##### 



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 June 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
(State or Other Jurisdiction of Incorporation or Organization)
    
    04-3759857
(I.R.S. Employer Identification No.)
 14601 Highway 41 North
Evansville, Indiana
(Address of Principal Executive Offices)
    
    47725
(Zip Code)
 (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  June 30, 2006 and December 31, 2005Condensed consolidated income statements  Three and six months ended June 30, 2006 and 2005Condensed consolidated statements of cash flows  Six months ended June 30, 2006 and 2005Condensed consolidated statements of changes in shareholders equity  Six months ended June 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)
 June 30,
    
    
    December 31,2006
    
    
    2005AssetsCurrent
assetsCash and cash equivalents
    
    $
    56,966
    
    
    $
    26,182Accounts receivable, net
    
    
    266,274
    
    
    
    233,007Inventories, net
    
    
    190,928
    
    
    
    150,190Deferred tax assets
    
    
    24,173
    
    
    
    22,529Other current assets
    
    
    32,569
    
    
    
    21,634Assets of discontinued operations
    
    
    
    
    
    
    63,863Total current assets
    
    
    570,910
    
    
    
    517,405Property, plant and equipment, net
    
    
    192,631
    
    
    
    180,647Goodwill
    
    
    233,912
    
    
    
    166,559Other intangible assets, net
    
    
    101,657
    
    
    
    87,197Deferred financing costs, net
    
    
    6,542
    
    
    
    6,177Pension and other assets
    
    
    15,344
    
    
    
    12,904Assets held for sale
    
    
    4,477
    
    
    
    Assets of discontinued operations
    
    
    
    
    
    
    13,953Total assets
    
    $
    1,125,473
    
    
    $
    984,842Liabilities and shareholders equityCurrent liabilitiesAccounts payable
    
    $
    110,292
    
    
    $
    94,613Short-term borrowings
    
    
    10,049
    
    
    
    261Current maturities of long-term debt
    
    
    8,407
    
    
    
    12Accrued expenses and other current liabilities
    
    
    103,041
    
    
    
    93,585Liabilities of discontinued operations
    
    
    
    
    
    
    17,778Total current liabilities
    
    
    231,789
    
    
    
    206,249Long-term debt, less current maturities
    
    
    548,401
    
    
    
    442,274Pension and other postretirement liabilities
    
    
    50,145
    
    
    
    49,623Deferred tax liabilities
    
    
    9,992
    
    
    
    3,554Other long-term liabilities
    
    
    7,171
    
    
    
    1,936Liabilities of discontinued operations
    
    
    
    
    
    
    860Contingencies  Note O
    
    
    
    
    
    
    Total liabilities
    
    
    847,498
    
    
    
    704,496Shareholders equityCommon stock
    
    
    
    
    
    
    Additional paid in capital
    
    
    273,065
    
    
    
    263,636Retained earnings
    
    
    3,178
    
    
    
    17,546Accumulated other comprehensive income (loss)
    
    
    1,732
    
    
    
    (836
    )Total shareholders equity
    
    
    277,975
    
    
    
    280,346Total liabilities and shareholders equity
    
    $
    1,125,473
    
    
    $
    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 June 30,
    
    
    Six Months ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    245,795
    
    
    $
    232,018
    
    
    $
    476,575
    
    
    $
    443,719Cost of sales
    
    
    196,787
    
    
    
    184,141
    
    
    
    378,930
    
    
    
    354,364Gross profit
    
    
    49,008
    
    
    
    47,877
    
    
    
    97,645
    
    
    
    89,355Operating expensesSelling and warehousing
    
    
    15,724
    
    
    
    15,361
    
    
    
    31,969
    
    
    
    30,598General and administrative
    
    
    10,795
    
    
    
    10,970
    
    
    
    23,704
    
    
    
    22,029Amortization of acquired intangible assets
    
    
    1,690
    
    
    
    1,532
    
    
    
    2,929
    
    
    
    3,064Costs of integration of water pump
operations and resulting asset impairment
losses (Note C)
    
    
    4,600
    
    
    
    
    
    
    
    4,600
    
    
    
    Costs of closing facilities and
consolidating operations (Note E)
    
    
    4,069
    
    
    
    
    
    
    
    5,462
    
    
    
    Loss on abandonment of an operation
(Note F)
    
    
    
    
    
    
    2,182
    
    
    
    
    
    
    
    2,182Operating income
    
    
    12,130
    
    
    
    17,832
    
    
    
    28,981
    
    
    
    31,482Other income (expense)Interest expense, net
    
    
    (10,629
    )
    
    
    (8,740
    )
    
    
    (19,864
    )
    
    
    (17,411
    )Write-off of deferred financing costs
(Note J)
    
    
    (2,625
    )
    
    
    
    
    
    
    (2,625
    )
    
    
    Management fee expense
    
    
    (500
    )
    
    
    (500
    )
    
    
    (1,000
    )
    
    
    (1,000
    )Miscellaneous, net
    
    
    14
    
    
    
    (81
    )
    
    
    (63
    )
    
    
    (144
    )Income
(loss) before income taxes
    
    
    (1,610
    )
    
    
    8,511
    
    
    
    5,429
    
    
    
    12,927Income tax expense
    
    
    185
    
    
    
    4,557
    
    
    
    3,034
    
    
    
    6,325Net income (loss) from continuing operations
    
    
    (1,795
    )
    
    
    3,954
    
    
    
    2,395
    
    
    
    6,602Discontinued operations (Note D)Net income from discontinued operations,
net of tax
    
    
    946
    
    
    
    420
    
    
    
    1,509
    
    
    
    501Loss on sale of discontinued operations, net of tax
    
    
    (18,272
    )
    
    
    
    
    
    
    (18,272
    )
    
    
    (17,326
    )
    
    
    420
    
    
    
    (16,763
    )
    
