##### 



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
 For the quarterly period ended September 30, 2006
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 333-107219
 UNITED COMPONENTS, INC.
  Delaware
    
    04-3759857(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)14601 Highway 41 North
    
    47725Evansville, Indiana
    
    (Zip Code)(Address of Principal Executive Offices)
 (812) 867-4156
 
  o þ
  o o þ
  o þ




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##### 



United Components, Inc.
 Index
 Part I FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)Condensed consolidated balance sheets  September 30, 2006 and December 31, 2005Condensed consolidated income statements  Three and nine months ended September 30,
2006 and 2005Condensed consolidated statements of cash flows  Nine months ended September 30, 2006
and 2005Condensed consolidated statements of changes in shareholders equity  Nine months ended
September 30, 2006 and 2005Notes to condensed consolidated financial statementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II OTHER INFORMATIONItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 3. Default Upon Senior SecuritiesItem 4. Submission of Matters to Vote of Security HoldersItem 5. Other InformationItem 6. ExhibitsSignaturesExhibits
 2




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##### 



PART I
FINANCIAL INFORMATION
 Item 1. Financial Statements
 United Components, Inc.
 Condensed Consolidated Balance Sheets  (in thousands)
 September 30,
    
    
    December 31,2006
    
    
    2005AssetsCurrent assetsCash and cash equivalents
    
    $
    41,395
    
    
    $
    26,182Accounts receivable, net
    
    
    253,641
    
    
    
    233,007Inventories, net
    
    
    179,131
    
    
    
    150,190Deferred tax assets
    
    
    26,261
    
    
    
    22,529Other current assets
    
    
    33,692
    
    
    
    21,634Assets of discontinued operations
    
    
    
    
    
    
    63,863Total current assets
    
    
    534,120
    
    
    
    517,405Property, plant and equipment, net
    
    
    191,412
    
    
    
    180,647Goodwill
    
    
    236,078
    
    
    
    166,559Other intangible assets, net
    
    
    100,083
    
    
    
    87,197Deferred financing costs, net
    
    
    5,887
    
    
    
    6,177Pension and other assets
    
    
    13,676
    
    
    
    12,904Assets held for sale
    
    
    4,477
    
    
    
    Assets of discontinued operations
    
    
    
    
    
    
    13,953Total assets
    
    $
    1,085,733
    
    
    $
    984,842Liabilities and shareholders equityCurrent liabilitiesAccounts payable
    
    $
    97,335
    
    
    $
    94,613Short-term borrowings
    
    
    10,516
    
    
    
    261Current maturities of long-term debt
    
    
    407
    
    
    
    12Accrued expenses and other current liabilities
    
    
    109,841
    
    
    
    93,585Liabilities of discontinued operations
    
    
    
    
    
    
    17,778Total current liabilities
    
    
    218,099
    
    
    
    206,249Long-term debt, less current maturities
    
    
    521,831
    
    
    
    442,274Pension and other postretirement liabilities
    
    
    46,372
    
    
    
    49,623Deferred tax liabilities
    
    
    12,590
    
    
    
    3,554Other long-term liabilities
    
    
    6,616
    
    
    
    1,936Liabilities of discontinued operations
    
    
    
    
    
    
    860Contingencies  Note O
    
    
    
    
    
    
    Total liabilities
    
    
    805,508
    
    
    
    704,496Shareholders equityCommon stock
    
    
    
    
    
    
    Additional paid in capital
    
    
    273,325
    
    
    
    263,636Retained earnings
    
    
    5,240
    
    
    
    17,546Accumulated other comprehensive income (loss)
    
    
    1,660
    
    
    
    (836
    )Total shareholders equity
    
    
    280,225
    
    
    
    280,346Total liabilities and shareholders equity
    
    $
    1,085,733
    
    
    $
    984,842
 The accompanying notes are an integral part of these statements.
 3




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##### 



United Components, Inc.
 Condensed Consolidated Income Statements  (in thousands)
 Three Months ended September 30,
    
    
    Nine Months ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    252,437
    
    
    $
    223,888
    
    
    $
    729,012
    
    
    $
    667,607Cost of sales
    
    
    205,286
    
    
    
    177,253
    
    
    
    584,216
    
    
    
    531,617Gross profit
    
    
    47,151
    
    
    
    46,635
    
    
    
    144,796
    
    
    
    135,990Operating expensesSelling and warehousing
    
    
    15,857
    
    
    
    15,488
    
    
    
    47,826
    
    
    
    46,086General and administrative
    
    
    11,017
    
    
    
    9,086
    
    
    
    34,721
    
    
    
    31,115Amortization of acquired intangible assets
    
    
    1,844
    
    
    
    1,708
    
    
    
    4,773
    
    
    
    4,772Costs of integration of water pump
operations and resulting asset impairment
losses (Note C)
    
    
    829
    
    
    
    
    
    
    
    5,429
    
    
    
    Costs of closing facilities and
consolidating operations (Note E)
    
    
    813
    
    
    
    
    
    
    
    6,275
    
    
    
    Loss on abandonment of an operation
(Note F)
    
    
    
    
    
    
    577
    
    
    
    
    
    
    
    2,759Operating income
    
    
    16,791
    
    
    
    19,776
    
    
    
    45,772
    
    
    
    51,258Other income (expense)Interest expense, net
    
    
    (12,071
    )
    
    
    (9,103
    )
    
    
    (31,935
    )
    
    
    (26,514
    )Write-off of deferred financing costs
(Note J)
    
    
    
    
    
    
    
    
    
    
    (2,625
    )
    
    
    Management fee expense
    
    
    (500
    )
    
    
    (500
    )
    
    
    (1,500
    )
    
    
    (1,500
    )Miscellaneous, net
    
    
    155
    
    
    
    (207
    )
    
    
    92
    
    
    
    (351
    )Income before income taxes
    
    
    4,375
    
    
    
    9,966
    
    
    
    9,804
    
    
    
    22,893Income tax expense
    
    
    2,313
    
    
    
    4,015
    
    
    
    5,347
    
    
    
    10,340Net income from continuing operations
    
    
    2,062
    
    
    
    5,951
    
    
    
    4,457
    
    
    
    12,553Discontinued operations (Note D)Net income from discontinued operations,
net of tax
    
    
    
    
    
    
    45
    
    
    
    1,509
    
    
    
    546Loss on sale of discontinued operations,
net of tax
    
    
    
    
    
    
    
    
    
    
    (18,272
    )
    
    
    
    
    
    
    45
    
    
    
    (16,763
    )
    
    
    546Net (loss) income
    
    $
    2,062
    
    
    $
    5,996
    
    
    $
    (12,306
    )
    
    $
    13,099
 The accompanying notes are an integral part of these statements.
 4




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##### 



United Components, Inc.
 Condensed Consolidated Statements of Cash Flows  (in thousands)
 Nine Months ended September 30,2006
    
    
    2005Cash flows from operating activities of continuing operationsNet (loss) income
    
    $
    (12,306
    )
    
    $
    13,099Less:Net income from discontinued operations, net of tax
    
    
    1,509
    
    
    
