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~~March 31, ~~2009~~2010

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.

(Exact Name of Registrant as Specified in Its Charter)

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

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

~~Indicate by check mark whether the registrant:~~ (~~1) has filed all reports required to be filed~~Registrant’s byTelephone ~~Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports)~~Number, ~~and~~Including ~~(2) has~~Area ~~been subject to such filing requirements for the past 90 days. Yes o No þ~~ Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No þ (Note: As a voluntary filer not subject to the filing requirements, the registrant has filed all reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months)

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

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

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

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

The registrant had 1,000 shares of its $0.01 par value common stock outstanding as of ~~November 13~~May 14, ~~2009~~2010.

United Components, Inc.

Index

Part I FINANCIAL INFORMATION
Part I	FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)			3
Item 1.	Consolidated Financial Statements (unaudited)
Condensed consolidated balance sheets — September 30, 2009 and December 31, 2008			3
	Condensed consolidated balance sheets — March 31, 2010 and December 31, 2009	3
Condensed consolidated income statements — Three and nine months ended September 30, 2009 and 2008			4
	Condensed consolidated income statements — Three months ended March 31, 2010 and 2009	4
Condensed consolidated statements of cash flows — Nine months ended September 30, 2009 and 2008			5
	Condensed consolidated statements of cash flows — Three months ended March 31, 2010 and 2009	5
Condensed consolidated statements of changes in equity — Nine months ended September 30, 2009 and 2008			6
	Condensed consolidated statements of changes in equity — Three months ended March 31, 2010 and 2009	6
~~Notes to condensed consolidated financial statements~~	Notes to condensed consolidated financial statements	7	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3. Quantitative and Qualitative Disclosures About Market Risk			42
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4. Controls and Procedures			43
Item 4.	Controls and Procedures	35
Part II OTHER INFORMATION			44
Part II	OTHER INFORMATION
Item 1. Legal Proceedings			44
Item 1.	Legal Proceedings	36
Item 1A. Risk Factors			44
Item 1A.	Risk Factors	36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3. Default Upon Senior Securities			44
Item 3.	Default Upon Senior Securities	36
Item 4. Submission of Matters to Vote of Security Holders			44
Item 4.	Reserved	36
Item 5. Other Information			44
Item 5.	Other Information	36
Item 6. Exhibits			44
Item 6.	Exhibits	36
Signatures		37	45
Exhibits		38

PART I ~~FINANCIAL INFORMATION~~ I

FINANCIAL INFORMATION

Item 1. Financial Statements

United Components, Inc. ~~Condensed Consolidated Balance Sheets (in thousands)~~

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

Condensed Consolidated Balance Sheets

(in thousands)

	March 31, 2010			December 31, 2009
	(unaudited)
Assets

Current assets
Cash and cash equivalents	$	165,843		$	131,913
Accounts receivable, net		263,753			261,210
Inventories, net		134,522			133,058
Deferred tax assets		30,932			30,714
Assets held for sale – Note N		4,637			—
Other current assets		18,314			23,499
Total current assets		618,001			580,394

Property, plant and equipment, net		142,400			149,753
Goodwill		241,461			241,461
Other intangible assets, net		67,099			68,030
Deferred financing costs, net		1,683			1,843
Restricted cash		9,400			9,400
Other long-term assets		5,931			6,304
Total assets	$	1,085,975		$	1,057,185

Liabilities and equity

Current liabilities
Accounts payable	$	111,385		$	111,898
Short-term borrowings		5,810			3,460
Current maturities of long-term debt		17,895			17,925
Accrued expenses and other current liabilities		118,037			106,981
Total current liabilities		253,127			240,264

Long-term debt, less current maturities		400,958			400,853
Pension and other postretirement liabilities		71,675			70,802
Deferred tax liabilities		8,492			8,546
Due to UCI Holdco		33,058			30,105
Other long-term liabilities		6,142			6,672
Total liabilities		773,452			757,242

Contingencies — Note J

Equity
United Components, Inc. shareholder’s equity
Common stock		—			—
Additional paid in capital		278,875			278,756
Retained earnings		64,212			51,879
Accumulated other comprehensive loss		(32,339	)		(32,502	)
Total United Components, Inc. shareholder’s equity		310,748			298,133
Noncontrolling interest – Note N		1,775			1,810
Total equity		312,523			299,943
Total liabilities and equity	$	1,085,975		$	1,057,185

The accompanying notes are an integral part of these statements.

