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, 2008
 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
    
    (I.R.S. Employer Identification No.)Incorporation or Organization)14601 Highway 41 NorthEvansville, Indiana(Address of Principal Executive
    
    47725Offices)
    
    (Zip Code)
 (812) 867-4156
 o þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer   þ
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ




---



##### 



United Components, Inc.
 Index
 Part I FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)
    
    
    3Condensed consolidated balance sheets  September 30, 2008 and December 31, 2007
    
    
    3Condensed consolidated income statements  Three and Nine months ended September 30, 2008 and 2007
    
    
    4Condensed consolidated statements of cash flows  Nine months ended September 30, 2008 and 2007
    
    
    5Condensed consolidated statements of changes in shareholders equity  Nine months ended September 30, 2008 and 2007
    
    
    6Notes to condensed consolidated financial statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    26Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    38Item 4. Controls and Procedures
    
    
    39Part II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    40Item 1A. Risk Factors
    
    
    41Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    43Item 3. Default Upon Senior Securities
    
    
    43Item 4. Submission of Matters to Vote of Security Holders
    
    
    44Item 5. Other Information
    
    
    44Item 6. Exhibits
    
    
    44Signatures
    
    
    45Exhibits
 2




---



##### 



PART I
FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 United Components, Inc.
 
 Condensed Consolidated Balance Sheets
 (in thousands)
 September 30,
    
    
    December 31,2008
    
    
    2007AssetsCurrent assetsCash and cash equivalents
    
    $
    41,528
    
    
    $
    41,440Accounts receivable, net
    
    
    262,553
    
    
    
    253,904Inventories, net
    
    
    169,331
    
    
    
    142,621Deferred tax assets
    
    
    24,394
    
    
    
    22,837Other current assets
    
    
    17,009
    
    
    
    29,306Total current assets
    
    
    514,815
    
    
    
    490,108Property, plant and equipment, net
    
    
    172,008
    
    
    
    167,812Goodwill
    
    
    241,461
    
    
    
    241,461Other intangible assets, net
    
    
    76,941
    
    
    
    83,594Deferred financing costs, net
    
    
    2,895
    
    
    
    3,701Pension and other assets
    
    
    11,360
    
    
    
    11,478Assets held for sale
    
    
    1,300
    
    
    
    1,300Total assets
    
    $
    1,020,780
    
    
    $
    999,454Liabilities and shareholders equityCurrent liabilitiesAccounts payable
    
    $
    103,575
    
    
    $
    102,553Short-term borrowings
    
    
    1,546
    
    
    
    10,134Revolving credit line borrowings
    
    
    20,003
    
    
    
    Current maturities of long-term debt
    
    
    448
    
    
    
    479Accrued expenses and other current liabilities
    
    
    91,843
    
    
    
    95,169Total current liabilities
    
    
    217,415
    
    
    
    208,335Long-term debt, less current maturities
    
    
    417,985
    
    
    
    427,815Pension and other postretirement liabilities
    
    
    22,708
    
    
    
    22,871Deferred tax liabilities
    
    
    29,286
    
    
    
    27,338Due to Holdco
    
    
    16,893
    
    
    
    11,330Minority interest
    
    
    2,750
    
    
    
    3,308Other long-term liabilities
    
    
    2,477
    
    
    
    2,638Total liabilities
    
    
    709,514
    
    
    
    703,635Contingencies  Note MShareholders equityCommon stock
    
    
    
    
    
    
    Additional paid in capital
    
    
    278,284
    
    
    
    277,741Retained earnings
    
    
    26,538
    
    
    
    11,316Accumulated other comprehensive income
    
    
    6,444
    
    
    
    6,762Total shareholders equity
    
    
    311,266
    
    
    
    295,819Total liabilities and shareholders equity
    
    $
    1,020,780
    
    
    $
    999,454
 The accompanying notes are an integral part of these statements.
 3




---



##### 



United Components, Inc.
 
 Condensed Consolidated Income Statements
 (in thousands)
 Three Months ended September 30,
    
    
    Nine Months ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales
    
    $
    218,136
    
    
    $
    230,742
    
    
    $
    676,695
    
    
    $
    729,159Cost of sales
    
    
    170,621
    
    
    
    177,185
    
    
    
    531,430
    
    
    
    566,666Gross profit
    
    
    47,515
    
    
    
    53,557
    
    
    
    145,265
    
    
    
    162,493Operating (expense) incomeSelling and warehousing
    
    
    (15,679
    )
    
    
    (15,092
    )
    
    
    (47,210
    )
    
    
    (46,047
    )General and administrative
    
    
    (13,028
    )
    
    
    (10,790
    )
    
    
    (38,367
    )
    
    
    (36,900
    )Amortization of acquired intangible assets
    
    
    (1,545
    )
    
    
    (1,694
    )
    
    
    (4,802
    )
    
    
    (5,303
    )Costs of integrating water pump operations
(Note B)
    
    
    (196
    )
    
    
    (222
    )
    
    
    (684
    )
    
    
    (696
    )Gain from sale of assets and costs of
closing a facility (Note D)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,546Trademark impairment loss (Note E)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,600
    )Operating income
    
    
    17,067
    
    
    
    25,759
    
    
    
    54,202
    
    
    
    71,493Other expenseInterest expense, net
    
    
    (8,282
    )
    
    
    (10,175
    )
    
    
    (25,838
    )
    
    
    (31,038
    )Management fee expense
    
    
    (500
    )
    
    
    (500
    )
    
    
    (1,500
    )
    
    
    (1,500
    )Miscellaneous, net
    
    
    (681
    )
    
    
    (917
    )
    
    
    (1,870
    )
    
    
    (1,972
    )Income before income taxes
    
    
    7,604
    
    
    
    14,167
    
    
    
    24,994
    
    
    
    36,983Income tax expense
    
    
    (3,164
    )
    
    
    (5,772
    )
    
    
    (9,772
    )
    
    
    (14,056
    )Net income from continuing operations
    
    
    4,440
    
    
    
    8,395
    
    
    
    15,222
    
    
    
    22,927Gain on sale of discontinued operations, net
of tax (Note C)
    
    
    
    
    
    
    2,707
    
    
    
    
    
    
    
    2,707Net income
    
    $
    4,440
    
    
    $
    11,102
    
    
    $
    15,222
    
    
    $
    25,634
 The accompanying notes are an integral part of these statements.
 4




---



##### 



United Components, Inc.
 