    546Loss on sale of discontinued operations, net of tax
    
    
    (18,272
    )
    
    
    Net income from continuing operations
    
    
    4,457
    
    
    
    12,553Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization of other intangible assets
    
    
    28,003
    
    
    
    27,781Amortization of deferred financing costs and debt issuance costs
    
    
    1,775
    
    
    
    1,660Deferred income taxes
    
    
    (3,619
    )
    
    
    6,928Non-cash write off of deferred financing costs
    
    
    2,625
    
    
    
    Non-cash asset write-downs, described in Notes C and E
    
    
    6,052
    
    
    
    Other non-cash, net
    
    
    775
    
    
    
    1,048Changes in operating assets and liabilitiesAccounts receivable
    
    
    (7,897
    )
    
    
    (29,282
    )Inventories
    
    
    12,374
    
    
    
    1,628Other current assets
    
    
    (454
    )
    
    
    (2,065
    )Accounts payable
    
    
    (14,539
    )
    
    
    18,765Accrued expenses and other current liabilities
    
    
    3,877
    
    
    
    2,731Other assets
    
    
    623
    
    
    
    (855
    )Other long-term liabilities
    
    
    558
    
    
    
    (1,467
    )Net cash provided by operating activities of continuing operations
    
    
    34,610
    
    
    
    39,425Cash flows from investing activities of continuing operationsPurchase price of the ASC Acquisition, net of cash acquired
    
    
    (121,734
    )
    
    
    Proceeds from sale of discontinued operations
    
    
    36,300
    
    
    
    Capital expenditures
    
    
    (18,299
    )
    
    
    (25,114
    )Proceeds from sale of property, plant and equipment
    
    
    1,217
    
    
    
    147Net cash used in investing activities of continuing operations
    
    
    (102,516
    )
    
    
    (24,967
    )Cash flows from financing activities of continuing operationsIssuances of debt
    
    
    113,000
    
    
    
    33,000Financing fees
    
    
    (3,636
    )
    
    
    Debt repayments
    
    
    (34,538
    )
    
    
    (48,667
    )Shareholders equity contribution
    
    
    8,515
    
    
    
    536Net cash provided by (used in) financing activities of continuing
operations
    
    
    83,341
    
    
    
    (15,131
    )Discontinued operations:Net cash provided by (used in) operating activities of discontinued
operations
    
    
    369
    
    
    
    (1,168
    )Net cash used in investing activities of discontinued operations
    
    
    (806
    )
    
    
    (1,261
    )Effect of exchange rate changes on cash
    
    
    215
    
    
    
    (300
    )Net increase (decrease) in cash and cash equivalents
    
    
    15,213
    
    
    
    (3,402
    )Cash and cash equivalents at beginning of year
    
    
    26,182
    
    
    
    11,291Cash and cash equivalents at end of period
    
    $
    41,395
    
    
    $
    7,889
 The accompanying notes are an integral part of these statements.
 5




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##### 



United Components, Inc.
 Condensed Consolidated Statements of Changes in Shareholders Equity  (in thousands)
 AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    TotalCommon
    
    
    Paid In
    
    
    Retained
    
    
    Comprehensive
    
    
    Shareholders
    
    
    ComprehensiveStock
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Equity
    
    
    Income (Loss)Balance at January 1, 2005
    
    $
    
    
    
    $
    263,120
    
    
    $
    22,074
    
    
    $
    2,726
    
    
    $
    287,920Additions to paid in capital
    
    
    
    
    
    
    536
    
    
    
    
    
    
    
    
    
    
    
    536Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    13,099
    
    
    
    
    
    
    
    13,099
    
    
    $
    13,099Other comprehensive lossInterest rate swaps
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (344
    )
    
    
    (344
    )
    
    
    (344
    )Foreign currency adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,262
    )
    
    
    (3,262
    )
    
    
    (3,262
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    9,493Balance at September 30, 2005
    
    $
    
    
    
    $
    263,656
    
    
    $
    35,173
    
    
    $
    (880
    )
    
    $
    297,949Balance at January 1, 2006
    
    $
    
    
    
    $
    263,636
    
    
    $
    17,546
    
    
    $
    (836
    )
    
    $
    280,346Additions to paid in capital
    
    
    
    
    
    
    8,515
    
    
    
    
    
    
    
    
    
    
    
    8,515Recognition of stock based compensation
expense
    
    
    
    
    
    
    1,174
    
    
    
    
    
    
    
    
    
    
    
    1,174Comprehensive lossNet (loss) income
    
    
    
    
    
    
    
    
    
    
    (12,306
    )
    
    
    
    
    
    
    (12,306
    )
    
    $
    (12,306
    )Other comprehensive incomeInterest rate swaps
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    199
    
    
    
    199
    
    
    
    199Foreign currency adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,699
    
    
    
    1,699
    
    
    
    1,699Minimum pension liability
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    598
    
    
    
    598
    
    
    
    598Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (9,810
    )Balance at September 30, 2006
    
    $
    
    
    
    $
    273,325
    
    
    $
    5,240
    
    
    $
    1,660
    
    
    $
    280,225
 The accompanying notes are an integral part of these statements.
 6




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##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 NOTE A  GENERAL AND BASIS OF FINANCIAL STATEMENT PRESENTATION
 General
     Basis of Presentation
       7




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##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 NOTE B  ACQUISITION OF ASC INDUSTRIES, INC.
    Purchase Price
    Financing for the ASC Acquisition
  (in millions)Proceeds from additional UCI debt
    
    $
    113.0UCIs cash on hand
    
    
    4.2Rollover equity
    
    
    8.3$
    125.5
   Preliminary Allocation of the ASC Acquisition Purchase Price
  8




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##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
  (in millions)Cash
    
    $
    3.8Accounts receivable
    
    
    12.5Inventory
    
    
    41.4Property, plant and equipment
    
    
    26.7Acquired intangible assets
    
    
    17.3Goodwill
    
    
    69.5Other assets
    
    
    2.7Accounts payable and accrued liabilities
    
    
    (24.8
    )Long-term debt and capital lease obligations
    
    
    (11.3
    )Other liabilities
    
    
    (4.7
    )Deferred income taxes
    
    
    (7.6
    )$
    125.5
  Pro Forma Information
   (in millions)Three Months ended September 30,
    
    Nine Months ended September 30,2006
    
    2005
    
    2006
    
    2005Net sales
    
    $
    252.4
    
    
    $
    250.1
    
    
    $
    770.8
    
    
    $
    741.3Operating income
    
    
    23.5
    
    
    
    22.5
    
    
    
    61.9
    
    
    
    42.7Net income from
continuing
operations
    
    
    6.0
    
    
    
    5.9
    
    
    
    14.0
    
    
    
    1.6
  9




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##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 NOTE C 
    
    COSTS OF INTEGRATION OF WATER PUMP OPERATIONS AND RESULTING ASSET IMPAIRMENT LOSSES
  Nine MonthsSecond
    
    
    Third
    
    
    EndedQuarter
    
    
    Quarter
    
    
    Sept. 30Land, building, & equipment impairment losses
    
    $
    4.3
    
    
    $
    
    
    