United Components, Inc. ~~Condensed Consolidated Income Statements (unaudited) (in thousands)~~

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

Condensed Consolidated Income Statements (unaudited)

(in thousands)

	Three Months ended March 31,
	2010			2009

Net sales	$	230,304		$	219,862
Cost of sales		173,076			180,442
Gross profit		57,228			39,420
Operating expense
Selling and warehousing		(14,295	)		(14,298	)
General and administrative		(10,620	)		(11,052	)
Amortization of acquired intangible assets		(1,335	)		(1,480	)
Restructuring costs (Note B)		(2,036	)		(205	)
Patent litigation costs (Note J)		(964	)		—
Operating income		27,978			12,385
Other expense
Interest expense, net		(6,847	)		(7,999	)
Management fee expense		(500	)		(500	)
Miscellaneous, net		(951	)		(1,485	)
Income before income taxes		19,680			2,401
Income tax expense		(7,382	)		(1,135	)
Net income		12,298			1,266
Less: Loss attributable to noncontrolling interest		(35	)		(304	)
Net income attributable to United Components, Inc.	$	12,333		$	1,570

The accompanying notes are an integral part of these statements.

United Components, Inc. ~~Condensed Consolidated Statements of Cash Flows (unaudited) (in thousands)~~

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

Condensed Consolidated Statements of Cash Flows (unaudited)

(in thousands)

	Three Months ended March 31,
	2010			2009
Cash flows from operating activities
Net income attributable to United Components, Inc.	$	12,333		$	1,570
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of other intangible assets		8,981			9,439
Amortization of deferred financing costs and debt discount		318			404
Deferred income taxes		(539	)		405
Other non-cash, net		1,149			355
Changes in operating assets and liabilities
Accounts receivable		(3,533	)		7,061
Inventories		(3,735	)		11,735
Other current assets		4,927			(198	)
Accounts payable		1,836			5,536
Accrued expenses and other current liabilities		11,661			10,736
Other long-term assets		346			287
Due to UCI Holdco		2,953			871
Other long-term liabilities		873			1,038
Net cash provided by operating activities		37,570			49,239

Cash flows from investing activities
Capital expenditures		(5,841	)		(4,018	)
Proceeds from sale of other property, plant and equipment		77			24
Net cash used in investing activities		(5,764	)		(3,994	)

Cash flows from financing activities
Issuances of debt		5,557			3,672
Debt repayments		(3,290	)		(22,391	)
Net cash provided by (used in) financing activities		2,267			(18,719	)

Effect of currency exchange rate changes on cash		(143	)		(133	)
Net increase in cash and cash equivalents		33,930			26,393

Cash and cash equivalents at beginning of year		131,913			46,612
Cash and cash equivalents at end of period	$	165,843		$	73,005

The accompanying notes are an integral part of these statements.

United Components, Inc. ~~Condensed Consolidated Statements of Changes in Equity (unaudited) (in thousands)~~

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

Condensed Consolidated Statements of Changes in Equity (unaudited)

(in thousands)

	United Components, Inc. Shareholder’s Equity
	Common Stock		Additional Paid In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interest			Total Equity			Comprehensive Income (Loss)

Balance at January 1, 2009	$	—	$	278,430	$	21,243	$	(39,600	)	$	2,490		$	262,563
Recognition of stock based compensation expense				165										165
Comprehensive income
Net income (loss)						1,570					(304	)		1,266		$	1,570
Other comprehensive income
Foreign currency adjustment (after $(7) of income taxes)								(1,642	)					(1,642	)		(1,642	)
Total comprehensive loss																$	(72	)
Balance at March 31, 2009	$	—	$	278,595	$	22,813	$	(41,242	)	$	2,186		$	262,352

Balance at January 1, 2010	$	—	$	278,756	$	51,879	$	(32,502	)	$	1,810		$	299,943
Recognition of stock based compensation expense				119										119
Comprehensive income
Net income (loss)						12,333					(35	)		12,298		$	12,333
Other comprehensive income
Pension liability (after
$(93) of income taxes)								151						151			151
Foreign currency adjustment (after $27 of income taxes)								12						12			12
Total comprehensive income																$	12,496
Balance at March 31, 2010	$	—	$	278,875	$	64,212	$	(32,339	)	$	1,775		$	312,523

The accompanying notes are an integral part of these statements.