    
    501Net (loss) income
    
    $
    (19,121
    )
    
    $
    4,374
    
    
    $
    (14,368
    )
    
    $
    7,103
 The accompanying notes are an integral part of these statements.
 4




---



##### 



United Components, Inc.
 Condensed Consolidated Statements
of Cash Flows  (in thousands)
 Six Months ended June 30,2006
    
    
    2005Cash flows from operating
activities of continuing operationsNet (loss) income
    
    $
    (14,368
    )
    
    $
    7,103Less:Net income
from discontinued operations, net of tax
    
    
    1,509
    
    
    
    501Loss on sale
of discontinued operations, net of tax
    
    
    (18,272
    )
    
    
    Net income from continuing operations
    
    
    2,395
    
    
    
    6,602Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization of other intangible assets
    
    
    18,332
    
    
    
    18,377Amortization of deferred financing costs and debt issuance costs
    
    
    962
    
    
    
    1,179Deferred income taxes
    
    
    (3,742
    )
    
    
    (1,475
    )Non-cash write off of deferred financing costs
    
    
    2,625
    
    
    
    Non-cash
asset write-downs, described in Notes C and E
    
    
    5,752
    
    
    
    Other non-cash, net
    
    
    467
    
    
    
    (376
    )Changes in operating assets and liabilitiesAccounts receivable
    
    
    (19,565
    )
    
    
    (25,523
    )Inventories
    
    
    623
    
    
    
    3,575Other current assets
    
    
    1,082
    
    
    
    (1,344
    )Accounts payable
    
    
    (2,682
    )
    
    
    20,327Accrued expenses and other current liabilities
    
    
    2,452
    
    
    
    5,389Other assets
    
    
    941
    
    
    
    214Other long-term liabilities
    
    
    1,096
    
    
    
    2,474Net cash provided by operating activities of continuing operations
    
    
    10,738
    
    
    
    29,419Cash flows from investing activities of continuing operationsAcquisition of ASC Industries, Inc.
    
    
    (123,477
    )
    
    
    Proceeds from sale of discontinued operations
    
    
    36,300
    
    
    
    Capital expenditures
    
    
    (11,685
    )
    
    
    (18,060
    )Proceeds from sale of property, plant and equipment
    
    
    1,480
    
    
    
    211Net cash used in investing activities of continuing operations
    
    
    (97,382
    )
    
    
    (17,849
    )Cash flows from financing activities of continuing operationsIssuances of debt
    
    
    113,000
    
    
    
    10,500Financing fees
    
    
    (3,636
    )
    
    
    Debt repayments
    
    
    (277
    )
    
    
    (23,663
    )Shareholders equity contributions
    
    
    8,600
    
    
    
    600Net cash
provided by (used in)
financing activities of continuing operations
    
    
    117,687
    
    
    
    (12,563
    )Discontinued operations:Net cash
provided by (used in) operating activities of discontinued operations
    
    
    369
    
    
    
    (462
    )Net cash used in investing activities of discontinued operations
    
    
    (806
    )
    
    
    (831
    )Effect of exchange rate changes on cash
    
    
    178
    
    
    
    (234
    )Net increase (decrease) in cash and cash equivalents
    
    
    30,784
    
    
    
    (2,520
    )Cash and cash equivalents at beginning of year
    
    
    26,182
    
    
    
    11,291Cash and cash equivalents at end of period
    
    $
    56,966
    
    
    $
    8,771
 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
    
    
    
    
    
    
    600
    
    
    
    
    
    
    
    
    
    
    
    600Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    7,103
    
    
    
    
    
    
    
    7,103
    
    
    $
    7,103Other comprehensive lossInterest rate swaps
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (279
    )
    
    
    (279
    )
    
    
    (279
    )Foreign currency adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,945
    )
    
    
    (3,945
    )
    
    
    (3,945
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,879Balance at June 30, 2005
    
    $
    
    
    
    $
    263,720
    
    
    $
    29,177
    
    
    $
    (1,498
    )
    
    $
    291,399Balance at January 1, 2006
    
    $
    
    
    
    $
    263,636
    
    
    $
    17,546
    
    
    $
    (836
    )
    
    $
    280,346Additions to paid in capital
    
    
    
    
    
    
    8,600
    
    
    
    
    
    
    
    
    
    
    
    8,600Recognition of stock based compensation
expense
    
    
    
    
    
    
    829
    
    
    
    
    
    
    
    
    
    
    
    829Comprehensive
lossNet (loss) income
    
    
    
    
    
    
    
    
    
    
    (14,368
    )
    
    
    
    
    
    
    (14,368
    )
    
    $
    (14,368
    )Other comprehensive incomeInterest rate swaps
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    558
    
    
    
    558
    
    
    
    558Foreign currency adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,413
    
    
    
    1,413
    
    
    
    1,413Minimum pension liability
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    597
    
    
    
    597
    
    
    
    597Total
comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (11,800
    )Balance at June 30, 2006
    
    $
    
    
    
    $
    273,065
    
    
    $
    3,178
    
    
    $
    1,732
    
    
    $
    277,975
 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
    
    
    2.2Rollover equity
    
    
    8.3$
    123.5
   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
    
    $
    2.5Accounts receivable
    
    
    15.6Inventory
    
    
    41.4Property, plant and equipment
    
    
    26.6Acquired intangible assets
    
    
    17.1Goodwill
    
    
    67.4Other assets
    
    
    2.8Accounts payable and accrued liabilities
    
    
    (26.4
    )Long-term debt and capital lease obligations
    
    
    (11.3
    )Other liabilities
    
    
    (4.7
    )Deferred income taxes
    
    
    (7.5
    )$
    123.5
  Pro Forma Information
   (in millions)Three Months ended June 30,
    
    Six Months ended June 30,2006
    
    2005
    
    2006
    
    2005Net sales
    
    $
    261.2
    
    
    $
    254.7
    
    
    $
    518.3
    
    
    $
    491.1Operating income
    
    
    14.5
    
    
    