 Condensed Consolidated Statements of Cash Flows
 (in thousands)
 Nine Months ended September 30,2008
    
    
    2007Cash flows from operating activitiesNet income
    
    $
    15,222
    
    
    $
    25,634Less: Gain on sale of discontinued operations, net of tax
    
    
    
    
    
    
    2,707Net income from continuing operations
    
    
    15,222
    
    
    
    22,927Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization of other intangible assets
    
    
    27,397
    
    
    
    26,556Amortization of deferred financing costs and debt discount
    
    
    1,280
    
    
    
    1,634Deferred income taxes
    
    
    391
    
    
    
    6,850Gain on sale of Mexican land and building
    
    
    
    
    
    
    (1,764
    )Non-cash trademark impairment loss (Note E)
    
    
    
    
    
    
    3,600Other non-cash, net
    
    
    270
    
    
    
    3,368Changes in operating assets and liabilitiesAccounts receivable
    
    
    (8,649
    )
    
    
    (39,106
    )Inventories
    
    
    (26,710
    )
    
    
    3,802Other current assets
    
    
    12,297
    
    
    
    (3,984
    )Accounts payable
    
    
    1,022
    
    
    
    6,868Accrued expenses and other current liabilities
    
    
    (3,326
    )
    
    
    5,806Other assets
    
    
    118
    
    
    
    (208
    )Due to Holdco
    
    
    5,563
    
    
    
    7,754Other long-term liabilities
    
    
    (324
    )
    
    
    (6,237
    )Net cash provided by operating activities
    
    
    24,551
    
    
    
    37,866Cash flows from investing activitiesCapital expenditures
    
    
    (25,977
    )
    
    
    (25,080
    )Proceeds from sale of discontinued operations, net of transaction costs and cash
sold
    
    
    
    
    
    
    2,202Proceeds from sale of Mexican land and building (Note D)
    
    
    
    
    
    
    6,685Proceeds from sale of other property, plant and equipment
    
    
    366
    
    
    
    1,408Net cash used in investing activities
    
    
    (25,611
    )
    
    
    (14,785
    )Cash flows from financing activitiesIssuances of debt
    
    
    22,798
    
    
    
    15,367Debt repayments
    
    
    (21,718
    )
    
    
    (54,556
    )Net cash provided by (used in) financing activities
    
    
    1,080
    
    
    
    (39,189
    )Effect of currency exchange rate changes on cash
    
    
    68
    
    
    
    (19
    )Net increase (decrease) in cash and cash equivalents
    
    
    88
    
    
    
    (16,127
    )Cash and cash equivalents at beginning of year
    
    
    41,440
    
    
    
    31,523Cash and cash equivalents at end of period
    
    $
    41,528
    
    
    $
    15,396
 The accompanying notes are an integral part of these statements.
 5




---



##### 



United Components, Inc.
 
 Condensed Consolidated Statements of Changes in Shareholders Equity
 (in thousands)
 AccumulatedAdditional
    
    
    Retained
    
    
    Other
    
    
    TotalCommon
    
    
    Paid In
    
    
    Earnings
    
    
    Comprehensive
    
    
    Shareholders
    
    
    ComprehensiveStock
    
    
    Capital
    
    
    (Deficit)
    
    
    Income (Loss)
    
    
    Equity
    
    
    Income (Loss)Balance at January 1, 2007
    
    $
    
    
    
    $
    273,749
    
    
    $
    (26,433
    )
    
    $
    (2,534
    )
    
    $
    244,782Effect of adopting FIN 48
    
    
    
    
    
    
    
    
    
    
    (337
    )
    
    
    
    
    
    
    (337
    )Recognition of stock based
compensation expense
    
    
    
    
    
    
    2,837
    
    
    
    
    
    
    
    
    
    
    
    2,837Tax effect of exercise of
Holdco stock options
    
    
    
    
    
    
    471
    
    
    
    
    
    
    
    
    
    
    
    471Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    25,634
    
    
    
    
    
    
    
    25,634
    
    
    $
    25,634Other comprehensive incomeInterest rate swaps
(net of $228 of income
taxes)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (361
    )
    
    
    (361
    )
    
    
    (361
    )Foreign currency
adjustment (net of
$203 of income taxes)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35
    )
    
    
    (35
    )
    
    
    (35
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    25,238Balance at September 30, 2007
    
    $
    
    
    
    $
    277,057
    
    
    $
    (1,136
    )
    
    $
    (2,930
    )
    
    $
    272,991Balance at January 1, 2008
    
    $
    
    
    
    $
    277,741
    
    
    $
    11,316
    
    
    $
    6,762
    
    
    $
    295,819Recognition of stock based
compensation expense
    
    
    
    
    
    
    687
    
    
    
    
    
    
    
    
    
    
    
    687Tax effect of exercise of
Holdco stock options
    
    
    
    
    
    
    (144
    )
    
    
    
    
    
    
    
    
    
    
    (144
    )Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    15,222
    
    
    
    
    
    
    
    15,222
    
    
    $
    15,222Other comprehensive lossInterest rate swaps
(net of $3 of income
taxes)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    4
    
    
    
    4Foreign currency
adjustment (net of
$(104) of income
taxes)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (322
    )
    
    
    (322
    )
    
    
    (322
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    14,904Balance at September 30, 2008
    
    $
    
    
    
    $
    278,284
    
    
    $
    26,538
    
    
    $
    6,444
    
    
    $
    311,266
 The accompanying notes are an integral part of these statements.
 6




---



##### 



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




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 NOTE B  COSTS OF INTEGRATING WATER PUMP OPERATIONS
  2008 Expenses
  2007 Expenses and Gain
  Cost of integratingwater pumpoperations
    
    
    Cost of Sales
    
    
    CombinedThree months ended September 30, 2007Severance
    
    $
    0.2
    
    
    $
    
    
    
    $
    0.2Pension plan curtailment gain
    
    
    
    
    
    
    
    
    
    
    Production wind-down costs
    
    
    
    
    
    
    0.8
    
    
    
    0.8Transportation and other directly related costs
    
    
    
    
    
    
    0.8
    
    
    
    0.8$
    0.2
    
    
    $
    1.6
    
    
    $
    1.8Nine months ended September 30, 2007Severance
    
    $
    1.6
    
    
    $
    
    
    
    $
    1.6Pension plan curtailment gain
    
    
    (0.9
    )
    
    
    
    
    
    
    (0.9
    )Production wind-down costs
    
    
    
    
    
    
    2.1
    
    
    
    2.1Transportation and other directly related costs
    
    
    
    
    
    
    2.2
    
    
    
    2.2$
    0.7
    
    
    $
    4.3
    
    
    $
    5.0
   NOTE C  GAIN ON SALE OF DISCONTINUED OPERATIONS
  8




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
  NOTE D  GAIN FROM SALE OF ASSETS AND COSTS OF CLOSING A FACILITY
  NOTE E  TRADEMARK IMPAIRMENT LOSS
  NOTE F  TERMINATION OF PAY-ON-SCAN PROGRAM
   NOTE G  SALES OF RECEIVABLES
    9




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 NOTE H  INVENTORIES
  September 30,
    
    
    December 31,2008
    
    
    2007Raw materials
    
    $
    61.2
    
    
    $
    45.8Work in process
    
    
    35.3
    
    
    
    33.0Finished products
    
    
    90.6
    
    
    