    $
    4.3Severance
    
    
    0.3
    
    
    
    
    
    
    
    0.3Raw materials write-off
    
    
    
    
    
    
    0.3
    
    
    
    0.3Other integration costs
    
    
    
    
    
    
    0.5
    
    
    
    0.5$
    4.6
    
    
    $
    0.8
    
    
    $
    5.4
     10




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##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 NOTE D  DISCONTINUED OPERATIONS
     Three Months ended
    
    Nine Months endedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Net sales
    
    $
    

    
    $
    33.5
    
    
    $
    67.6
    
    
    $
    104.6Income before income taxes
    
    
    

    
    
    0.1
    
    
    
    2.5
    
    
    
    0.9
  NOTE E  COSTS OF CLOSING FACILITIES AND CONSOLIDATING OPERATIONS
  AssetWrite-downs
    
    
    Severance
    
    
    Other
    
    
    TotalFirst half of 2006 recorded costsClosure of Canadian facility
    
    $
    0.4
    
    
    $
    0.4
    
    
    $
    0.1
    
    
    $
    0.9Closure of Mexican facility
    
    
    1.0
    
    
    
    2.0
    
    
    
    1.6
    
    
    
    4.61.4
    
    
    
    2.4
    
    
    
    1.7
    
    
    
    5.5Third quarter of 2006 recorded costsClosure of Canadian facility
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Closure of Mexican facility
    
    
    
    
    
    
    
    
    
    
    0.8
    
    
    
    0.8
    
    
    
    
    
    
    
    0.8
    
    
    
    0.8Nine months ended September 30, 2006
    
    $
    1.4
    
    
    $
    2.4
    
    
    $
    2.5
    
    
    $
    6.3
 11




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 Closure of Canadian facility
    Closure of Mexican facility
       NOTE F  ABANDONMENT OF AN OPERATION
    12




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
  NOTE G  2006 EXPENDITURES FOR 2005 LOSS PROVISION
   December 31, 2005 balance
    
    $
    1.2Cash paid
    
    
    (0.6
    )September 30, 2006 balance
    
    $
    0.6
 NOTE H  INCOME TAXES
     NOTE I  SALES OF RECEIVABLES
  13




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##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
   NOTE J  DEBT
      Short-term borrowings
    
    $
    10.5Capital leases obligations
    
    
    1.0Term loan
    
    
    295.4Senior subordinated notes
    
    
    230.0Unamortized debt issuance costs
    
    
    (4.2
    )532.7LessShort-term borrowing
    
    
    10.5Current maturities
    
    
    0.4Long-term debt
    
    $
    521.8
   14




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##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
  NOTE K  INVENTORIES
  September 30,
    
    
    December 31,2006
    
    
    2005Raw materials
    
    $
    58.0
    
    
    $
    41.5Work in process
    
    
    36.0
    
    
    
    24.5Finished products
    
    
    104.6
    
    
    
    101.6Valuation reserves
    
    
    (19.5
    )
    
    
    (17.4
    )$
    179.1
    
    
    $
    150.2
 NOTE L  ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
  September 30,
    
    
    December 31,2006
    
    
    2005Salaries and wages
    
    $
    3.3
    
    
    $
    2.9Bonuses
    
    
    6.1
    
    
    
    3.9Vacation pay
    
    
    5.2
    
    
    
    4.9Pension and other postretirement liabilities
    
    
    8.0
    
    
    
    8.7Product returns
    
    
    24.6
    
    
    
    26.2Rebates, credits and discounts due customers
    
    
    9.2
    
    
    
    11.0Insurance
    
    
    11.1
    
    
    
    9.7Taxes payable
    
    
    6.4
    
    
    
    7.6Interest
    
    
    9.4
    
    
    
    3.0Other
    
    
    26.5
    
    
    
    15.7$
    109.8
    
    
    $
    93.6
 NOTE M  PRODUCT RETURNS LIABILITY
  15




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##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
   Nine Months ended September 30,2006
    
    
    2005Beginning of year
    
    $
    26.2
    
    
    $
    14.8Addition due to ASC Acquisition
    
    
    1.2
    
    
    
    Cost of unsalvageable parts
    
    
    (37.5
    )
    
    
    (29.1
    )Additional reductions to sales
    
    
    34.7
    
    
    
    27.2End of period
    
    $
    24.6
    
    
    $
    12.9
 NOTE N  PENSION
  Three Months ended September 30,
    
    
    Nine Months ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    1.9
    
    
    $
    2.0
    
    
    $
    5.9
    
    
    $
    6.1Interest cost
    
    
    3.0
    
    
    
    2.8
    
    
    
    9.1
    
    
    
    8.5Expected return on plan assets
    
    
    (3.6
    )
    
    
    (3.1
    )
    
    
    (10.2
    )
    
    
    (9.3
    )Amortization of prior service
cost and unrecognized loss
    
    
    
    
    
    
    
    
    
    
    0.3
    
    
    
    $
    1.3
    
    
    $
    1.7
    
    
    $
    5.1
    
    
    $
    5.3
 NOTE O  CONTINGENCIES
 Environmental
  16




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 Litigation
  Product Recall
    International Asset Transfers
  NOTE P  GEOGRAPHIC INFORMATION
  Three Months ended September 30,
    
    
    Nine Months ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005United States
    
    $
    204.3
    
    
    $
    180.4
    
    
    $
    585.7
    
    
    $
    529.1Canada
    
    
    7.1
    
    
    
    8.5
    
    
    
    20.0
    
    
    
    22.4United Kingdom
    
    
    10.1
    
    
    
    7.7
    
    
    
    29.5
    
    
    
    27.9Mexico
    
    
    10.1
    
    
    
    8.1
    
    
    
    29.1
    
    
    
    21.4Germany
    
    
    2.7
    
    
    
    3.0
    
    
    
    9.7
    
    
    
    10.6Spain
    
    
    0.8
    
    
    
    0.8
    
    
    
    2.9
    
    
    
    2.9Belgium
    
    
    1.9
    
    
    
    1.4
    
    
    
    6.3
    
    
    
    5.2France
    
    
    2.4
    
    
    
    2.5
    
    
    
    8.4
    
    
    
    8.3Sweden
    
    
    1.3
    
    
    
    1.1
    
    
    
    4.2
    
    
    
    4.5Other
    
    
    11.7
    
    
    
    10.4
    
    
    
    33.2
    
    
    
    35.3$
    252.4
    
    
    $
    223.9
    
    
    $
    729.0
    
    
    $
    667.6
 17




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
  September 30,
    
    
    December 31,2006
    
    
    2005United States
    
    $
    248.5
    
    
    $
    253.4United Kingdom
    
    
    32.0
    
    
    
    30.3China
    
    
    19.3
    
    
    
    Mexico
    
    
    12.2
    
    
    
    13.1Spain
    
    
    3.5
    
    
    
    3.6Canada
    
    
    
    
    
    
    0.5Goodwill
    
    
    236.1
    
    
    