    16.2
    
    
    
    34.4
    
    
    
    25.6Net income (loss) from
continuing
operations
    
    
    1.3
    
    
    
    2.2
    
    
    
    5.5
    
    
    
    (0.9
    )
  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
  Severance
    
    $
    0.3Land, building, & equipment impairment losses
    
    
    4.3$
    4.6
   NOTE D  DISCONTINUED OPERATIONS
    10




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##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
  Three Months ended
    
    Six Months endedJune 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005Net sales
    
    $
    34.8
    
    
    $
    37.3
    
    
    $
    67.6
    
    
    $
    71.1Income before income taxes
    
    
    1.6
    
    
    
    0.7
    
    
    
    2.5
    
    
    
    0.8
  NOTE E  COSTS OF CLOSING FACILITIES AND CONSOLIDATING OPERATIONS
  AssetWrite-downs
    
    
    Severance
    
    
    Other
    
    
    TotalFirst quarter of 2006 recorded costsClosure of Canadian facility
    
    $
    0.5
    
    
    $
    0.4
    
    
    $
    0.1
    
    
    $
    1.0Closure of Mexican facility
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    0.40.5
    
    
    
    0.4
    
    
    
    0.5
    
    
    
    1.4Second quarter of 2006 recorded costsClosure of Canadian facility
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Closure of Mexican facility
    
    
    1.0
    
    
    
    2.0
    
    
    
    1.2
    
    
    
    4.20.9
    
    
    
    2.0
    
    
    
    1.2
    
    
    
    4.1Six months ended June 30, 2006
    
    $
    1.4
    
    
    $
    2.4
    
    
    $
    1.7
    
    
    $
    5.5
 Closure of Canadian facility
    Closure of Mexican facility
  11




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
       NOTE F  ABANDONMENT OF AN OPERATION
    NOTE G  2006 EXPENDITURES FOR 2005 LOSS PROVISION
   December 31, 2005 balance
    
    $
    1.2Cash paid
    
    
    (0.4
    )June 30, 2006 balance
    
    $
    0.8
 12




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 NOTE H  INCOME TAXES
    NOTE I  SALES OF RECEIVABLES
    NOTE J  DEBT
    13




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
   Short-term borrowings
    
    $
    10.0Capital leases obligations
    
    
    1.2Term loan
    
    
    330.0Senior subordinated notes
    
    
    230.0Unamortized debt issuance costs
    
    
    (4.4
    )566.8LessShort-term borrowings
    
    
    10.0Current maturities
    
    
    8.4Long-term debt
    
    $
    548.4
    NOTE K  INVENTORIES
  June 30,
    
    
    December 31,2006
    
    
    2005Raw materials
    
    $
    60.1
    
    
    $
    41.5Work in process
    
    
    36.8
    
    
    
    24.5Finished products
    
    
    112.2
    
    
    
    101.6Valuation reserves
    
    
    (18.2
    )
    
    
    (17.4
    )$
    190.9
    
    
    $
    150.2
 14




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 NOTE L  ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
  June 30,
    
    
    December 31,2006
    
    
    2005Salaries and wages
    
    $
    3.1
    
    
    $
    2.9Bonuses
    
    
    4.5
    
    
    
    3.9Vacation pay
    
    
    5.5
    
    
    
    4.9Pension and other postretirement liabilities
    
    
    9.5
    
    
    
    8.7Product returns
    
    
    26.0
    
    
    
    26.2Rebates, credits and discounts due customers
    
    
    10.4
    
    
    
    11.0Insurance
    
    
    11.5
    
    
    
    9.7Taxes payable
    
    
    4.9
    
    
    
    7.6Interest
    
    
    3.9
    
    
    
    3.0Other
    
    
    23.7
    
    
    
    15.7$
    103.0
    
    
    $
    93.6
 NOTE M  PRODUCT RETURNS LIABILITY
   Six Months ended June 30,2006
    
    
    2005Beginning of year
    
    $
    26.2
    
    
    $
    14.8Addition due to ASC Acquisition
    
    
    1.5
    
    
    
    Cost of unsalvageable parts
    
    
    (24.2
    )
    
    
    (17.9
    )Additional reductions to sales
    
    
    22.5
    
    
    
    18.5End of period
    
    $
    26.0
    
    
    $
    15.4
 15




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 NOTE N  PENSION
  Three Months ended June 30,
    
    
    Six Months ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    2.0
    
    
    $
    2.0
    
    
    $
    4.0
    
    
    $
    4.1Interest cost
    
    
    3.1
    
    
    
    2.8
    
    
    
    6.1
    
    
    
    5.7Expected return on plan assets
    
    
    (3.3
    )
    
    
    (3.1
    )
    
    
    (6.6
    )
    
    
    (6.2
    )Amortization of prior service
cost and unrecognized loss
    
    
    0.1
    
    
    
    
    
    
    
    0.3
    
    
    
    $
    1.9
    
    
    $
    1.7
    
    
    $
    3.8
    
    
    $
    3.6
 NOTE O  CONTINGENCIES
 Environmental
  Litigation
  16




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated
Financial Statements
 Product Recall
    International Asset Transfers
  NOTE P  GEOGRAPHIC INFORMATION
  Three Months ended June 30,
    
    
    Six Months ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005United States
    
    $
    199.2
    
    
    $
    182.6
    
    
    $
    381.4
    
    
    $
    348.7Canada
    
    
    6.0
    
    
    
    7.3
    
    
    
    12.9
    
    
    
    13.9United Kingdom
    
    
    10.2
    
    
    
    10.4
    
    
    
    19.5
    
    
    
    20.2Mexico
    
    
    9.8
    
    
    
    7.4
    
    
    
    19.1
    
    
    
    13.3Germany
    
    
    3.1
    
    
    