United Components, Inc. ~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE A — GENERAL AND BASIS OF FINANCIAL STATEMENT PRESENTATION

General

United Components, Inc. is an indirect wholly-owned subsidiary of UCI Holdco, Inc. (“Holdco”). Holdco and United Components, Inc. are corporations formed at the direction of The Carlyle Group. At ~~September 30~~March 31, ~~2009~~2010, affiliates of The Carlyle Group ~~(“Carlyle”)~~ owned 90.98% of Holdco’s common stock, and the remainder was owned by certain current and former members of United Components, Inc.’s senior management and board of directors. At ~~September 30~~March 31, ~~2009~~2010, Holdco had $~~316~~331.~~7 million~~5 million of Floating Rate Senior PIK Notes (the “Holdco Notes”) outstanding. While United Components, Inc. has no direct obligation under the Holdco Notes, United Components, Inc. is the sole source of cash generation for Holdco. The Holdco Notes do not appear on United Components, Inc.’s balance sheets, and the ~~related~~ related interest expense is not included in United Components, Inc.’s income statements. See Note I.

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

Basis of Presentation

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

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

The December 31, ~~2008~~2009 consolidated balance sheet has been derived from the audited ~~financial~~ financial statements included in UCI’s annual report on Form 10-K for the year ended December 31, ~~2008~~2009. The financial statements at ~~September 30~~March 31, ~~2009~~2010 and for the three ~~and nine~~ months ended ~~September 30~~March 31, ~~2009~~ 2010 and ~~2008~~2009 are unaudited. In the opinion of UCI management, these financial statements include all adjustments necessary for a fair presentation of the financial position and results of operations for such periods.

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

These financial statements should be read in conjunction with the financial statements and notes thereto included in UCI’s annual report on Form 10-K for the year ended December 31, ~~2008~~2009.

Operating results for the three ~~and nine~~ months ended ~~September 30~~March 31, ~~2009~~2010 are not necessarily ~~indicative~~ indicative of the results that may be expected for the year ~~ending~~ended December 31, ~~2009.~~ 2010.

Income Statement Reclassification

Certain engineering expenses totaling $0.8 million for the three months ended March 31, 2009 were presented in general and administrative expenses. These engineering expenses have been reclassified to cost of sales in the condensed consolidated income statement for the three months ended March 31, 2009 in order to conform to the current year presentation.

United Components, Inc. ~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

Notes to Condensed Consolidated Financial Statements (Unaudited)

Recently Adopted Accounting Guidance

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

On January 1, 2010, UCI adopted changes issued by the FASB to accounting for variable interest entities. These changes require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity; to eliminate the solely quantitative approach previously required for determining the primary beneficiary of a variable interest entity; to add an additional reconsideration event for determining whether an entity is a variable interest entity when any changes in facts and circumstances occur such that holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s economic performance; and to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. The adoption of these changes had no impact on UCI’s financial statements.

Effective January 1, 2010, UCI adopted changes issued by the FASB on January 6, 2010, for a scope clarification to the FASB’s previously-issued guidance on accounting for noncontrolling interests in consolidated financial statements. These changes clarify the accounting and reporting guidance for noncontrolling interests and changes in ownership interests of a consolidated subsidiary. An entity is required to deconsolidate a subsidiary when the entity ceases to have a controlling financial interest in the subsidiary. Upon deconsolidation of a subsidiary, an entity recognizes a gain or loss on the transaction and measures any retained investment in the subsidiary at fair value. The gain or loss includes any gain or loss associated with the difference between the fair value of the retained investment in the subsidiary and its carrying amount at the date the subsidiary is deconsolidated. In contrast, an entity is required to account for a decrease in its ownership interest of a subsidiary that does not result in a change of control of the subsidiary as an equity transaction. See Note N for a discussion of the sale of UCI’s 51% owned joint venture.