    166.5$
    551.6
    
    
    $
    467.4
 NOTE Q  STOCK OPTIONS
 Adoption of SFAS No. 123R
    Three Months
    
    
    Nine Monthsended
    
    
    endedSeptember 30,
    
    
    September 30,2005
    
    
    2005Net income from continuing operations, as reported
    
    $
    6.0
    
    
    $
    12.6Pro forma stock-based compensation expense, net of tax
    
    
    0.4
    
    
    
    1.0Pro forma net income from continuing operations
    
    $
    5.6
    
    
    $
    11.6
 Description of Plan and Valuation of Stock Options
  18




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
   Number of shares under option:Outstanding at December 31, 2005
    
    
    304,040Granted
    
    
    8,000Exercised
    
    
    Cancelled
    
    
    (23,475
    )Outstanding at September 30, 2006
    
    
    288,565Exercisable at September 30, 2006
    
    
    84,748
   Nine Months endedSeptember 30, 2006Dividend yield
    
    
    0.00
    %Risk-free interest rate
    
    
    4.34
    %Volatility
    
    
    41.00
    %Expected option term in years
    
    
    8Exercise price
    
    $
    100Market value
    
    $
    100
    19




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 NOTE R  NEW ACCOUNTING PRONOUNCEMENTS
      NOTE S  OTHER INFORMATION
   20




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
  Three Months ended September 30,
    
    Nine Months ended September 30,2006
    
    2005
    
    2006
    
    2005Interest
    
    $
    5.6
    
    
    $
    3.2
    
    
    $
    24.4
    
    
    $
    20.3Income taxes paid (net of refunds)
    
    
    (0.7
    )
    
    
    4.0
    
    
    
    (1.8
    )
    
    
    13.3
 NOTE T  GUARANTOR AND NON-GUARANTOR FINANCIAL STATEMENTS
    21




---



##### 



United
Components, Inc.

 


Notes to Condensed Consolidated Financial Statements
 Consolidating Condensed Balance Sheet


September 30, 2006  (in thousands)
 UCI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-Consolidated
    
    
    Eliminations
    
    
    UCI
    
    
    Guarantors
    
    
    GuarantorsAssetsCurrent assetsCash and cash equivalents
    
    $
    41,395
    
    
    $
    
    
    
    $
    31,348
    
    
    $
    944
    
    
    $
    9,103Accounts receivable, net
    
    
    253,641
    
    
    
    
    
    
    
    
    
    
    
    224,349
    
    
    
    29,292Inventories, net
    
    
    179,131
    
    
    
    
    
    
    
    
    
    
    
    156,149
    
    
    
    22,982Deferred tax assets
    
    
    26,261
    
    
    
    
    
    
    
    644
    
    
    
    24,893
    
    
    
    724Other current assets
    
    
    33,692
    
    
    
    
    
    
    
    5,538
    
    
    
    18,640
    
    
    
    9,514Total current assets
    
    
    534,120
    
    
    
    
    
    
    
    37,530
    
    
    
    424,975
    
    
    
    71,615Property, plant and equipment, net
    
    
    191,412
    
    
    
    
    
    
    
    250
    
    
    
    135,012
    
    
    
    56,150Intercompany notes receivable
    
    
    
    
    
    
    (467,000
    )
    
    
    467,000
    
    
    
    
    
    
    
    Investment in subsidiaries
    
    
    
    
    
    
    (175,212
    )
    
    
    160,326
    
    
    
    14,886
    
    
    
    Goodwill
    
    
    236,078
    
    
    
    
    
    
    
    236,078
    
    
    
    
    
    
    
    Other intangible assets, net
    
    
    100,083
    
    
    
    
    
    
    
    14,734
    
    
    
    82,949
    
    
    
    2,400Deferred financing costs, net
    
    
    5,887
    
    
    
    
    
    
    
    5,887
    
    
    
    
    
    
    
    Pension and other assets
    
    
    13,676
    
    
    
    
    
    
    
    321
    
    
    
    12,346
    
    
    
    1,009Assets held for sale
    
    
    4,477
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,477Total assets
    
    $
    1,085,733
    
    
    $
    (642,212
    )
    
    $
    922,126
    
    
    $
    670,168
    
    
    $
    135,651Liabilities and shareholders equityCurrent liabilitiesAccounts payable
    
    $
    97,335
    
    
    $
    
    
    
    $
    2,724
    
    
    $
    76,118
    
    
    $
    18,493Short-term borrowings
    
    
    10,516
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,516Current maturities of long-term debt
    
    
    407
    
    
    
    
    
    
    
    
    
    
    
    407
    
    
    
    Accrued expenses and other current
liabilities
    
    
    109,841
    
    
    
    
    
    
    
    13,692
    
    
    
    85,865
    
    
    
    10,284Total current liabilities
    
    
    218,099
    
    
    
    
    
    
    
    16,416
    
    
    
    162,390
    
    
    
    39,293Long-term debt, less current maturities
    
    
    521,831
    
    
    
    
    
    
    
    521,123
    
    
    
    708
    
    
    
    Pension and other postretirement liabilities
    
    
    46,372
    
    
    
    
    
    
    
    
    
    
    
    31,311
    
    
    
    15,061Deferred tax liabilities
    
    
    12,590
    
    
    
    
    
    
    
    10,311
    
    
    
    6,325
    
    
    
    (4,046
    )Other long-term liabilities
    
    
    6,616
    
    
    
    
    
    
    
    
    
    
    
    2,676
    
    
    
    3,940Intercompany payables (receivables)
    
    
    
    
    
    
    
    
    
    
    94,051
    
    
    
    (107,492
    )
    
    
    13,441Intercompany notes payable
    
    
    
    
    
    
    (467,000
    )
    
    
    
    
    
    
    447,000
    
    
    
    20,000Total shareholders equity
    
    
    280,225
    
    
    
    (175,212
    )
    
    
    280,225
    
    
    
    127,250
    
    
    
    47,962Total liabilities and shareholders
equity
    
    $
    1,085,733
    
    
    $
    (642,212
    )
    
    $
    922,126
    
    
    $
    670,168
    
    
    $
    135,651
 22




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 Consolidating Condensed Balance Sheet
December 31, 2005  (in thousands)
 UCI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-Consolidated
    
    
    Eliminations
    
    
    UCI
    
    
    Guarantors
    
    
    GuarantorsAssetsCurrent assetsCash and cash equivalents
    
    $
    26,182
    
    
    
    
    
    
    
    20,029
    
    
    
    1,307
    
    
    
    4,846Accounts receivable, net
    
    
    233,007
    
    
    
    
    
    
    
    
    
    
    
    208,983
    
    
    
    24,024Inventories, net
    
    
    150,190
    
    
    
    
    
    
    
    
    
    
    
    134,811
    
    
    
    15,379Deferred tax assets
    
    
    22,529
    
    
    
    
    
    
    
    103
    
    
    
    21,867
    
    
    
    559Other current assets
    
    
    21,634
    
    
    
    
    
    
    
    7,232
    
    
    
    8,337
    
    
    