    3.5
    
    
    
    7.0
    
    
    
    7.6Spain
    
    
    1.0
    
    
    
    1.1
    
    
    
    2.0
    
    
    
    2.1Belgium
    
    
    2.2
    
    
    
    1.9
    
    
    
    4.3
    
    
    
    3.8France
    
    
    3.1
    
    
    
    2.9
    
    
    
    6.0
    
    
    
    5.8Sweden
    
    
    1.6
    
    
    
    1.7
    
    
    
    3.0
    
    
    
    3.4Other
    
    
    9.6
    
    
    
    13.2
    
    
    
    21.4
    
    
    
    24.9$
    245.8
    
    
    $
    232.0
    
    
    $
    476.6
    
    
    $
    443.7
 17




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated
Financial Statements
  June 30,
    
    
    December 31,2006
    
    
    2005United States
    
    $
    254.3
    
    
    $
    253.4United Kingdom
    
    
    31.4
    
    
    
    30.3China
    
    
    19.4
    
    
    
    Mexico
    
    
    11.9
    
    
    
    13.1Spain
    
    
    3.6
    
    
    
    3.6Canada
    
    
    0.1
    
    
    
    0.5Goodwill
    
    
    233.9
    
    
    
    166.5$
    554.6
    
    
    $
    467.4
 NOTE Q  STOCK OPTIONS
 Adoption of SFAS No. 123R
    Three Months
    
    
    Six Monthsended June 30,
    
    
    ended June 30,2005
    
    
    2005Net income
from continuing operations, as reported
    
    $
    4.0
    
    
    $
    6.6Pro forma stock-based compensation expense, net of tax
    
    
    0.3
    
    
    
    0.5Pro forma
net income from continuing operations
    
    $
    3.7
    
    
    $
    6.1
 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
    
    
    (8,100
    )Outstanding at June 30, 2006
    
    
    303,940Exercisable at June 30, 2006
    
    
    90,962
   Six Months endedJune 30, 2006Dividend yield
    
    
    0.00
    %Risk-free interest rate
    
    
    4.34
    %Volatility
    
    
    41.00
    %Expected option term in years
    
    
    8Exercise price
    
    $
    100Market value
    
    $
    100
    NOTE R  NEW ACCOUNTING PRONOUNCEMENTS
   19




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
    NOTE S  OTHER INFORMATION
    Three Months ended June 30,
    
    Six Months ended June 30,2006
    
    2005
    
    2006
    
    2005Interest
    
    $
    14.8
    
    
    $
    14.2
    
    
    $
    18.8
    
    
    $
    17.1Income taxes (net of refunds)
    
    
    2.5
    
    
    
    4.6
    
    
    
    2.8
    
    
    
    9.3
 20




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 NOTE T  GUARANTOR AND NON-GUARANTOR FINANCIAL STATEMENTS
    21




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 NOTE T (continued)
 Consolidating Condensed Balance Sheet
June 30, 2006  (in thousands)
 UCI
Consolidated
    
    
    Eliminations
    
    
    UCI
    
    
    Guarantors
    

Non-
GuarantorsAssetsCurrent assetsCash and cash equivalents
    
    $
    56,966
    
    
    $
    
    
    
    $
    47,901
    
    
    $
    1,417
    
    
    $
    7,648Accounts receivable, net
    
    
    266,274
    
    
    
    
    
    
    
    
    
    
    
    235,609
    
    
    
    30,665Inventories, net
    
    
    190,928
    
    
    
    
    
    
    
    
    
    
    
    169,833
    
    
    
    21,095Deferred tax assets
    
    
    24,173
    
    
    
    
    
    
    
    362
    
    
    
    22,996
    
    
    
    815Other current assets
    
    
    32,569
    
    
    
    
    
    
    
    13,091
    
    
    
    10,119
    
    
    
    9,359Total current assets
    
    
    570,910
    
    
    
    
    
    
    
    61,354
    
    
    
    439,974
    
    
    
    69,582Property, plant and equipment, net
    
    
    192,631
    
    
    
    
    
    
    
    229
    
    
    
    136,299
    
    
    
    56,103Intercompany notes receivable
    
    
    
    
    
    
    (467,000
    )
    
    
    467,000
    
    
    
    
    
    
    
    Investment in subsidiaries
    
    
    
    
    
    
    (175,816
    )
    
    
    156,932
    
    
    
    18,884
    
    
    
    Goodwill
    
    
    233,912
    
    
    
    
    
    
    
    233,912
    
    
    
    
    
    
    
    Other intangible assets, net
    
    
    101,657
    
    
    
    
    
    
    
    14,957
    
    
    
    84,300
    
    
    
    2,400Deferred financing costs, net
    
    
    6,542
    
    
    
    
    
    
    
    6,542
    
    
    
    
    
    
    
    Pension and other assets
    
    
    15,344
    
    
    
    
    
    
    
    365
    
    
    
    14,979
    
    
    
    Assets held for sale
    
    
    4,477
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,477Total assets
    
    $
    1,125,473
    
    
    $
    (642,816
    )
    
    $
    941,291
    
    
    $
    694,436
    
    
    $
    132,562Liabilities and shareholders equityCurrent liabilitiesAccounts payable
    
    $
    110,292
    
    
    $
    
    
    
    $
    2,160
    
    
    $
    85,550
    
    
    $
    22,582Short-term borrowings
    
    
    10,049
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,049Current maturities of long-term debt
    
    
    8,407
    
    
    
    
    
    
    
    8,000
    
    
    
    407
    
    
    
    Accrued expenses and other current
liabilities
    
    
    103,041
    
    
    
    
    
    
    
    11,294
    
    
    
    80,969
    
    
    
    10,778Total current liabilities
    
    
    231,789
    
    
    
    
    
    
    
    21,454
    
    
    
    166,926
    
    
    