NOTE B — RESTRUCTURING COSTS

In the first quarters of 2010 and 2009, ~~Capacity~~UCI ~~Consolidation~~incurred $0.1 million and ~~European~~$0.2 ~~Realignment~~million, respectively, ~~Actions~~of costs for the maintenance and security of land and building that is held for sale. In the first quarter of 2010, UCI recorded $0.4 million of pension curtailment and settlement losses related to headcount reductions at its Mexican subsidiaries and recorded a non-cash charge of $1.5 million related to the disposition of the company’s interest in a 51% owned joint venture (see Note N). These costs related to the company’s capacity consolidation activities are reported in the income statement in “Restructuring costs.”

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

Costs of Previously Closed Water Pump Facility

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

NOTE C — SALES OF RECEIVABLES

UCI has agreements to sell undivided interests in certain of its receivables with ~~factoring~~ factoring companies, which in turn have the right to sell an undivided interest to a financial institution or other third party. UCI enters into these agreements at its discretion as part of its overall cash management activities. Pursuant to these agreements, UCI sold $4256.6 1 million and $4060.5 0 million of receivables during the three months ended ~~September 30,~~March ~~2009 and 2008~~31, ~~respectively,~~2010 and ~~$165.4 million and $158.0 million for the nine months ended September 30,~~ 2009 ~~and 2008~~, respectively.

If receivables had not been ~~sold~~factored, $~~134~~132.6 4 million and $80121.1 5 million of additional receivables would have been outstanding at ~~September 30~~March 31, ~~2009~~2010 and December 31, ~~2008~~2009, respectively. UCI retained no rights or interest, and has no obligations, with respect to the sold receivables. UCI does not service ~~these~~ the receivables after ~~they~~the ~~are sold~~sales.

The sales of receivables were accounted for as a sale and were removed from the balance sheet at the time of the sales. The costs of the sales were discounts to the purchase price deducted by the factoring companies. These costs were $1.0 million and $0.9 million in the three months ended September 30, 2009 and 2008, respectively, and $4.2 million and $2.4 million for the nine months ended September 30, 2009 and 2008, respectively. These costs are recorded in the income statements in “Miscellaneous, net.” 8

United Components, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The sales of receivables were accounted for as a sale and were removed from the balance sheet at the time of the sales. The costs of the sales were discounts deducted by the factoring companies. These costs were $1.0 million and $1.5 million in the three months ended March 31, 2010 and 2009, respectively. These costs are recorded in the income statements in “Miscellaneous, net.”

NOTE D — INVENTORIES

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

	September 30,			December 31,
	March 31, 2010			December 31, 2009
	2009			2008
Raw materials	$	48.2		$	47.5
Raw materials	$	44.6		$	55.3
Work in process		25.9			27.6
Work in process		26.0			34.6
Finished products		76.0			73.1
Finished products		74.3			84.4
Valuation reserves		(15.6	)		(15.1	)
Valuation reserves		(16.6	)		(14.9	)
	$	134.5		$	133.1
	$	128.3		$	159.4

United Components, Inc. Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE E — RESTRICTED CASH

In June 2009, UCI posted $9.4 million of cash to collateralize a letter of credit required by UCI’s workers’ compensation insurance carrier. Historically, assets pledged pursuant to the terms of UCI’s senior credit facility provided the collateral for the letters of credit. As a result of the termination of UCI’s revolving credit facility (see further discussion in Note I), these assets were no longer allowed to be pledged for this purpose and, accordingly, UCI was required to post the cash as collateral. This cash is recorded as “Restricted cash” and is a component of long-term assets on UCI’s balance sheet at ~~September 30~~March 31, ~~2009~~2010. This cash is invested ~~not~~in highly liquid, high quality government securities and is not available for general operating purposes as long as the letter of credit remains outstanding or until alternative collateral is posted.