    6,065Assets of discontinued operations
    
    
    63,863
    
    
    
    
    
    
    
    
    
    
    
    63,863
    
    
    
    Total current assets
    
    
    517,405
    
    
    
    
    
    
    
    27,364
    
    
    
    439,168
    
    
    
    50,873Property, plant and equipment, net
    
    
    180,647
    
    
    
    
    
    
    
    302
    
    
    
    137,662
    
    
    
    42,683Intercompany notes receivable
    
    
    
    
    
    
    (467,000
    )
    
    
    467,000
    
    
    
    
    
    
    
    Investment in subsidiaries
    
    
    
    
    
    
    (141,742
    )
    
    
    141,126
    
    
    
    616
    
    
    
    Goodwill
    
    
    166,559
    
    
    
    
    
    
    
    166,559
    
    
    
    
    
    
    
    Other intangible assets, net
    
    
    87,197
    
    
    
    
    
    
    
    14,643
    
    
    
    70,154
    
    
    
    2,400Deferred financing costs, net
    
    
    6,177
    
    
    
    
    
    
    
    6,177
    
    
    
    
    
    
    
    Pension and other assets
    
    
    12,904
    
    
    
    
    
    
    
    305
    
    
    
    12,454
    
    
    
    145Assets of discontinued operations
    
    
    13,953
    
    
    
    
    
    
    
    
    
    
    
    13,953
    
    
    
    Total assets
    
    $
    984,842
    
    
    $
    (608,742
    )
    
    $
    823,476
    
    
    $
    674,007
    
    
    $
    96,101Liabilities and shareholders equityCurrent liabilitiesAccounts payable
    
    $
    94,613
    
    
    
    
    
    
    
    4,647
    
    
    
    75,399
    
    
    
    14,567Short-term borrowings
    
    
    261
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    261Current maturities of long-term debt
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12Accrued expenses and other current
Liabilities
    
    
    93,585
    
    
    
    
    
    
    
    11,097
    
    
    
    75,156
    
    
    
    7,332Liabilities of discontinued operations
    
    
    17,778
    
    
    
    
    
    
    
    
    
    
    
    17,778
    
    
    
    Total current liabilities
    
    
    206,249
    
    
    
    
    
    
    
    15,744
    
    
    
    168,333
    
    
    
    22,172Long-term debt, less current maturities
    
    
    442,274
    
    
    
    
    
    
    
    442,274
    
    
    
    
    
    
    
    Pension and other postretirement liabilities
    
    
    49,623
    
    
    
    
    
    
    
    
    
    
    
    34,406
    
    
    
    15,217Deferred tax liabilities
    
    
    3,554
    
    
    
    
    
    
    
    13,377
    
    
    
    (4,767
    )
    
    
    (5,056
    )Other long-term liabilities
    
    
    1,936
    
    
    
    
    
    
    
    816
    
    
    
    1,936
    
    
    
    (816
    )Liabilities of discontinued operations
    
    
    860
    
    
    
    
    
    
    
    
    
    
    
    860
    
    
    
    Intercompany payables (receivables)
    
    
    
    
    
    
    
    
    
    
    70,919
    
    
    
    (82,497
    )
    
    
    11,578Intercompany notes payable
    
    
    
    
    
    
    (467,000
    )
    
    
    
    
    
    
    447,000
    
    
    
    20,000Total shareholders equity
    
    
    280,346
    
    
    
    (141,742
    )
    
    
    280,346
    
    
    
    108,736
    
    
    
    33,006Total liabilities and shareholders
equity
    
    $
    984,842
    
    
    $
    (608,742
    )
    
    $
    823,476
    
    
    $
    674,007
    
    
    $
    96,101
 23




---



##### 



United
Components, Inc.

 
Notes to Condensed Consolidated Financial Statements
 Consolidating Condensed Income Statement
Three Months Ended September 30, 2006  (in thousands)
 UCI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-Consolidated
    
    
    Eliminations
    
    
    UCI
    
    
    Guarantors
    
    
    GuarantorsNet sales
    
    $
    252,437
    
    
    $
    (13,489
    )
    
    $
    
    
    
    $
    229,322
    
    
    $
    36,604Cost of sales
    
    
    205,286
    
    
    
    (13,489
    )
    
    
    
    
    
    
    185,043
    
    
    
    33,732Gross profit
    
    
    47,151
    
    
    
    
    
    
    
    
    
    
    
    44,279
    
    
    
    2,872Operating expensesSelling and warehousing
    
    
    15,857
    
    
    
    
    
    
    
    425
    
    
    
    13,429
    
    
    
    2,003General and administrative
    
    
    11,017
    
    
    
    
    
    
    
    3,044
    
    
    
    5,123
    
    
    
    2,850Amortization of acquired intangible
assets
    
    
    1,844
    
    
    
    
    
    
    
    
    
    
    
    1,844
    
    
    
    Costs of integration of water pump
operations and resulting asset
impairment losses
    
    
    829
    
    
    
    
    
    
    
    
    
    
    
    829
    
    
    
    Costs of closing facilities and
consolidating operations
    
    
    813
    
    
    
    
    
    
    
    
    
    
    
    813
    
    
    
    Operating income (loss)
    
    
    16,791
    
    
    
    
    
    
    
    (3,469
    )
    
    
    22,241
    
    
    
    (1,981
    )Other income (expense)Interest expense, net
    
    
    (12,071
    )
    
    
    
    
    
    
    (11,378
    )
    
    
    (278
    )
    
    
    (415
    )Intercompany interest
    
    
    
    
    
    
    
    
    
    
    12,728
    
    
    
    (12,046
    )
    
    
    (682
    )Write-off of deferred financing costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Management fee expense
    
    
    (500
    )
    
    
    
    
    
    
    (500
    )
    
    
    
    
    
    
    Miscellaneous, net
    
    
    155
    
    
    
    
    
    
    
    
    
    
    
    155
    
    
    
    Income (loss) before income taxes
    
    
    4,375
    
    
    
    
    
    
    
    (2,619
    )
    
    
    10,072
    
    
    
    (3,078
    )Income tax expense (benefit)
    
    
    2,313
    
    
    
    
    
    
    
    (2,560
    )
    
    
    3,734
    
    
    
    1,139Increase (decrease) from continuing
operations before equity in earnings
of subsidiaries
    
    
    2,062
    
    
    
    
    
    
    
    (59
    )
    
    
    6,338
    
    
    
    (4,217
    )Equity in earnings of subsidiaries
    
    
    
    
    
    
    2,691
    
    
    
    2,121
    
    
    
    (4,812
    )
    
    
    Net (loss) income
    
    $
    2,062
    
    
    $
    2,691
    
    
    $
    2,062
    
    
    $
    1,526
    
    
    $
    (4,217
    )
 24




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 Consolidating Condensed Income Statement
Three Months Ended September 30, 2005  (in thousands)
 UCI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-Consolidated
    
    
    Eliminations
    
    
    UCI
    
    
    Guarantors
    
    
    GuarantorsNet sales
    
    $
    223,888
    
    
    $
    (3,765
    )
    