    43,409Long-term debt, less current maturities
    
    
    548,401
    
    
    
    
    
    
    
    547,590
    
    
    
    811
    
    
    
    Pension and other postretirement liabilities
    
    
    50,145
    
    
    
    
    
    
    
    
    
    
    
    35,366
    
    
    
    14,779Deferred tax liabilities
    
    
    9,992
    
    
    
    
    
    
    
    11,222
    
    
    
    5,802
    
    
    
    (7,032
    )Other long-term liabilities
    
    
    7,171
    
    
    
    
    
    
    
    
    
    
    
    2,727
    
    
    
    4,444Intercompany payables (receivables)
    
    
    
    
    
    
    
    
    
    
    83,050
    
    
    
    (88,337
    )
    
    
    5,287Intercompany notes payable
    
    
    
    
    
    
    (467,000
    )
    
    
    
    
    
    
    447,000
    
    
    
    20,000Total shareholders equity
    
    
    277,975
    
    
    
    (175,816
    )
    
    
    277,975
    
    
    
    124,141
    
    
    
    51,675Total liabilities and shareholders
equity
    
    $
    1,125,473
    
    
    $
    (642,816
    )
    
    $
    941,291
    
    
    $
    694,436
    
    
    $
    132,562
 22




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 NOTE T (continued)
 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
 NOTE T (continued)
 Consolidating Condensed Income Statement
Three Months Ended June 30, 2006  (in thousands)
 UCI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-Consolidated
    
    
    Eliminations
    
    
    UCI
    
    
    Guarantors
    
    
    GuarantorsNet sales
    
    $
    245,795
    
    
    $
    (6,141
    )
    
    $
    
    
    
    $
    215,272
    
    
    $
    36,664Cost of sales
    
    
    196,787
    
    
    
    (6,141
    )
    
    
    
    
    
    
    171,560
    
    
    
    31,368Gross profit
    
    
    49,008
    
    
    
    
    
    
    
    
    
    
    
    43,712
    
    
    
    5,296Operating expensesSelling and warehousing
    
    
    15,724
    
    
    
    
    
    
    
    383
    
    
    
    13,370
    
    
    
    1,971General and administrative
    
    
    10,795
    
    
    
    
    
    
    
    3,609
    
    
    
    4,624
    
    
    
    2,562Amortization of acquired intangible
assets
    
    
    1,690
    
    
    
    
    
    
    
    
    
    
    
    1,690
    
    
    
    Costs of integration of water pump
operations and resulting asset
impairment losses
    
    
    4,600
    
    
    
    
    
    
    
    
    
    
    
    4,600
    
    
    
    Costs of closing facilities and
consolidating operations
    
    
    4,069
    
    
    
    
    
    
    
    
    
    
    
    3,806
    
    
    
    263Operating income (loss)
    
    
    12,130
    
    
    
    
    
    
    
    (3,992
    )
    
    
    15,622
    
    
    
    500Other income (expense)Interest expense, net
    
    
    (10,629
    )
    
    
    
    
    
    
    (10,706
    )
    
    
    115
    
    
    
    (38
    )Intercompany interest
    
    
    
    
    
    
    
    
    
    
    10,432
    
    
    
    (9,869
    )
    
    
    (563
    )Write-off of deferred financing costs
    
    
    (2,625
    )
    
    
    
    
    
    
    (2,625
    )
    
    
    
    
    
    
    Management fee expense
    
    
    (500
    )
    
    
    
    
    
    
    (500
    )
    
    
    
    
    
    
    Miscellaneous, net
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    Income (loss) before income taxes
    
    
    (1,610
    )
    
    
    
    
    
    
    (7,391
    )
    
    
    5,882
    
    
    
    (101
    )Income tax expense (benefit)
    
    
    185
    
    
    
    
    
    
    
    (1,606
    )
    
    
    2,442
    
    
    
    (651
    )Increase (decrease) from continuing
operations before equity in earnings of
subsidiaries
    
    
    (1,795
    )
    
    
    
    
    
    
    (5,785
    )
    
    
    3,440
    
    
    
    550Equity in earnings of subsidiaries
    
    
    
    
    
    
    (4,005
    )
    
    
    4,936
    
    
    
    (931
    )
    
    
    Discontinued operationsNet income from discontinued
operations, net of tax
    
    
    946
    
    
    
    
    
    
    
    
    
    
    
    946
    
    
    
    Loss on sale
of discontinued operations, net of tax
    
    
    (18,272
    )
    
    
    
    
    
    
    (18,272
    )
    
    
    
    
    
    
    (17,326
    )
    
    
    
    
    
    
    (18,272
    )
    
    
    946
    
    
    
    Net income (loss)
    
    $
    (19,121
    )
    
    $
    (4,005
    )
    
    $
    (19,121
    )
    
    $
    3,455
    
    
    $
    550
 24




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 NOTE T (continued)
 Consolidating Condensed Income Statement
Three Months Ended June 30, 2005  (in thousands)
 UCI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-Consolidated
    
    
    Eliminations
    
    
    UCI
    
    
    Guarantors
    
    
    GuarantorsNet sales
    
    $
    232,018
    
    
    $
    (3,284
    )
    
    $
    
    
    
    $
    200,991
    
    
    $
    34,311Cost of sales
    
    
    184,141
    
    
    
    (3,284
    )
    
    
    
    
    
    
    158,470
    
    
    
    28,955Gross profit
    
    
    47,877
    
    
    
    
    
    
    
    
    
    
    
    42,521
    
    
    
    5,356Operating expensesSelling and warehousing
    
    
    15,361
    
    
    
    
    
    
    
    
    
    
    
    13,288
    
    
    
    2,073General and administrative
    
    
    10,970
    
    
    
    
    
    
    
    2,962
    
    
    
    4,209
    
    
    
    3,799Amortization of acquired
intangible assets
    
    
    1,532
    
    
    