NOTE F — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

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

	September 30,		December 31,
	March 31, 2010		December 31, 2009
	2009		2008
Salaries and wages	$	3.7	$	3.1
Salaries and wages	$	4.4	$	2.7
Bonuses and profit sharing		2.8		6.1
Bonuses and profit sharing		6.6		3.5
Vacation pay		4.5		4.4
Product returns		3646.56		3242.01
Rebates, credits and discounts due customers		1413.80		1013.86
Insurance		1211.39		119.58
Taxes payable		89.25		47.84
Interest		76.19		2.1.2
Other		1619.01		1319.93
	$	~~110~~118.40	$	85107.70

NOTE G — PRODUCT RETURNS LIABILITY

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

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

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

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

United Components, Inc. ~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

	Three Months ended March 31,
	2010			2009
Beginning of year	$	42.1		$	32.0
Cost of unsalvageable parts		(10.1	)		(12.0	)
Additional reductions to sales		14.6			11.7
End of period	$	46.6		$	31.7

NOTE H — PENSION

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

	Three Months ended September 30,						Nine Months ended September 30,
	Three Months ended March 31,
	2009			2008			2009			2008
	2010			2009
Service cost	$	1.1		$	1.21		$	~~3.4~~		$	~~3.8~~
Interest cost		3.3			3.3			~~9.8~~			~~9.7~~
Expected return on plan assets		(3.67	)		(3.76	)		~~(10.9~~	)		~~(11.1~~	)
Amortization of prior service cost and unrecognized loss		0.12			—0.1			~~0.4~~			~~0.1~~
Curtailment loss		—			—			0.2			—
Curtailment and settlement losses recognized		0.4			—
Special termination benefits		—			—			—			0.2
	$	1.3		$	0.9
	$	0.9		$	0.8		$	2.9		$	2.7

In ~~the nine months ended September 30~~2010, ~~2009,~~ UCI recorded $0.2 4 million of curtailment and settlement losses related to headcount reductions asat ~~part~~its ofMexican ~~specific actions taken to align UCI’s cost structure with current market conditions~~subsidiaries. In the nine months ended September 30, 2008, UCI recorded $0.2 million of expense for special pension benefits for employees terminated as a result of the closure of a former water pump manufacturing facility.

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

NOTE I — DEBT

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

	September 30,			December 31,
	March 31, 2010			December 31, 2009
	2009			2008
Short-term borrowings	$	5.8		$	3.5
Short-term borrowings	$	6.1		$	5.2
Capital lease obligations		0.9			0.9
Revolving credit line borrowings		—			20.0
Capital lease obligations		1.0			1.2
Term loan		190.0			190.0
Senior subordinated notes		230.0			230.0
Unamortized debt issuance costs		(2.40	)		(2.82	)
		424.7			~~443~~422.62
Less:
Short-term borrowings		65.18			53.25
Revolving credit line borrowings		—			20.0
Term loan		17.7			17.7
Current maturities		0.32			0.42
Long-term debt	$	~~418~~401.30		$	~~418~~400.08

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

Senior credit facility — The senior credit facility includes a term loan and, until its termination in June 2009, included a revolving credit facility.

As a result of previous prepayments there are no scheduled repayments of the term loan before December 2011. While there are no scheduled repayments before December 2011, the senior credit facility does require mandatory prepayments of the term loan when UCI generates Excess Cash Flow as defined in the senior credit facility. UCI generated Excess Cash Flow in the year ending December 31, 2009, resulting in a mandatory prepayment of $17.7 million, payable within 95 days of December 31, 2009. In accordance with this provision, UCI made the $17.7 million mandatory prepayment, reducing the amount outstanding under the term loan to $172.3 million, on April 1, 2010. This mandatory prepayment is presented as a component of “Current maturities of long-term debt” in the March 31, 2010 balance sheet. The term loan matures in June 2012.

United Components, Inc. ~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~Senior credit facility — The senior credit facility includes a term loan and included a~~Notes ~~revolving~~to ~~credit~~Condensed ~~facility~~Consolidated ~~which~~Financial ~~terminated~~Statements ~~in June 2009.~~ (Unaudited)

~~Term~~The senior ~~loan~~credit facility requires UCI to maintain certain financial covenants and requires mandatory prepayments under certain events as defined in the agreement. Also, the facility includes certain negative covenants restricting or limiting UCI’s ability to, among other things: declare dividends or redeem stock; prepay certain debt; make loans or investments; guarantee or incur additional debt; make certain capital expenditures; engage in acquisitions or other business combinations; sell assets; and alter UCI’s business. UCI is in compliance with all of these covenants and is not required to make any mandatory prepayments other than the $17.7 million mandatory excess cash flow prepayment discussed above.