    79.4Valuation reserves
    
    
    (17.8
    )
    
    
    (15.6
    )$
    169.3
    
    
    $
    142.6
 NOTE I  ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
  September 30,
    
    
    December 31,2008
    
    
    2007Salaries and wages
    
    $
    3.4
    
    
    $
    3.5Bonuses and profit sharing
    
    
    5.5
    
    
    
    8.8Vacation pay
    
    
    5.3
    
    
    
    4.7Product returns
    
    
    29.6
    
    
    
    28.1Rebates, credits and discounts due customers
    
    
    9.6
    
    
    
    10.9Insurance
    
    
    12.0
    
    
    
    9.8Taxes payable
    
    
    5.3
    
    
    
    10.4Interest
    
    
    7.6
    
    
    
    2.6Other
    
    
    13.5
    
    
    
    16.4$
    91.8
    
    
    $
    95.2
 NOTE J  PRODUCT RETURNS LIABILITY
   10




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
  Nine Months ended September 30,2008
    
    
    2007Beginning of year
    
    $
    28.1
    
    
    $
    28.6Cost of unsalvageable parts
    
    
    (39.4
    )
    
    
    (35.8
    )Additional reductions to sales
    
    
    40.9
    
    
    
    34.7End of period
    
    $
    29.6
    
    
    $
    27.5
 NOTE K  PENSION
  Three Months ended September 30,
    
    
    Nine Months ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Service cost
    
    $
    1.2
    
    
    $
    1.6
    
    
    $
    3.8
    
    
    $
    4.8Interest cost
    
    
    3.3
    
    
    
    2.9
    
    
    
    9.7
    
    
    
    8.8Expected return on plan assets
    
    
    (3.7
    )
    
    
    (3.5
    )
    
    
    (11.1
    )
    
    
    (10.5
    )Amortization of prior service cost and
unrecognized loss
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    0.1Special termination benefits and curtailment gain
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    (0.9
    )$
    0.8
    
    
    $
    1.0
    
    
    $
    2.7
    
    
    $
    2.3
  NOTE L  DEBT
  September 30,
    
    
    December 31,2008
    
    
    2007Short-term borrowings
    
    $
    1.5
    
    
    $
    10.1Revolving credit line borrowings
    
    
    20.0
    
    
    
    Capital lease obligations
    
    
    1.4
    
    
    
    1.8Term loan
    
    
    190.0
    
    
    
    200.0Senior subordinated notes
    
    
    230.0
    
    
    
    230.0Unamortized debt discount
    
    
    (2.9
    )
    
    
    (3.5
    )440.0
    
    
    
    438.4LessShort-term borrowings
    
    
    1.5
    
    
    
    10.1Revolving credit line borrowings
    
    
    20.0
    
    
    
    Current maturities
    
    
    0.5
    
    
    
    0.5Long-term debt
    
    $
    418.0
    
    
    $
    427.8
 11




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
    NOTE M  CONTINGENCIES
 Insurance Reserves
  Environmental
  Class Action Litigation
  12




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
        Value-added Tax Receivable
  13




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 Other Litigation
  NOTE N  GEOGRAPHIC INFORMATION
  Three months ended September 30,
    
    
    Nine months ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007United States
    
    $
    183.5
    
    
    $
    193.4
    
    
    $
    566.6
    
    
    $
    615.6Mexico
    
    
    6.1
    
    
    
    9.4
    
    
    
    22.6
    
    
    
    29.2Canada
    
    
    7.3
    
    
    
    8.7
    
    
    
    23.2
    
    
    
    25.9United Kingdom
    
    
    2.7
    
    
    
    3.4
    
    
    
    10.2
    
    
    
    10.5France
    
    
    2.0
    
    
    
    1.9
    
    
    
    7.8
    
    
    
    6.0Germany
    
    
    1.4
    
    
    
    1.0
    
    
    
    4.2
    
    
    
    3.2Spain
    
    
    1.2
    
    
    
    0.7
    
    
    
    3.5
    
    
    
    2.9Venezuela
    
    
    2.0
    
    
    
    1.7
    
    
    
    3.5
    
    
    
    5.0Other
    
    
    11.9
    
    
    
    10.5
    
    
    
    35.1
    
    
    
    30.9$
    218.1
    
    
    $
    230.7
    
    
    $
    676.7
    
    
    $
    729.2
  September 30,
    
    
    December 31,2008
    
    
    2007United States
    
    $
    215.6
    
    
    $
    226.0China
    
    
    33.3
    
    
    
    27.0Mexico
    
    
    13.2
    
    
    
    12.2Spain
    
    
    2.4
    
    
    
    2.6Goodwill
    
    
    241.5
    
    
    
    241.5$
    506.0
    
    
    $
    509.3
 NOTE O  STOCK OPTIONS
  14




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 NOTE P  OTHER INFORMATION
   Three months ended September 30,
    
    Nine months ended September 30,2008
    
    2007
    
    2008
    
    2007Interest
    
    $
    2.7
    
    
    $
    4.5
    
    
    $
    20.2
    
    
    $
    25.0Income taxes (net of refunds)
    
    
    (2.0
    )
    
    
    0.8
    
    
    
    (3.1
    )
    
    
    (0.2
    )
   NOTE Q ADOPTION OF SFAS NO. 157
   Interest rate swaps
 Fair value hierarchy
 Fair market value disclosures
  15




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 Fair value hierarchy
   Level 1 
    
    Quoted market prices in active markets for identical assets or liabilitiesLevel 2 
    
    Inputs other than Level 1 inputs that are either directly or indirectly observableLevel 3 
    
    Unobservable inputs developed using UCIs estimates and assumptions, which
reflect those that market participants would use when valuing an asset or
liability
  NOTE R  OTHER NEW ACCOUNTING PRONOUNCEMENTS
     16




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 
  NOTE S  GUARANTOR AND NON-GUARANTOR FINANCIAL STATEMENTS
    17




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 Note S (continued)
 Consolidating Condensed Balance Sheet
September 30, 2008  (in thousands)
 UCI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-Consolidated
    
    
    Eliminations
    
    
    UCI
    
    
    Guarantors
    
    
    GuarantorsAssetsCurrent assetsCash and cash equivalents
    
    $
    41,528
    
    
    $
    
    
    
    $
    36,551
    
    
    $
    (523
    )
    
    $
    5,500Accounts receivable, net
    
    
    262,553
    
    
    
    
    
    
    
    
    
    
    
    245,250
    
    
    
    17,303Inventories, net
    
    
    169,331
    
    
    
    
    
    
    
    
    
    
    
    139,082
    
    
    
    30,249Deferred tax assets
    
    
    24,394
    
    
    
    
    
    
    
    18,259
    
    
    
    5,265
    
    
    
    870Other current assets
    
    
    17,009
    
    
    
    
    
    
    
    1,371
    
    
    
    6,404
    
    
    
    9,234Total current assets
    
    
    514,815
    
    
    
    
    