    
    
    
    
    
    
    
    
    1,532
    
    
    
    Loss on
abandonment of an operation
    
    
    2,182
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,182Operating income (loss)
    
    
    17,832
    
    
    
    
    
    
    
    (2,962
    )
    
    
    23,492
    
    
    
    (2,698
    )Other income (expense)Interest expense, net
    
    
    (8,740
    )
    
    
    
    
    
    
    (8,980
    )
    
    
    161
    
    
    
    79Intercompany interest
    
    
    
    
    
    
    
    
    
    
    9,690
    
    
    
    (9,196
    )
    
    
    (494
    )Management fee expense
    
    
    (500
    )
    
    
    
    
    
    
    (500
    )
    
    
    
    
    
    
    Miscellaneous, net
    
    
    (81
    )
    
    
    
    
    
    
    
    
    
    
    53
    
    
    
    (134
    )Income (loss) before income taxes
    
    
    8,511
    
    
    
    
    
    
    
    (2,752
    )
    
    
    14,510
    
    
    
    (3,247
    )Income tax
expense (benefit)
    
    
    4,557
    
    
    
    
    
    
    
    (985
    )
    
    
    5,933
    
    
    
    (391
    )Increase (decrease) from
continuing operations before
equity in earnings of
subsidiaries
    
    
    3,954
    
    
    
    
    
    
    
    (1,767
    )
    
    
    8,577
    
    
    
    (2,856
    )Equity in earnings of subsidiaries
    
    
    
    
    
    
    (4,012
    )
    
    
    6,141
    
    
    
    (2,129
    )
    
    
    Discontinued operationsNet income from discontinued
operations, net of tax
    
    
    420
    
    
    
    
    
    
    
    
    
    
    
    420
    
    
    
    Net income (loss)
    
    $
    4,374
    
    
    $
    (4,012
    )
    
    $
    4,374
    
    
    $
    6,868
    
    
    $
    (2,856
    )
 25




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 NOTE T (continued)
 Consolidating Condensed Income Statement
Six Months Ended June 30, 2006  (in thousands)
 UCI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-Consolidated
    
    
    Eliminations
    
    
    UCI
    
    
    Guarantors
    
    
    GuarantorsNet sales
    
    $
    476,575
    
    
    $
    (11,104
    )
    
    $
    
    
    
    $
    417,216
    
    
    $
    70,463Cost of sales
    
    
    378,930
    
    
    
    (11,104
    )
    
    
    
    
    
    
    331,651
    
    
    
    58,383Gross profit
    
    
    97,645
    
    
    
    
    
    
    
    
    
    
    
    85,565
    
    
    
    12,080Operating expensesSelling and warehousing
    
    
    31,969
    
    
    
    
    
    
    
    675
    
    
    
    27,313
    
    
    
    3,981General and administrative
    
    
    23,704
    
    
    
    
    
    
    
    7,554
    
    
    
    11,007
    
    
    
    5,143Amortization of acquired intangible
assets
    
    
    2,929
    
    
    
    
    
    
    
    
    
    
    
    2,929
    
    
    
    Costs of integration of water pump
operations and resulting asset
impairment losses
    
    
    4,600
    
    
    
    
    
    
    
    
    
    
    
    4,600
    
    
    
    Costs of closing facilities and
consolidating operations
    
    
    5,462
    
    
    
    
    
    
    
    
    
    
    
    4,208
    
    
    
    1,254Operating income (loss)
    
    
    28,981
    
    
    
    
    
    
    
    (8,229
    )
    
    
    35,508
    
    
    
    1,702Other income (expense)Interest expense, net
    
    
    (19,864
    )
    
    
    
    
    
    
    (20,148
    )
    
    
    258
    
    
    
    26Intercompany interest
    
    
    
    
    
    
    
    
    
    
    20,324
    
    
    
    (19,194
    )
    
    
    (1,130
    )Write-off of deferred financing costs
    
    
    (2,625
    )
    
    
    
    
    
    
    (2,625
    )
    
    
    
    
    
    
    Management fee expense
    
    
    (1,000
    )
    
    
    
    
    
    
    (1,000
    )
    
    
    
    
    
    
    Miscellaneous, net
    
    
    (63
    )
    
    
    
    
    
    
    
    
    
    
    (63
    )
    
    
    Income (loss) before income taxes
    
    
    5,429
    
    
    
    
    
    
    
    (11,678
    )
    
    
    16,509
    
    
    
    598Income tax
expense (benefit)
    
    
    3,034
    
    
    
    
    
    
    
    (3,199
    )
    
    
    5,961
    
    
    
    272Increase (decrease) from continuing
operations before equity in earnings of
subsidiaries
    
    
    2,395
    
    
    
    
    
    
    
    (8,479
    )
    
    
    10,548
    
    
    
    326Equity in earnings of subsidiaries
    
    
    
    
    
    
    (11,546
    )
    
    
    12,383
    
    
    
    (837
    )
    
    
    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 income (loss)
    
    $
    (14,368
    )
    
    $
    (11,546
    )
    
    $
    (14,368
    )
    
    $
    11,220
    
    
    $
    326
 26




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 NOTE T (continued)
 Consolidating Condensed Income Statement
Six Months Ended June 30, 2005  (in thousands)
 UCI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-Consolidated
    
    
    Eliminations
    
    
    UCI
    
    
    Guarantors
    
    
    GuarantorsNet sales
    
    $
    443,719
    
    
    $
    (6,556
    )
    
    $
    
    
    
    $
    381,836
    
    
    $
    68,439Cost of sales
    
    
    354,364
    
    
    
    (6,556
    )
    
    
    
    
    
    
    304,706
    
    
    
    56,214Gross profit
    
    
    89,355
    
    
    
    
    
    
    
    
    
    
    
    77,130
    
    
    
    12,225Operating expensesSelling and warehousing
    
    
    30,598
    
    
    