    $
    
    
    
    $
    198,947
    
    
    $
    28,706Cost of sales
    
    
    177,253
    
    
    
    (3,765
    )
    
    
    
    
    
    
    156,222
    
    
    
    24,796Gross profit
    
    
    46,635
    
    
    
    
    
    
    
    
    
    
    
    42,725
    
    
    
    3,910Operating expensesSelling and warehousing
    
    
    15,488
    
    
    
    
    
    
    
    
    
    
    
    13,656
    
    
    
    1,832General and administrative
    
    
    9,086
    
    
    
    
    
    
    
    2,828
    
    
    
    3,819
    
    
    
    2,439Amortization of acquired
intangible assets
    
    
    1,708
    
    
    
    
    
    
    
    295
    
    
    
    1,413
    
    
    
    Loss on abandonment of an operation
    
    
    577
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    577Operating income (loss)
    
    
    19,776
    
    
    
    
    
    
    
    (3,123
    )
    
    
    23,837
    
    
    
    (938
    )Other income (expense)Interest expense, net
    
    
    (9,103
    )
    
    
    
    
    
    
    (9,192
    )
    
    
    125
    
    
    
    (36
    )Intercompany interest
    
    
    
    
    
    
    
    
    
    
    9,734
    
    
    
    (9,175
    )
    
    
    (559
    )Management fee expense
    
    
    (500
    )
    
    
    
    
    
    
    (500
    )
    
    
    
    
    
    
    Miscellaneous, net
    
    
    (207
    )
    
    
    
    
    
    
    
    
    
    
    (39
    )
    
    
    (168
    )Income (loss) before income taxes
    
    
    9,966
    
    
    
    
    
    
    
    (3,081
    )
    
    
    14,748
    
    
    
    (1,701
    )Income tax expense (benefit)
    
    
    4,015
    
    
    
    
    
    
    
    (1,462
    )
    
    
    5,914
    
    
    
    (437
    )Increase (decrease) from continuing
operations before equity in earnings
of subsidiaries
    
    
    5,951
    
    
    
    
    
    
    
    (1,619
    )
    
    
    8,834
    
    
    
    (1,264
    )Equity in earnings of subsidiaries
    
    
    
    
    
    
    (6,845
    )
    
    
    7,615
    
    
    
    (770
    )
    
    
    Discontinued operationsNet income from discontinued
operations, net of tax
    
    
    45
    
    
    
    
    
    
    
    
    
    
    
    45
    
    
    
    Net (loss) income
    
    $
    5,996
    
    
    $
    (6,845
    )
    
    $
    5,996
    
    
    $
    8,109
    
    
    $
    (1,264
    )
 25




---



##### 



United
Components, Inc.

 


Notes to Condensed Consolidated Financial Statements
 Consolidating Condensed Income Statement
Nine Months Ended September 30, 2006  (in thousands)
 UCI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-Consolidated
    
    
    Eliminations
    
    
    UCI
    
    
    Guarantors
    
    
    GuarantorsNet sales
    
    $
    729,012
    
    
    $
    (24,593
    )
    
    $
    
    
    
    $
    646,538
    
    
    $
    107,067Cost of sales
    
    
    584,216
    
    
    
    (24,593
    )
    
    
    
    
    
    
    516,694
    
    
    
    92,115Gross profit
    
    
    144,796
    
    
    
    
    
    
    
    
    
    
    
    129,844
    
    
    
    14,952Operating expensesSelling and warehousing
    
    
    47,826
    
    
    
    
    
    
    
    1,100
    
    
    
    40,742
    
    
    
    5,984General and administrative
    
    
    34,721
    
    
    
    
    
    
    
    10,598
    
    
    
    16,130
    
    
    
    7,993Amortization of acquired intangible
assets
    
    
    4,773
    
    
    
    
    
    
    
    
    
    
    
    4,773
    
    
    
    Costs of integration of water pump
operations and resulting asset
impairment losses
    
    
    5,429
    
    
    
    
    
    
    
    
    
    
    
    5,429
    
    
    
    Costs of closing facilities and
consolidating operations
    
    
    6,275
    
    
    
    
    
    
    
    
    
    
    
    5,021
    
    
    
    1,254Operating income (loss)
    
    
    45,772
    
    
    
    
    
    
    
    (11,698
    )
    
    
    57,749
    
    
    
    (279
    )Other income (expense)Interest expense, net
    
    
    (31,935
    )
    
    
    
    
    
    
    (31,526
    )
    
    
    (20
    )
    
    
    (389
    )Intercompany interest
    
    
    
    
    
    
    
    
    
    
    33,052
    
    
    
    (31,240
    )
    
    
    (1,812
    )Write-off of deferred financing costs
    
    
    (2,625
    )
    
    
    
    
    
    
    (2,625
    )
    
    
    
    
    
    
    Management fee expense
    
    
    (1,500
    )
    
    
    
    
    
    
    (1,500
    )
    
    
    
    
    
    
    Miscellaneous, net
    
    
    92
    
    
    
    
    
    
    
    
    
    
    
    92
    
    
    
    Income (loss) before income taxes
    
    
    9,804
    
    
    
    
    
    
    
    (14,297
    )
    
    
    26,581
    
    
    
    (2,480
    )Income tax expense (benefit)
    
    
    5,347
    
    
    
    
    
    
    
    (5,759
    )
    
    
    9,695
    
    
    
    1,411Increase (decrease) from continuing
operations before equity in earnings
of subsidiaries
    
    
    4,457
    
    
    
    
    
    
    
    (8,538
    )
    
    
    16,886
    
    
    
    (3,891
    )Equity in earnings of subsidiaries
    
    
    
    
    
    
    (8,855
    )
    
    
    14,504
    
    
    
    (5,649
    )
    
    
    Discontinued operationsNet income from discontinued
operations, net of tax
    
    
    1,509
    
    
    
    
    
    
    
    
    
    
    
    1,509
    
    
    
    Loss on sale of discontinued
operations, net of tax
    
    
    (18,272
    )
    
    
    
    
    
    
    (18,272
    )
    
    
    
    
    
    
    (16,763
    )
    
    
    
    
    
    
    (18,272
    )
    
    
    1,509
    
    
    
    Net (loss) income
    
    $
    (12,306
    )
    
    $
    (8,855
    )
    
    $
    (12,306
    )
    
    $
    12,746
    
    
    $
    (3,891
    )
 26




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 Consolidating Condensed Income Statement
Nine Months Ended September 30, 2005  (in thousands)
 UCI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-Consolidated
    
    
    Eliminations
    
    
    UCI
    
    
    Guarantors
    
    
    GuarantorsNet sales
    
    $
    667,607
    
    
    $
    (10,321
    )
    
    $
    
    
    
    $
    580,783
    
    
    $
    97,145Cost of sales
    
    
    531,617
    
    
    
    (10,321
    )
    
    
    
    
    
    
    460,928
    
    
    
    81,010Gross profit
    
    
    135,990
    
    
    
    
    
    
    
    
    
    
    
    119,855
    
    
    