InSenior subordinated notes (the ~~three~~“Notes”) ~~month~~— ~~period~~The ~~ended~~Notes ~~March 31,~~bear ~~2008,~~interest ~~UCI~~at 9 ~~used~~3/8% ~~cash~~with interest payable in arrears semi-annually on ~~hand~~June to15 ~~voluntarily~~and ~~repay~~December ~~$10.0~~15 ~~million~~ of ~~its~~each ~~term loan~~year. AsThe aNotes ~~result~~are ofunsecured ~~this~~and ~~voluntary~~rank ~~early~~equally ~~repayment,~~in ~~UCI~~right ~~recorded $0.1 million~~ of ~~accelerated~~payment ~~write-offs~~with any of ~~deferred~~UCI’s ~~financing~~future ~~costs.~~senior ~~This~~subordinated ~~cost~~indebtedness. isThey ~~included~~are insubordinated ~~“Interest expense,~~to ~~net”~~indebtedness inand ~~the~~other ~~income~~liabilities ~~statement.~~of ~~Because~~UCI’s ofsubsidiaries ~~previous~~that ~~early~~are ~~payments~~not guarantors of the ~~term~~Notes. ~~loan,~~They ~~there~~ are noguaranteed on a full and unconditional and joint and ~~scheduled~~several ~~repayments~~basis ~~due~~by ~~until~~UCI’s ~~December 2011~~domestic subsidiaries. The ~~term~~Notes ~~loan~~mature ~~matures~~on in June ~~2012.~~ 15, 2013.

~~While~~Short-term borrowings ~~there~~— ~~are~~At noMarch ~~scheduled~~31, ~~repayments until December 2011~~2010, ~~the~~short-term ~~senior~~borrowings ~~credit~~included ~~facility does~~$1.6 ~~require~~million ~~mandatory~~of ~~prepayments~~a ofSpanish ~~the~~subsidiary’s ~~term~~notes ~~loan~~payable ~~when~~and ~~UCI~~$4.2 ~~generates~~million ~~Excess~~of ~~Cash~~the ~~Flow~~Chinese subsidiaries’ asnotes ~~defined~~payable ~~in the~~to ~~senior~~foreign credit ~~facility~~institutions. ~~Based~~At ~~upon~~December ~~current~~31, 2009, ~~cash~~short-term ~~flow~~borrowings ~~forecasts,~~included ~~UCI~~$0.3 ~~expects~~million toof ~~generate~~a ~~Excess~~Spanish subsidiary’s ~~Cash~~notes ~~Flow~~payable inand $3.2 million of the ~~year~~Chinese ~~ending~~subsidiaries’ ~~December 31,~~notes ~~2009~~payable ~~resulting~~to foreign incredit ainstitutions. ~~mandatory~~The ~~prepayment~~Spanish insubsidiary’s ~~the~~notes ~~range~~payable ofare ~~$10.0~~collateralized by certain accounts receivable related to ~~$20~~the amounts financed.~~0 million,~~ The ~~payable~~Chinese ~~within~~subsidiaries’ ~~95 days~~notes ofpayable ~~December 31,~~are ~~2009~~secured by receivables.

Revolving credit facility

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

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

Covenants and other provisions

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

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

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

NOTE J — CONTINGENCIES

Insurance Reserves

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

United Components, Inc. Notes to Condensed Consolidated Financial Statements (unaudited)