    
    
    
    
    
    
    
    
    26,623
    
    
    
    3,975General and administrative
    
    
    22,029
    
    
    
    
    
    
    
    6,669
    
    
    
    8,510
    
    
    
    6,850Amortization of acquired intangible assets
    
    
    3,064
    
    
    
    
    
    
    
    
    
    
    
    3,064
    
    
    
    Loss on abandonment of an operation
    
    
    2,182
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,182Operating income (loss)
    
    
    31,482
    
    
    
    
    
    
    
    (6,669
    )
    
    
    38,933
    
    
    
    (782
    )Other income (expense)Interest expense, net
    
    
    (17,411
    )
    
    
    
    
    
    
    (17,739
    )
    
    
    264
    
    
    
    64Intercompany interest
    
    
    
    
    
    
    
    
    
    
    18,764
    
    
    
    (17,763
    )
    
    
    (1,001
    )Management fee expense
    
    
    (1,000
    )
    
    
    
    
    
    
    (1,000
    )
    
    
    
    
    
    
    Miscellaneous, net
    
    
    (144
    )
    
    
    
    
    
    
    
    
    
    
    161
    
    
    
    (305
    )Income (loss) before income taxes
    
    
    12,927
    
    
    
    
    
    
    
    (6,644
    )
    
    
    21,595
    
    
    
    (2,024
    )Income tax expense (benefit)
    
    
    6,325
    
    
    
    
    
    
    
    (2,458
    )
    
    
    8,746
    
    
    
    37Increase (decrease) from continuing
operations before equity in earnings of
subsidiaries
    
    
    6,602
    
    
    
    
    
    
    
    (4,186
    )
    
    
    12,849
    
    
    
    (2,061
    )Equity in earnings of subsidiaries
    
    
    
    
    
    
    (8,480
    )
    
    
    11,289
    
    
    
    (2,809
    )
    
    
    Discontinued operationsNet income from discontinued operations,
net of tax
    
    
    501
    
    
    
    
    
    
    
    
    
    
    
    501
    
    
    
    Net income (loss)
    
    $
    7,103
    
    
    $
    (8,480
    )
    
    $
    7,103
    
    
    $
    10,541
    
    
    $
    (2,061
    )
 27




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 NOTE T (continued)
 Consolidating Condensed Statement of Cash Flows
Six Months Ended June 30, 2006  (in thousands)
 UCI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-Consolidated
    
    
    Eliminations
    
    
    UCI
    
    
    Guarantors
    
    
    GuarantorsNet cash provided by (used in)
operating activities of continuing
operations
    
    $
    10,738
    
    
    $
    
    
    
    $
    (1,390
    )
    
    $
    6,318
    
    
    $
    5,810Cash flows from investing activities of
continuing operations:Acquisition of ASC Industries, Inc.
    
    
    (123,477
    )
    
    
    
    
    
    
    (123,477
    )
    
    
    
    
    
    
    Proceeds from sale of discontinued
operations
    
    
    36,300
    
    
    
    
    
    
    
    36,300
    
    
    
    
    
    
    
    Capital expenditures
    
    
    (11,685
    )
    
    
    
    
    
    
    (1,525
    )
    
    
    (6,768
    )
    
    
    (3,392
    )Proceeds from sale of property, plant
and equipment
    
    
    1,480
    
    
    
    
    
    
    
    
    
    
    
    997
    
    
    
    483Net cash used in investing activities of
continuing operations
    
    
    (97,382
    )
    
    
    
    
    
    
    (88,702
    )
    
    
    (5,771
    )
    
    
    (2,909
    )Cash flows from financing activities of
continuing operations:Issuances of debt
    
    
    113,000
    
    
    
    
    
    
    
    113,000
    
    
    
    
    
    
    
    Financing fees
    
    
    (3,636
    )
    
    
    
    
    
    
    (3,636
    )
    
    
    
    
    
    
    Debt repayments
    
    
    (277
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (277
    )Shareholders equity contributions
    
    
    8,600
    
    
    
    
    
    
    
    8,600
    
    
    
    
    
    
    
    Net cash provided by (used in) financing
activities of continuing operations
    
    
    117,687
    
    
    
    
    
    
    
    117,964
    
    
    
    
    
    
    
    (277
    )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
    
    
    178
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    178Net increase in cash and cash equivalents
    
    
    30,784
    
    
    
    
    
    
    
    27,872
    
    
    
    110
    
    
    
    2,802Cash and cash equivalents at beginning of
year
    
    
    26,182
    
    
    
    
    
    
    
    20,029
    
    
    
    1,307
    
    
    
    4,846Cash and cash equivalents at end of period
    
    $
    56,966
    
    
    $
    
    
    
    $
    47,901
    
    
    $
    1,417
    
    
    $
    7,648
 28




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 NOTE T (continued)
 Consolidating Condensed Statement of Cash Flows
Six Months Ended June 30, 2005  (in thousands)
 UCI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-Consolidated
    
    
    Eliminations
    
    
    UCI
    
    
    Guarantors
    
    
    GuarantorsNet cash provided by operating
activities of continuing operations
    
    $
    29,419
    
    
    $
    
    
    
    $
    15,177
    
    
    $
    9,273
    
    
    $
    4,969Cash flows from investing activities of
continuing operations:Capital expenditures
    
    
    (18,060
    )
    
    
    
    
    
    
    (6,693
    )
    
    
    (8,467
    )
    
    
    (2,900
    )Proceeds from sale of property, plant
and equipment
    
    
    211
    
    
    
    
    
    
    
    
    
    
    
    61
    
    
    
    150Net cash used in investing activities of
continuing operations
    
    
    (17,849
    )
    
    
    
    
    
    
    (6,693
    )
    
    
    (8,406
    )
    
    
    (2,750
    )Cash flows from financing activities of
continuing operations:Issuances of debt
    