    
    
    56,181
    
    
    
    395,478
    
    
    
    63,156Property, plant and equipment, net
    
    
    172,008
    
    
    
    
    
    
    
    934
    
    
    
    125,914
    
    
    
    45,160Investment in subsidiaries
    
    
    
    
    
    
    (286,514
    )
    
    
    271,371
    
    
    
    15,143
    
    
    
    Goodwill
    
    
    241,461
    
    
    
    
    
    
    
    241,461
    
    
    
    
    
    
    
    Other intangible assets, net
    
    
    76,941
    
    
    
    
    
    
    
    9,641
    
    
    
    67,101
    
    
    
    199Deferred financing costs, net
    
    
    2,895
    
    
    
    
    
    
    
    2,895
    
    
    
    
    
    
    
    Pension and other assets
    
    
    11,360
    
    
    
    
    
    
    
    365
    
    
    
    10,831
    
    
    
    164Assets held for sale
    
    
    1,300
    
    
    
    
    
    
    
    
    
    
    
    1,300
    
    
    
    Total assets
    
    $
    1,020,780
    
    
    $
    (286,514
    )
    
    $
    582,848
    
    
    $
    615,767
    
    
    $
    108,679Liabilities and shareholders equityCurrent liabilitiesAccounts payable
    
    $
    103,575
    
    
    $
    
    
    
    $
    1,923
    
    
    $
    84,627
    
    
    $
    17,025Short-term borrowings
    
    
    1,546
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,546Revolving credit line borrowings
    
    
    20,003
    
    
    
    
    
    
    
    20,003
    
    
    
    
    
    
    
    Current maturities of long-term debt
    
    
    448
    
    
    
    
    
    
    
    389
    
    
    
    59
    
    
    
    Accrued expenses and other current liabilities
    
    
    91,843
    
    
    
    
    
    
    
    14,658
    
    
    
    72,910
    
    
    
    4,275Total current liabilities
    
    
    217,415
    
    
    
    
    
    
    
    36,973
    
    
    
    157,596
    
    
    
    22,846Long-term debt, less current maturities
    
    
    417,985
    
    
    
    
    
    
    
    417,518
    
    
    
    467
    
    
    
    Pension and other postretirement liabilities
    
    
    22,708
    
    
    
    
    
    
    
    
    
    
    
    21,607
    
    
    
    1,101Deferred tax liabilities
    
    
    29,286
    
    
    
    
    
    
    
    17,566
    
    
    
    11,115
    
    
    
    605Due to Holdco
    
    
    16,893
    
    
    
    
    
    
    
    16,893
    
    
    
    
    
    
    
    Minority interest
    
    
    2,750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,750Other long-term liabilities
    
    
    2,477
    
    
    
    
    
    
    
    
    
    
    
    1,677
    
    
    
    800Intercompany payables (receivables)
    
    
    
    
    
    
    
    
    
    
    (217,368
    )
    
    
    177,883
    
    
    
    39,485Total shareholders equity
    
    
    311,266
    
    
    
    (286,514
    )
    
    
    311,266
    
    
    
    245,422
    
    
    
    41,092Total liabilities and shareholders equity
    
    $
    1,020,780
    
    
    $
    (286,514
    )
    
    $
    582,848
    
    
    $
    615,767
    
    
    $
    108,679
 18




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 Note S (continued)
 Consolidating Condensed Balance Sheet
December 31, 2007  (in thousands)
 UCI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-Consolidated
    
    
    Eliminations
    
    
    UCI
    
    
    Guarantors
    
    
    GuarantorsAssetsCurrent assetsCash and cash equivalents
    
    $
    41,440
    
    
    $
    
    
    
    $
    36,684
    
    
    $
    1,234
    
    
    $
    3,522Accounts receivable, net
    
    
    253,904
    
    
    
    
    
    
    
    
    
    
    
    239,888
    
    
    
    14,016Inventories, net
    
    
    142,621
    
    
    
    
    
    
    
    
    
    
    
    119,882
    
    
    
    22,739Deferred tax assets
    
    
    22,837
    
    
    
    
    
    
    
    49
    
    
    
    23,329
    
    
    
    (541
    )Other current assets
    
    
    29,306
    
    
    
    
    
    
    
    11,532
    
    
    
    9,913
    
    
    
    7,861Total current assets
    
    
    490,108
    
    
    
    
    
    
    
    48,265
    
    
    
    394,246
    
    
    
    47,597Property, plant and equipment, net
    
    
    167,812
    
    
    
    
    
    
    
    1,190
    
    
    
    124,744
    
    
    
    41,878Investment in subsidiaries
    
    
    
    
    
    
    (273,387
    )
    
    
    262,871
    
    
    
    10,516
    
    
    
    Goodwill
    
    
    241,461
    
    
    
    
    
    
    
    241,461
    
    
    
    
    
    
    
    Other intangible assets, net
    
    
    83,594
    
    
    
    
    
    
    
    11,628
    
    
    
    71,966
    
    
    
    Deferred financing costs, net
    
    
    3,701
    
    
    
    
    
    
    
    3,701
    
    
    
    
    
    
    
    Deferred tax assets
    
    
    
    
    
    
    
    
    
    
    (186
    )
    
    
    
    
    
    
    186Pension and other assets
    
    
    11,478
    
    
    
    
    
    
    
    365
    
    
    
    9,997
    
    
    
    1,116Assets held for sale
    
    
    1,300
    
    
    
    
    
    
    
    
    
    
    
    1,300
    
    
    
    Total assets
    
    $
    999,454
    
    
    $
    (273,387
    )
    
    $
    569,295
    
    
    $
    612,769
    
    
    $
    90,777Liabilities and shareholders equityCurrent liabilitiesAccounts payable
    
    $
    102,553
    
    
    $
    
    
    
    $
    1,072
    
    
    $
    85,181
    
    
    $
    16,300Short-term borrowings
    
    
    10,134
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,134Current maturities of long-term debt
    
    
    479
    
    
    
    
    
    
    
    418
    
    
    
    61
    
    
    
    Accrued expenses and other current liabilities
    
    
    95,169
    
    
    
    
    
    
    
    19,981
    
    
    
    71,187
    
    
    
    4,001Total current liabilities
    
    
    208,335
    
    
    
    
    
    
    
    21,471
    
    
    
    156,429
    
    
    
    30,435Long-term debt, less current maturities
    
    
    427,815
    
    
    
    
    
    
    
    427,304
    
    
    
    511
    
    
    
    Pension and other postretirement liabilities
    
    
    22,871
    
    
    
    
    
    
    
    
    
    
    
    21,657
    
    
    
    1,214Deferred tax liabilities
    
    
    27,338
    
    
    
    
    
    
    
    15,570
    
    
    
    10,230
    
    
    
    1,538Due to Holdco
    
    
    11,330
    
    
    
    
    
    
    
    11,330
    
    
    
    
    
    
    
