				2,494				(5,913	)			255
Increase (decrease) before equity in earnings of subsidiaries			4,201				—				(4,493	)			10,586				(1,892	)
Equity in earnings of subsidiaries			—				(7,462	)			8,933				(1,471	)			—
Net income (loss)			4,201				(7,462	)			4,440				9,115				(1,892	)
Less: Loss attributable to noncontrolling interest			(239	)			—				—				—				(239	)
Net income (loss) attributable to United Components, Inc.		$	4,440			$	(7,462	)		$	4,440			$	9,115			$	(1,653	)