    16,135Operating expensesSelling and warehousing
    
    
    46,086
    
    
    
    
    
    
    
    
    
    
    
    40,279
    
    
    
    5,807General and administrative
    
    
    31,115
    
    
    
    
    
    
    
    9,497
    
    
    
    12,329
    
    
    
    9,289Amortization of acquired
intangible assets
    
    
    4,772
    
    
    
    
    
    
    
    295
    
    
    
    4,477
    
    
    
    Loss on abandonment of an operation
    
    
    2,759
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,759Operating income (loss)
    
    
    51,258
    
    
    
    
    
    
    
    (9,792
    )
    
    
    62,770
    
    
    
    (1,720
    )Other income (expense)Interest expense, net
    
    
    (26,514
    )
    
    
    
    
    
    
    (26,931
    )
    
    
    389
    
    
    
    28Intercompany interest
    
    
    
    
    
    
    
    
    
    
    28,498
    
    
    
    (26,938
    )
    
    
    (1,560
    )Management fee expense
    
    
    (1,500
    )
    
    
    
    
    
    
    (1,500
    )
    
    
    
    
    
    
    Miscellaneous, net
    
    
    (351
    )
    
    
    
    
    
    
    
    
    
    
    122
    
    
    
    (473
    )Income (loss) before income taxes
    
    
    22,893
    
    
    
    
    
    
    
    (9,725
    )
    
    
    36,343
    
    
    
    (3,725
    )Income tax expense (benefit)
    
    
    10,340
    
    
    
    
    
    
    
    (3,920
    )
    
    
    14,660
    
    
    
    (400
    )Increase (decrease) from continuing
operations before equity in earnings
of subsidiaries
    
    
    12,553
    
    
    
    
    
    
    
    (5,805
    )
    
    
    21,683
    
    
    
    (3,325
    )Equity in earnings of subsidiaries
    
    
    
    
    
    
    (15,325
    )
    
    
    18,904
    
    
    
    (3,579
    )
    
    
    Discontinued operations:Net income from discontinued
operations, net of tax
    
    
    546
    
    
    
    
    
    
    
    
    
    
    
    546
    
    
    
    Net income (loss)
    
    $
    13,099
    
    
    $
    (15,325
    )
    
    $
    13,099
    
    
    $
    18,650
    
    
    $
    (3,325
    )
 27




---



##### 



United
Components, Inc.

 


Notes to Condensed Consolidated Financial Statements
 Consolidating Condensed Statement of Cash Flows
Nine Months Ended September 30, 2006  (in thousands)
 UCI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-Consolidated
    
    
    Eliminations
    
    
    UCI
    
    
    Guarantors
    
    
    GuarantorsNet cash provided by operating
activities of continuing operations
    
    $
    34,610
    
    
    $
    
    
    
    $
    15,609
    
    
    $
    10,493
    
    
    $
    8,508Cash flows from investing activities of
continuing operations:Purchase price of the ASC
Acquisition, net of cash acquired
    
    
    (121,734
    )
    
    
    
    
    
    
    (121,734
    )
    
    
    
    
    
    
    Proceeds from sale of discontinued
operations
    
    
    36,300
    
    
    
    
    
    
    
    36,300
    
    
    
    
    
    
    
    Capital expenditures
    
    
    (18,299
    )
    
    
    
    
    
    
    (2,300
    )
    
    
    (11,130
    )
    
    
    (4,869
    )Proceeds from sale of property, plant
and equipment
    
    
    1,217
    
    
    
    
    
    
    
    
    
    
    
    814
    
    
    
    403Net cash used in investing activities of
continuing operations
    
    
    (102,516
    )
    
    
    
    
    
    
    (87,734
    )
    
    
    (10,316
    )
    
    
    (4,466
    )Cash flows from financing activities of
continuing operations:Issuances of debt
    
    
    113,000
    
    
    
    
    
    
    
    113,000
    
    
    
    
    
    
    
    Financing fees
    
    
    (3,636
    )
    
    
    
    
    
    
    (3,636
    )
    
    
    
    
    
    
    Debt repayments
    
    
    (34,538
    )
    
    
    
    
    
    
    (34,435
    )
    
    
    (103
    )
    
    
    Shareholders equity contributions
    
    
    8,515
    
    
    
    
    
    
    
    8,515
    
    
    
    
    
    
    
    Net cash provided by (used in) financing
activities of continuing operations
    
    
    83,341
    
    
    
    
    
    
    
    83,444
    
    
    
    (103
    )
    
    
    Discontinued operations:Net cash provided by operating
activities of discontinued operations
    
    
    369
    
    
    
    
    
    
    
    
    
    
    
    369
    
    
    
    Net cash used in investing activities
of discontinued operations
    
    
    (806
    )
    
    
    
    
    
    
    
    
    
    
    (806
    )
    
    
    Effect of exchange rate changes on cash
    
    
    215
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    215Net increase (decrease) in cash and cash equivalents
    
    
    15,213
    
    
    
    
    
    
    
    11,319
    
    
    
    (363
    )
    
    
    4,257Cash and cash equivalents at beginning of
year
    
    
    26,182
    
    
    
    
    
    
    
    20,029
    
    
    
    1,307
    
    
    
    4,846Cash and cash equivalents at end of period
    
    $
    41,395
    
    
    $
    
    
    
    $
    31,348
    
    
    $
    944
    
    
    $
    9,103
 28




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 Consolidating Condensed Statement of Cash Flows
Nine Months Ended September 30, 2005  (in thousands)
 Non-UCI Consolidated
    
    
    Eliminations
    
    
    UCI
    
    
    Guarantors
    
    
    GuarantorsNet cash provided by operating activities of continuing operations
    
    $
    39,425
    
    
    $
    
    
    
    $
    22,777
    
    
    $
    11,205
    
    
    $
    5,443Cash flows from investing activities of
continuing operations:Capital expenditures
    
    
    (25,114
    )
    
    
    
    
    
    
    (10,086
    )
    
    
    (11,031
    )
    
    
    (3,997
    )Proceeds from sale of property, plant
and equipment
    
    
    147
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    146Net cash used in investing activities of
continuing operations
    
    
    (24,967
    )
    
    
    
    
    
    
    (10,086
    )
    
    
    (11,030
    )
    
    
    (3,851
    )Cash flows from financing activities of
continuing operations:Issuances of debt
    
    
    33,000
    
    
    
    
    
    
    
    33,000
    
    
    
    
    
    
    
    Debt repayments
    
    
    (48,667
    )
    
    
    
    
    
    
    (48,500
    )
    
    
    
    
    
    
    (167
    )Shareholders equity contributions
    
    
    536
    
    
    
    
    
    
    
    536
    
    
    
    
    
    
    
    Net cash used in financing activities of
continuing operations
    
    
    (15,131
    )
    
    
    
    
    
    
    (14,964
    )
    
    
    
    
    
    
    (167
    )Discontinued operations:Net used in operating activities of
discontinued operations
    
    
    (1,168
    )
    
    
    
    
    
    
    
    
    
    
    (1,168
    )
    