    Minority interest
    
    
    3,308
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,308Other long-term liabilities
    
    
    2,638
    
    
    
    
    
    
    
    
    
    
    
    1,984
    
    
    
    654Intercompany payables (receivables)
    
    
    
    
    
    
    
    
    
    
    (202,199
    )
    
    
    187,938
    
    
    
    14,261Total shareholders equity
    
    
    295,819
    
    
    
    (273,387
    )
    
    
    295,819
    
    
    
    234,020
    
    
    
    39,367Total liabilities and shareholder s equity
    
    $
    999,454
    
    
    $
    (273,387
    )
    
    $
    569,295
    
    
    $
    612,769
    
    
    $
    90,777
 19




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 Note S (continued)
 Consolidating Condensed Income Statement
Three Months Ended September 30, 2008  (in thousands)
 UCI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-Consolidated
    
    
    Eliminations
    
    
    UCI
    
    
    Guarantors
    
    
    GuarantorsNet sales
    
    $
    218,136
    
    
    $
    (23,368
    )
    
    $
    
    
    
    $
    207,878
    
    
    $
    33,626Cost of sales
    
    
    170,621
    
    
    
    (23,368
    )
    
    
    
    
    
    
    161,387
    
    
    
    32,602Gross profit
    
    
    47,515
    
    
    
    
    
    
    
    
    
    
    
    46,491
    
    
    
    1,024Operating (expense) incomeSelling and warehousing
    
    
    (15,679
    )
    
    
    
    
    
    
    (299
    )
    
    
    (14,002
    )
    
    
    (1,378
    )General and administrative
    
    
    (13,028
    )
    
    
    
    
    
    
    (4,428
    )
    
    
    (6,993
    )
    
    
    (1,607
    )Amortization of acquired intangible assets
    
    
    (1,545
    )
    
    
    
    
    
    
    
    
    
    
    (1,545
    )
    
    
    Costs of integrating water pump operations
    
    
    (196
    )
    
    
    
    
    
    
    
    
    
    
    (196
    )
    
    
    Operating income (loss)
    
    
    17,067
    
    
    
    
    
    
    
    (4,727
    )
    
    
    23,755
    
    
    
    (1,961
    )Other (expense) incomeInterest expense, net
    
    
    (8,282
    )
    
    
    
    
    
    
    (8,271
    )
    
    
    (7
    )
    
    
    (4
    )Intercompany interest
    
    
    
    
    
    
    
    
    
    
    6,511
    
    
    
    (6,304
    )
    
    
    (207
    )Management fee expense
    
    
    (500
    )
    
    
    
    
    
    
    (500
    )
    
    
    
    
    
    
    Miscellaneous, net
    
    
    (681
    )
    
    
    
    
    
    
    
    
    
    
    (945
    )
    
    
    264Income (loss) before income taxes
    
    
    7,604
    
    
    
    
    
    
    
    (6,987
    )
    
    
    16,499
    
    
    
    (1,908
    )Income tax (expense) benefit
    
    
    (3,164
    )
    
    
    
    
    
    
    2,494
    
    
    
    (5,913
    )
    
    
    255Increase (decrease) before equity in
earnings of subsidiaries
    
    
    4,440
    
    
    
    
    
    
    
    (4,493
    )
    
    
    10,586
    
    
    
    (1,653
    )Equity in earnings of subsidiaries
    
    
    
    
    
    
    (7,462
    )
    
    
    8,933
    
    
    
    (1,471
    )
    
    
    Net income (loss)
    
    $
    4,440
    
    
    $
    (7,462
    )
    
    $
    4,440
    
    
    $
    9,115
    
    
    $
    (1,653
    )
 20




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 Note S (continued)
 Consolidating Condensed Income Statement
Three Months Ended September 30, 2007  (in thousands)
 UCI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-Consolidated
    
    
    Eliminations
    
    
    UCI
    
    
    Guarantors
    
    
    GuarantorsNet sales
    
    $
    230,742
    
    
    $
    (17,612
    )
    
    $
    
    
    
    $
    218,941
    
    
    $
    29,413Cost of sales
    
    
    177,185
    
    
    
    (17,612
    )
    
    
    
    
    
    
    166,638
    
    
    
    28,159Gross profit
    
    
    53,557
    
    
    
    
    
    
    
    
    
    
    
    52,303
    
    
    
    1,254Operating (expense) incomeSelling and warehousing
    
    
    (15,092
    )
    
    
    
    
    
    
    (202
    )
    
    
    (14,292
    )
    
    
    (598
    )General and administrative
    
    
    (10,790
    )
    
    
    
    
    
    
    (5,239
    )
    
    
    (4,727
    )
    
    
    (824
    )Amortization of acquired intangible assets
    
    
    (1,694
    )
    
    
    
    
    
    
    
    
    
    
    (1,694
    )
    
    
    Costs of integrating water pump operations
    
    
    (222
    )
    
    
    
    
    
    
    
    
    
    
    (222
    )
    
    
    Operating income (loss)
    
    
    25,759
    
    
    
    
    
    
    
    (5,441
    )
    
    
    31,368
    
    
    
    (168
    )Other (expense) incomeInterest expense, net
    
    
    (10,175
    )
    
    
    
    
    
    
    (10,040
    )
    
    
    20
    
    
    
    (155
    )Intercompany interest
    
    
    
    
    
    
    
    
    
    
    7,565
    
    
    
    (7,314
    )
    
    
    (251
    )Management fee expense
    
    
    (500
    )
    
    
    
    
    
    
    (500
    )
    
    
    
    
    
    
    Miscellaneous, net
    
    
    (917
    )
    
    
    
    
    
    
    
    
    
    
    (797
    )
    
    
    (120
    )Income (loss) before income taxes
    
    
    14,167
    
    
    
    
    
    
    
    (8,416
    )
    
    
    23,277
    
    
    
    (694
    )Income tax (expense) benefit
    
    
    (5,772
    )
    
    
    
    
    
    
    3,133
    
    
    
    (8,700
    )
    
    
    (205
    )Increase (decrease) before equity in earnings of subsidiaries
    
    
    8,395
    
    
    
    
    
    
    
    (5,283
    )
    
    
    14,577
    
    
    
    (899
    )Equity in earnings of subsidiaries
    
    
    
    
    
    
    (12,216
    )
    
    
    13,678
    
    
    
    (1,462
    )
    
    
    Discontinued operationsGain on sale of discontinued operations, net of tax
    
    
    2,707
    
    
    
    
    
    
    
    2,707
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    11,102
    
    
    $
    (12,216
    )
    
    $
    11,102
    
    
    $
    13,115
    
    
    $
    (899
    )
 21




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 Note S (continued)
 Consolidating Condensed Income Statement
Nine Months Ended September 30, 2008  (in thousands)
 UCI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-Consolidated
    
    
    Eliminations
    
    
    UCI
    
    
    Guarantors
    
    
    GuarantorsNet sales
    
    $
    676,695
    
    
    $
    (70,530
    )
    