    
    10,500
    
    
    
    
    
    
    
    10,500
    
    
    
    
    
    
    
    Debt repayments
    
    
    (23,663
    )
    
    
    
    
    
    
    (23,500
    )
    
    
    
    
    
    
    (163
    )Shareholders equity contributions
    
    
    600
    
    
    
    
    
    
    
    600
    
    
    
    
    
    
    
    Net cash used in financing activities of
continuing operations
    
    
    (12,563
    )
    
    
    
    
    
    
    (12,400
    )
    
    
    
    
    
    
    (163
    )Discontinued operations:Net cash used in operating
activities of discontinued operations
    
    
    (462
    )
    
    
    
    
    
    
    
    
    
    
    (462
    )
    
    
    Net cash used in investing activities
of discontinued operations
    
    
    (831
    )
    
    
    
    
    
    
    
    
    
    
    (831
    )
    
    
    Effect of exchange rate changes on cash
    
    
    (234
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (234
    )Net increase (decrease) in cash and cash
equivalents
    
    
    (2,520
    )
    
    
    
    
    
    
    (3,916
    )
    
    
    (426
    )
    
    
    1,822Cash and cash equivalents at beginning of
year
    
    
    11,291
    
    
    
    
    
    
    
    3,916
    
    
    
    2,114
    
    
    
    5,261Cash and cash equivalents at end of period
    
    $
    8,771
    
    
    $
    
    
    
    $
    
    
    
    $
    1,688
    
    
    $
    7,083
 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.
 Impairment of intangible assets and tangible fixed assets
 32




---



##### 



Retirement benefits
  Insurance Reserves.
 Environmental Expenditures
  Acquisition of ASC Industries, Inc.
 33




---



##### 



Results of Operations
  Three Months ended June 30,
    
    
    Six Months ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    245,795
    
    
    $
    232,018
    
    
    $
    476,575
    
    
    $
    443,719Cost of sales
    
    
    196,787
    
    
    
    184,141
    
    
    
    378,930
    
    
    
    354,364Gross profit
    
    
    49,008
    
    
    
    47,877
    
    
    
    97,645
    
    
    
    89,355Operating expensesSelling and warehousing
    
    
    15,724
    
    
    
    15,361
    
    
    
    31,969
    
    
    
    30,598General and administrative
    
    
    10,795
    
    
    
    10,970
    
    
    
    23,704
    
    
    
    22,029Amortization of acquired intangible assets
    
    
    1,690
    
    
    
    1,532
    
    
    
    2,929
    
    
    
    3,064Costs of integration of water pump
operations and resulting asset impairment
losses
    
    
    4,600
    
    
    
    
    
    
    
    4,600
    
    
    
    Costs of closing facilities and
consolidating operations
    
    
    4,069
    
    
    
    
    
    
    
    5,462
    
    
    
    Loss on abandonment of an operation
    
    
    
    
    
    
    2,182
    
    
    
    
    
    
    
    2,182Operating income
    
    
    12,130
    
    
    
    17,832
    
    
    
    28,981
    
    
    
    31,482Other income (expense)Interest expense, net
    
    
    (10,629
    )
    
    
    (8,740
    )
    
    
    (19,864
    )
    
    
    (17,411
    )Write-off of deferred financing costs
    
    
    (2,625
    )
    
    
    
    
    
    
    (2,625
    )
    
    
    Management fee expense
    
    
    (500
    )
    
    
    (500
    )
    
    
    (1,000
    )
    
    
    (1,000
    )Miscellaneous, net
    
    
    14
    
    
    
    (81
    )
    
    
    (63
    )
    
    
    (144
    )Income (loss) before income taxes
    
    
    (1,610
    )
    
    
    8,511
    
    
    
    5,429
    
    
    
    12,927Income tax expense
    
    
    185
    
    
    
    4,557
    
    
    
    3,034
    
    
    
    6,325Net income (loss) from continuing operations
    
    
    (1,795
    )
    
    
    3,954
    
    
    
    2,395
    
    
    
    6,602Discontinued operationsNet income from discontinued operations,
net of tax
    
    
    946
    
    
    
    420
    
    
    
    1,509
    
    
    
    501Loss on sale of discontinued operations, net of tax
    
    
    (18,272
    )
    
    
    
    
    
    
    (18,272
    )
    
    
    (17,326
    )
    
    
    420
    
    
    
    (16,763
    )
    
    
    501Net (loss) income
    
    $
    (19,121
    )
    
    $
    4,374
    
    
    $
    (14,368
    )
    
    $
    7,103
 34




---



##### 



Acquisition and Sales of Operations
    Three Months Ended June 30, 2006 compared with the Three Months Ended June 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 (loss) from continuing operations
 Discontinued
operations
 Net (loss) income
 36




---



##### 



Six Months Ended June 30, 2006 compared with the Six Months Ended June 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 (loss) from continuing operations
 Discontinued operations
 Net (loss) income
 Liquidity and Capital Resources
   June 30,
    
    
    December 31,2006
    
    
    2005Short-term borrowings
    
    $
    10.0
    
    
    $
    0.3Capital lease obligations
    
    
    1.2
    
    
    
    Term loan
    
    
    330.0
    
    
    
    217.0Senior subordinated notes
    
    
    230.0
    
    
    
    230.0Unamortized debt issuance costs
    
    
    (4.4
    )
    
    
    (4.8
    )$
    566.8
    
    
    $
    442.5
   38




---



##### 



July 2006 term loan repayment
    
    $
    34.62006
    
    
    3.82007
    
    
    7.12008
    
    
    1.22009
    
    
    3.32010
    
    
    3.3Thereafter
    
    
    517.9$
    571.2
      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: August 14, 2006
    
    By:
    
    /s/ CHARLES T. DICKSONName:
    
    Charles T. DicksonTitle:
    
    Chief Financial Officer
 44