    
    Net cash used in investing activities
of discontinued operations
    
    
    (1,261
    )
    
    
    
    
    
    
    
    
    
    
    (1,261
    )
    
    
    Effect of exchange rate changes on cash
    
    
    (300
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (300
    )Net increase (decrease) in cash and cash
equivalents
    
    
    (3,402
    )
    
    
    
    
    
    
    (2,273
    )
    
    
    (2,254
    )
    
    
    1,125Cash and cash equivalents at beginning of
year
    
    
    11,291
    
    
    
    
    
    
    
    3,916
    
    
    
    2,114
    
    
    
    5,261Cash and cash equivalents at end of period
    
    $
    7,889
    
    
    $
    
    
    
    $
    1,643
    
    
    $
    (140
    )
    
    $
    6,386
 29




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Forward-Looking Statements
    Overview
 Sales .
   30




---



##### 



Cost of Sales
  Selling and Warehousing Expenses
 31




---



##### 



General and Administrative Expenses
 Critical Accounting Policies and Estimates
   Inventory
 Revenue recognition
  Product Returns .
 32




---



##### 



Impairment of intangible assets and tangible fixed assets
  Retirement benefits
  Insurance Reserves .
 Environmental Expenditures
  Acquisition of ASC Industries, Inc.
 33




---



##### 



Results of Operations
  Three Months ended September 30,
    
    
    Nine Months ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    252,437
    
    
    $
    223,888
    
    
    $
    729,012
    
    
    $
    667,607Cost of sales
    
    
    205,286
    
    
    
    177,253
    
    
    
    584,216
    
    
    
    531,617Gross profit
    
    
    47,151
    
    
    
    46,635
    
    
    
    144,796
    
    
    
    135,990Operating expensesSelling and warehousing
    
    
    15,857
    
    
    
    15,488
    
    
    
    47,826
    
    
    
    46,086General and administrative
    
    
    11,017
    
    
    
    9,086
    
    
    
    34,721
    
    
    
    31,115Amortization of acquired intangible assets
    
    
    1,844
    
    
    
    1,708
    
    
    
    4,773
    
    
    
    4,772Costs of integration of water pump
operations and resulting asset impairment
losses
    
    
    829
    
    
    
    
    
    
    
    5,429
    
    
    
    Costs of closing facilities and
consolidating operations
    
    
    813
    
    
    
    
    
    
    
    6,275
    
    
    
    Loss on abandonment of an operation
    
    
    
    
    
    
    577
    
    
    
    
    
    
    
    2,759Operating income
    
    
    16,791
    
    
    
    19,776
    
    
    
    45,772
    
    
    
    51,258Other income (expense)Interest expense, net
    
    
    (12,071
    )
    
    
    (9,103
    )
    
    
    (31,935
    )
    
    
    (26,514
    )Write-off of deferred financing costs
    
    
    
    
    
    
    
    
    
    
    (2,625
    )
    
    
    Management fee expense
    
    
    (500
    )
    
    
    (500
    )
    
    
    (1,500
    )
    
    
    (1,500
    )Miscellaneous, net
    
    
    155
    
    
    
    (207
    )
    
    
    92
    
    
    
    (351
    )Income before income taxes
    
    
    4,375
    
    
    
    9,966
    
    
    
    9,804
    
    
    
    22,893Income tax expense
    
    
    2,313
    
    
    
    4,015
    
    
    
    5,347
    
    
    
    10,340Net income from continuing operations
    
    
    2,062
    
    
    
    5,951
    
    
    
    4,457
    
    
    
    12,553Discontinued operationsNet income from discontinued operations,
net of tax
    
    
    
    
    
    
    45
    
    
    
    1,509
    
    
    
    546Loss on sale of discontinued operations,
net of tax
    
    
    
    
    
    
    
    
    
    
    (18,272
    )
    
    
    
    
    
    
    45
    
    
    
    (16,763
    )
    
    
    546Net (loss) income
    
    $
    2,062
    
    
    $
    5,996
    
    
    $
    (12,306
    )
    
    $
    13,099
 34




---



##### 



Acquisition and Sales of Operations
    Three Months Ended September 30, 2006 compared with the Three Months Ended September 20, 2005
 Net sales
 Gross profit
    Selling and warehousing expenses
 35




---



##### 



General and administrative expenses
  Costs of integration of water pump operations and resulting asset impairment losses
 Costs of closing facilities and consolidating operations
 Loss on abandonment of an operation
 Interest expense, net
 Write-off of deferred financing costs
 Income tax expense
 Net income from continuing operations
 Discontinued operations
 Net (loss) income
 36




---



##### 



Nine Months Ended September 30, 2006 compared with the Nine Months Ended September 20, 2005
 Net sales
 Gross profit
    Selling and warehousing expenses
 General
and administrative expenses
  Costs of integration of water pump operations and resulting asset impairment losses
 37




---



##### 



Costs of closing facilities and consolidating operations
 Loss on abandonment of an operation
 Interest expense, net
 Write-off of deferred financing costs
 Income
tax expense
 Net income from continuing operations
 Discontinued operations
 Net
(loss) income
 Liquidity and Capital Resources
   September 30,
    
    
    December 31,2006
    
    
    2005Short-term borrowings
    
    $
    10.5
    
    
    $
    0.3Capital lease obligations
    
    
    1.0
    
    
    
    Term loan
    
    
    295.4
    
    
    
    217.0Senior subordinated notes
    
    
    230.0
    
    
    
    230.0Unamortized debt issuance costs
    
    
    (4.2
    )
    
    
    (4.8
    )$
    532.7
    
    
    $
    442.5
  38




---



##### 



2006
    
    
    4.22007
    
    
    7.12008
    
    
    1.12009
    
    
    3.32010
    
    
    3.3Thereafter
    
    
    517.9$
    536.9
      39




---



##### 



Net cash provided by operating activities from continuing operations
  Net cash used in investing activities from continuing operations
   Recent Accounting Pronouncements
      40




---



##### 



Item 3. Quantitative and Qualitative Disclosures about Market Risk
  Foreign Currency Exposure
 Currency translation
  Currency transactions .
  Interest Rate Risk
   41




---



##### 



Treasury Policy
  Item 4. Controls and Procedures
    42




---



##### 



PART II
OTHER INFORMATION
 Item 1. Legal Proceedings
  Item 1.A. Risk Factors
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Item 3. Default Upon Senior Securities
  Item 4. Submission of Matters to Vote of Security Holders
  Item 5. Other Information
  Item 6. Exhibits
 Exhibit 31.1
    
    Certification of Periodic Report by the Chief
Executive Officer pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934.Exhibit 31.2
    
    Certification of Periodic Report by the Chief
Financial Officer pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934.Exhibit 32
    
    Certification of Periodic Report by the Chief
Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. 1350, as created by Section 906
of the Sarbanes-Oxley Act of 2002.*
 
  43




---



##### 



SIGNATURES
  UNITED COMPONENTS, INC.Date: November 14, 2006
    By:
    /s/ CHARLES T. DICKSONName:
    Charles T. DicksonTitle:
    Chief Financial Officer 44