    
    
    
    
    $
    641,645
    
    
    $
    105,580Cost of sales
    
    
    531,430
    
    
    
    (70,530
    )
    
    
    
    
    
    
    499,758
    
    
    
    102,202Gross profit
    
    
    145,265
    
    
    
    
    
    
    
    
    
    
    
    141,887
    
    
    
    3,378Operating (expense) incomeSelling and warehousing
    
    
    (47,210
    )
    
    
    
    
    
    
    (739
    )
    
    
    (42,262
    )
    
    
    (4,209
    )General and administrative
    
    
    (38,367
    )
    
    
    
    
    
    
    (13,115
    )
    
    
    (20,824
    )
    
    
    (4,428
    )Amortization of acquired intangible assets
    
    
    (4,802
    )
    
    
    
    
    
    
    
    
    
    
    (4,802
    )
    
    
    Costs of integrating water pump operations
    
    
    (684
    )
    
    
    
    
    
    
    
    
    
    
    (684
    )
    
    
    Operating income (loss)
    
    
    54,202
    
    
    
    
    
    
    
    (13,854
    )
    
    
    73,315
    
    
    
    (5,259
    )Other (expense) incomeInterest expense, net
    
    
    (25,838
    )
    
    
    
    
    
    
    (25,715
    )
    
    
    (22
    )
    
    
    (101
    )Inter-company interest
    
    
    
    
    
    
    
    
    
    
    20,822
    
    
    
    (20,190
    )
    
    
    (632
    )Management fee expense
    
    
    (1,500
    )
    
    
    
    
    
    
    (1,500
    )
    
    
    
    
    
    
    Miscellaneous, net
    
    
    (1,870
    )
    
    
    
    
    
    
    
    
    
    
    (2,428
    )
    
    
    558Income (loss) before income taxes
    
    
    24,994
    
    
    
    
    
    
    
    (20,247
    )
    
    
    50,675
    
    
    
    (5,434
    )Income tax (expense) benefit
    
    
    (9,772
    )
    
    
    
    
    
    
    7,639
    
    
    
    (18,708
    )
    
    
    1,297Increase (decrease) before equity in
earnings of subsidiaries
    
    
    15,222
    
    
    
    
    
    
    
    (12,608
    )
    
    
    31,967
    
    
    
    (4,137
    )Equity in earnings of subsidiaries
    
    
    
    
    
    
    (22,702
    )
    
    
    27,830
    
    
    
    (5,128
    )
    
    
    Net income (loss)
    
    $
    15,222
    
    
    $
    (22,702
    )
    
    $
    15,222
    
    
    $
    26,839
    
    
    $
    (4,137
    )
 22




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 Note S (continued)
 Consolidating Condensed Income Statement
Nine Months Ended September 30, 2007  (in thousands)
 UCI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-Consolidated
    
    
    Eliminations
    
    
    UCI
    
    
    Guarantors
    
    
    GuarantorsNet sales
    
    $
    729,159
    
    
    $
    (46,080
    )
    
    $
    
    
    
    $
    690,507
    
    
    $
    84,732Cost of sales
    
    
    566,666
    
    
    
    (46,080
    )
    
    
    
    
    
    
    532,719
    
    
    
    80,027Gross profit
    
    
    162,493
    
    
    
    
    
    
    
    
    
    
    
    157,788
    
    
    
    4,705Operating (expense) incomeSelling and warehousing
    
    
    (46,047
    )
    
    
    
    
    
    
    (574
    )
    
    
    (42,342
    )
    
    
    (3,131
    )General and administrative
    
    
    (36,900
    )
    
    
    
    
    
    
    (13,809
    )
    
    
    (19,110
    )
    
    
    (3,981
    )Amortization of acquired intangible assets
    
    
    (5,303
    )
    
    
    
    
    
    
    
    
    
    
    (5,303
    )
    
    
    Costs of integrating water pump operations
    
    
    (696
    )
    
    
    
    
    
    
    
    
    
    
    (696
    )
    
    
    Gain from sale of assets and costs of closing a facility
    
    
    1,546
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,546Trademark impairment loss
    
    
    (3,600
    )
    
    
    
    
    
    
    
    
    
    
    (3,600
    )
    
    
    Operating income (loss)
    
    
    71,493
    
    
    
    
    
    
    
    (14,383
    )
    
    
    86,737
    
    
    
    (861
    )Other (expense) incomeInterest expense, net
    
    
    (31,038
    )
    
    
    
    
    
    
    (30,564
    )
    
    
    (38
    )
    
    
    (436
    )Intercompany interest
    
    
    
    
    
    
    
    
    
    
    23,565
    
    
    
    (22,779
    )
    
    
    (786
    )Management fee expense
    
    
    (1,500
    )
    
    
    
    
    
    
    (1,500
    )
    
    
    
    
    
    
    Miscellaneous, net
    
    
    (1,972
    )
    
    
    
    
    
    
    
    
    
    
    (2,028
    )
    
    
    56Income (loss) before income taxes
    
    
    36,983
    
    
    
    
    
    
    
    (22,882
    )
    
    
    61,892
    
    
    
    (2,027
    )Income tax (expense) benefit
    
    
    (14,056
    )
    
    
    
    
    
    
    8,428
    
    
    
    (23,101
    )
    
    
    617Increase (decrease) before equity in
earnings of subsidiaries
    
    
    22,927
    
    
    
    
    
    
    
    (14,454
    )
    
    
    38,791
    
    
    
    (1,410
    )Equity in earnings of subsidiaries
    
    
    
    
    
    
    (34,880
    )
    
    
    37,381
    
    
    
    (2,501
    )
    
    
    Discontinued operationsGain on sale of discontinued
operations, net of tax
    
    
    2,707
    
    
    
    
    
    
    
    2,707
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    25,634
    
    
    $
    (34,880
    )
    
    $
    25,634
    
    
    $
    36,290
    
    
    $
    (1,410
    )
 23




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 Note S (continued)
 Consolidating Condensed Statement of Cash Flows
Nine Months Ended September 30, 2008  (in thousands)
 UCI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-Consolidated
    
    
    Eliminations
    
    
    UCI
    
    
    Guarantors
    
    
    GuarantorsNet cash provided by operating activities
    
    $
    24,551
    
    
    $
    
    
    
    $
    (9,576
    )
    
    $
    14,601
    
    
    $
    19,526Cash flows from investing activities:Capital expenditures
    
    
    (25,977
    )
    
    
    
    
    
    
    (271
    )
    
    
    (16,406
    )
    
    
    (9,300
    )Proceeds from sale of other property, plant and
equipment
    
    
    366
    
    
    
    
    
    
    
    
    
    
    
    94
    
    
    
    272Net cash used in investing activities
    
    
    (25,611
    )
    
    
    
    
    
    
    (271
    )
    
    
    (16,312
    )
    
    
    (9,028
    )Cash flows from financing activities:Issuances of debt
    
    
    22,798
    
    
    
    
    
    
    
    20,003
    
    
    
    
    
    
    
    2,795Debt repayments
    
    
    (21,718
    )
    
    
    
    
    
    
    (10,289
    )
    
    
    (46
    )
    
    
    (11,383
    )Net cash provided by (used in) financing activities
    
    
    1,080
    
    
    
    
    
    
    
    9,714
    
    
    
    (46
    )
    
    
    (8,588
    )Effect of currency exchange rate changes on cash
    
    
    68
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68Net increase (decrease) in cash and cash equivalents
    
    
    88
    
    
    
    
    
    
    
    (133
    )
    
    
    (1,757
    )
    
    
    1,978Cash and cash equivalents at beginning of year
    
    
    41,440
    
    
    
    
    
    
    
    36,684
    
    
    
    1,234
    
    
    
    3,522Cash and cash equivalents at end of period
    
    $
    41,528
    
    
    $
    
    
    
    $
    36,551
    
    
    $
    (523
    )
    
    $
    5,500
 24




---



##### 



United Components, Inc.
 Notes to Condensed Consolidated Financial Statements
 Note S (continued)
 Consolidating Condensed Statement of Cash Flows
Nine Months Ended September 30, 2007  (in thousands)
 UCI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-Consolidated
    
    
    Eliminations
    
    
    UCI
    
    
    Guarantors
    
    
    GuarantorsNet cash provided by operating activities
    
    $
    37,866
    
    
    $
    
    
    
    $
    20,691
    
    
    $
    15,021
    
    
    $
    2,154Cash flows from investing activities:Capital expenditures
    
    
    (25,080
    )
    
    
    
    
    
    
    (16
    )
    
    
    (14,652
    )
    
    
    (10,412
    )Proceeds from sale of discontinued operations, net
of transaction costs and cash sold
    
    
    2,202
    
    
    
    
    
    
    
    2,202
    
    
    
    
    
    
    
    Proceeds from sale of Mexican land and building
    
    
    6,685
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,685Proceeds from sale of other property, plant and
equipment
    
    
    1,408
    
    
    
    
    
    
    
    
    
    
    
    966
    
    
    
    442Net cash (used in) provided by investing activities
    
    
    (14,785
    )
    
    
    
    
    
    
    2,186
    
    
    
    (13,686
    )
    
    
    (3,285
    )Cash flows from financing activities:Issuances of debt
    
    
    15,367
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,367Debt repayments
    
    
    (54,556
    )
    
    
    
    
    
    
    (40,155
    )
    
    
    (344
    )
    
    
    (14,057
    )Net cash (used in) provided by financing activities
    
    
    (39,189
    )
    
    
    
    
    
    
    (40,155
    )
    
    
    (344
    )
    
    
    1,310Effect of currency exchange rate changes on cash
    
    
    (19
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19
    )Net (decrease) increase in cash and cash equivalents
    
    
    (16,127
    )
    
    
    
    
    
    
    (17,278
    )
    
    
    991
    
    
    
    160Cash and cash equivalents at beginning of year
    
    
    31,523
    
    
    
    
    
    
    
    30,212
    
    
    
    (1,767
    )
    
    
    3,078Cash and cash equivalents at end of period
    
    $
    15,396
    
    
    $
    
    
    
    $
    12,934
    
    
    $
    (776
    )
    
    $
    3,238
 25




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-Looking Statements
    Overview
 Sales.
  26




---



##### 



Cost of sales
    27




---



##### 



Selling and warehousing expenses
 General and administrative expenses
 Critical Accounting Policies and Estimates
   Inventory
 Revenue recognition
    28




---



##### 



Product returns.
 Impairment of intangible assets and tangible fixed assets
  Retirement benefits
  Insurance reserves.
 Environmental expenditures
  29




---



##### 



Results of Operations
  Three Months ended September 30,
    
    
    Nine Months ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales
    
    $
    218,136
    
    
    $
    230,742
    
    
    $
    676,695
    
    
    $
    729,159Cost of sales
    
    
    170,621
    
    
    
    177,185
    
    
    
    531,430
    
    
    
    566,666Gross profit
    
    
    47,515
    
    
    
    53,557
    
    
    
    145,265
    
    
    
    162,493Operating (expense) incomeSelling and warehousing
    
    
    (15,679
    )
    
    
    (15,092
    )
    
    
    (47,210
    )
    
    
    (46,047
    )General and administrative
    
    
    (13,028
    )
    
    
    (10,790
    )
    
    
    (38,367
    )
    
    
    (36,900
    )Amortization of acquired intangible assets
    
    
    (1,545
    )
    
    
    (1,694
    )
    
    
    (4,802
    )
    
    
    (5,303
    )Costs of integration of water pump operations
    
    
    (196
    )
    
    
    (222
    )
    
    
    (684
    )
    
    
    (696
    )Gain from sale of assets and costs of
closing a facility
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,546Trademark impairment loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,600
    )Operating income
    
    
    17,067
    
    
    
    25,759
    
    
    
    54,202
    
    
    
    71,493Other expenseInterest expense, net
    
    
    (8,282
    )
    
    
    (10,175
    )
    
    
    (25,838
    )
    
    
    (31,038
    )Management fee expense
    
    
    (500
    )
    
    
    (500
    )
    
    
    (1,500
    )
    
    
    (1,500
    )Miscellaneous, net
    
    
    (681
    )
    
    
    (917
    )
    
    
    (1,870
    )
    
    
    (1,972
    )Income before income taxes
    
    
    7,604
    
    
    
    14,167
    
    
    
    24,994
    
    
    
    36,983Income tax expense
    
    
    (3,164
    )
    
    
    (5,772
    )
    
    
    (9,772
    )
    
    
    (14,056
    )Net income from continuing operations
    
    
    4,440
    
    
    
    8,395
    
    
    
    15,222
    
    
    
    22,927Gain on sale of discontinued operations, net of tax
    
    
    
    
    
    
    2,707
    
    
    
    
    
    
    
    2,707Net income
    
    $
    4,440
    
    
    $
    11,102
    
    
    $
    15,222
    
    
    $
    25,634
 30




---



##### 



Three Months Ended September 30, 2008 compared with the Three Months Ended September 30, 2007
 Net sales
 Gross profit.
   Selling and warehousing expenses
 General and administrative expenses
 Costs of integration of water pump operations
 Interest expense, net
 Income tax expense
 Gain on sale of discontinued operations, net of tax.
 Net income
 31




---



##### 



Nine Months Ended September 30, 2008 compared with the Nine Months Ended September 30, 2007
 Net sales
  Gross profit.
    Selling and warehousing expenses
 General and administrative expenses
 32




---



##### 



Costs of integration of water pump operations
 Gain from sale of assets and costs of closing a facility
 Trademark impairment loss.
 Interest expense, net
 Income tax expense
 Gain on sale of discontinued operations, net of tax.
 Net income
 Liquidity and Capital Resources
  September 30,
    
    
    December 31,2008
    
    
    2007Notes payable
    
    $
    1.5
    
    
    $
    10.1Revolving credit line borrowings
    
    
    20.0
    
    
    
    Capitalized lease obligations
    
    
    1.4
    
    
    
    1.8Term loan
    
    
    190.0
    
    
    
    200.0Senior subordinated notes
    
    
    230.0
    
    
    
    230.0Amount of debt requiring repayment
    
    
    442.9
    
    
    
    441.9Unamortized debt discount
    
    
    (2.9
    )
    
    
    (3.5
    )$
    440.0
    
    
    $
    438.4
     33




---



##### 



Last three months of 2008
    
    $
    1.72009
    
    
    20.42010
    
    
    0.22011
    
    
    45.22012
    
    
    145.2Thereafter
    
    
    230.2$
    442.9
       34




---



##### 



Net cash provided by operating activities
 Net cash used in investing activities
 35




---



##### 



Net cash used in financing activities
  Contractual Obligations Update
  36




---



##### 



Recent Accounting Pronouncements
        37




---



##### 



Item 3. Quantitative and Qualitative Disclosures about Market Risk
  Foreign Currency Exposure
 Currency translation .
  Currency transactions
  Interest Rate Risk
    38




---



##### 



Treasury Policy
  
 Item 4. Controls and Procedures
    39




---



##### 



PART II
 OTHER INFORMATION
 
 Item 1. Legal Proceedings
 T.D.S.
Co. v. Champion Labs. et al. Barjan, LLC v. Champion Labs. et al. Bruene v. Champion Labs. et al. S&E Quick Lube Distrib., Inc. v. Champion Labs. et al. Flash
Sales, Inc. v. Champion Labs. et al. The Parts Plus Group, Inc. v.
Champion Labs. et al. Wards Auto Painting & Body Works, Inc. v.
Champion Labs. et al. G.W.C. Distributors, Inc. v. Champion
Laboratories, Inc. et al. A&L Systems, Inc. v. Champion
Laboratories, Inc. et al. Aaron Dunham v. Champion Laboratories,
Inc. et al. Auto Pro, LLC v. Champion Laboratories, Inc. et al. JDL Corp. v. Champion Laboratories, Inc. et al. Associate Jobbers Warehouse Inc. v. Champion Laboratories, Inc. et al. Friedson v. Champion Laboratories, Inc. et al. Colburn v. Champion Laboratories, Inc. et al. Lown v.
Champion Laboratories, Inc. et al. Boardman v. Champion
Laboratories, Inc. et al. Central Warehouse Sales Corp. v.
Champion Labs. et al. All American Plazas of New Jersey, Inc. v.
Honeywell International Inc. et al. Werner Aero Services v. Champion
Labs. et al. Pawnee/S.A.E. Warehouse, Inc. v. Champion
Laboratories, Inc. et al. S.A.E. Warehouse, Inc. v. Champion
Laboratories, Inc. et al. Monroe Motor Products Corp. v. Champion
Laboratories, Inc. et al. Flash Sales, S&E Quick Lube, Bruene,
Central Warehouse Pawnee/S.A.E. S.A.E. All American Monroe Motor Lovett Auto & Tractor Parts, Inc. v. Champion Labs. et al. Neptune Warehouse Distributors, Inc. v. Champion Labs. et al. Hovis Auto Supply, Inc. v. Robert Bosch LLC et al. Ace Quick Lube v. Champion Laboratories Inc. et al. Manasek Auto Parts, Inc. v. Champion Labs. et al. Big T
Inc. v. Champion Labs. et al. Gemini of Westmont, Inc. v. Champion
Laboratories, Inc. et al. Cals Auto Service, Inc. v. Champion
Laboratories, Inc. et al. WWD Parts, Inc., d/b/a Parts For Imports
v. Champion Laboratories, Inc. et al. Muralts, Inc. v. Champion
Laboratories, Inc. et al. G&H Import Auto Inc. v. Champion
Laboratories, Inc. et al. Mikes Inc. v. Champion Laboratories,
Inc. et al. Worldwide Equipment, Inc. v. Honeywell Intl et al.
 40




---



##### 



Packard Automotive, Inc. v. Honeywell International
Inc. et al., Doll et al. v. Champion Labs. et al. Austin v. Honeywell Intl et al. Gasoline and
Automotive Service Dealers of America, Inc. v. Champion Laboratories, Inc. et al. David Stoll v. Honeywell International, Inc. et al. Jerry Vandiver v. Champion Laboratories, Inc. et al. Bettendorf
Transfer & Excavating, Inc. v. Champion Laboratories, Inc. et al. Ponce v. Honeywell International Inc. et al. G.S.G. Excavating v.
Honeywell International Inc. et al. Gertha Wilkerson v. Honeywell
International, Inc. et al. Bobbi Cooper v. Honeywell International, Inc. et al. Bay Area Truck Services v.
Champion Laboratories, Inc. et al. Robert A. Nilsen v. Champion
Laboratories, Inc. et al., Ehrhardt et al. v. Champion
Laboratories, Inc. et al. Faircloth v. Champion Laboratories,
Inc. et al. Carpenter et al. v. Honeywell Intl Inc. et al. Warner et al. v. Honeywell Intl Inc. et al. Austin G.S.G. Excavating Bethea et al. v. Champion Labs. et al. Mark Moynahan Champion Laboratories, Inc. et al. Sepher Torabi
d/b/a/ Protec Auto v. Champion Laboratories, Inc. et al. Austin,
David Stoll Bay Area Bettendorf
  Jean-Paul Perrault v. Champion Labs. et al.
 Urlin Rent A Car Ltd. v. Champion Laboratories, Inc. et
al
     
 Item 1.A. Risk Factors
  41




---



##### 



Increases in our raw materials and component costs or the loss of a number of our suppliers could
adversely affect our financial health.
   The current economic environment and adverse credit market conditions may significantly affect our
ability to meet liquidity needs and access to capital.
   42




---



##### 



We could be materially adversely affected by changes or imbalances in currency exchange and other
rates.
  Increased crude oil and energy prices could reduce global demand for and use of automobiles, which
could have an adverse effect on our profitability.
  The Company may be adversely affected by the current economic environment.
    
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Default Upon Senior Securities
  43




---



##### 



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.*
 
 *
    
    This certificate is being furnished solely to accompany the report
pursuant to 18 U.S.C. 1350 and is not being filed for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, and is
not to be incorporated by reference into any filing of UCI, whether
made before or after the date hereof, regardless of any general
incorporation language in such filing. 44




---



##### 



SIGNATURES
  UNITED COMPONENTS, INC.Date: November 13, 2008
    By:
    /s/ DANIEL J. JOHNSTONName: Daniel J. JohnstonTitle: Chief Financial Officer 45