Environmental

UCI is subject to a variety of federal, state, local and foreign environmental laws and regulations, including those governing the discharge of pollutants into the air or water, the management and disposal of hazardous substances or wastes, and the cleanup of contaminated sites. UCI has been identified as a potentially responsible party for contamination at two sites. One of these sites is a former facility in Edison, New Jersey (the “New Jersey Site”), where a state agency has ordered UCI to continue with the monitoring and investigation of chlorinated ~~solvent~~ solvent contamination. The New Jersey Site has been the subject of litigation to determine whether a neighboring facility was responsible for contamination discovered at the New Jersey Site. A judgment has been rendered in that litigation to the effect that the neighboring facility is not responsible for the contamination. UCI ~~has moved for reconsideration of the judgment but, while that motion~~ is ~~pending, UCI is~~ analyzing what further investigation and remediation, if any, may be required at the New Jersey Site. The second site is a previously owned site in Solano County, California (the “California Site”), where UCI, at the request of the regional water board, is investigating and analyzing the nature and extent of the contamination and is conducting some remediation. Based on currently available information, management believes that the cost of the ultimate outcome of the environmental matters related to the New Jersey Site and the California Site will not exceed the $1.7 4 million accrued at ~~September 30~~March 31, ~~2009~~ 2010 by a material amount, if at all. However, because all investigation and analysis has not yet been completed, and ~~because~~due ofto ~~the~~ inherent uncertainty in such environmental matters, it is ~~reasonably~~ possible that the ultimate outcome of these matters could have a material adverse effect on results for a single quarter.

In addition to the two matters discussed above, UCI has been named as a potentially ~~responsible~~ responsible party at a site in Calvert City, Kentucky (“the “Kentucky Site”). UCI estimates settlement costs at $0.1 million for this site. Also, UCI is involved in regulated remediation at two of its manufacturing sites (the “Manufacturing Sites”). The combined cost of the remaining remediation at such Manufacturing Sites is $0.5 2 million. UCI anticipates that the majority of the $0.~~6 million~~3 million reserved for settlement and remediation costs will be spent in the next year. To date, the expenditures related to the Kentucky Site and the Manufacturing ~~Sites~~ Sites have been immaterial.

United Components, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Antitrust Litigation

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

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

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

On December 1, 2008, all of the indirect purchaser plaintiffs, except Gasoline and Automotive Service Dealers of America (“GASDA”), filed a Consolidated Indirect Purchaser Complaint. This complaint names Champion as one of multiple defendants, but it does not name UCI. The complaint is styled as a putative class action and alleges conspiracy violations of Section 1 of the Sherman Act and violations of state antitrust, consumer protection and unfair competition law. The indirect purchaser plaintiffs seek damages, including statutory treble damages, penalties and punitive damages where available, an injunction against future violations, disgorgement of profits, costs and attorney’s fees. On February 2, 2009, Champion and the other defendants jointly filed a motion to dismiss the Consolidated Indirect Purchaser Complaint. On November 5, 2009, the Court granted the motion in part, and denied it in part. The Court directed the indirect purchaser plaintiffs to file an amended complaint conforming to the order. On November 30, 2009, the indirect purchasers filed an amended complaint. On December 17, 2009, the indirect purchasers filed a motion for leave to file a second amended complaint. On December 22, 2009, the Court granted the motion for leave, but gave defendants permission to move to dismiss the second amended complaint. Defendants’ filed that motion to dismiss on January 19, 2010. On April 2, 2010, the Court granted the motion in part, and denied it in part.

On February 2, 2009, Champion, UCI and the other defendants jointly filed a motion to dismiss the GASDA complaint. On April 13, 2009, GASDA voluntarily dismissed UCI from its case without prejudice. On November 5, 2009, the Court granted defendants’ motion to dismiss.

Pursuant to a stipulated agreement between the parties, all defendants produced limited initial discovery on January 30, 2009. On December 10, 2009 the plaintiffs filed their first sets of interrogatories and requests for production of documents. On January 11, 2010, all defendants filed a number of discovery requests to plaintiffs and third parties. The parties submitted their initial objections and responses to these discovery requests on February 16, 2010. On January 21, 2010, the Court entered a scheduling order for discovery. Under this order, discovery related to class certification will proceed immediately, with document production scheduled to be completed no later than June 21, 2010. Class certification briefing will follow the completion of document production, and expert discovery on merits-related issues follow the court’s ruling on plaintiffs’ motions for class certification.

United Components, Inc. ~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

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

On January ~~February 2~~12, 2009, Champion, ~~and~~but ~~the~~not ~~other~~UCI, ~~defendants~~was ~~jointly~~named ~~filed~~as ~~a motion~~one toof ~~dismiss~~ten ~~the~~defendants ~~Consolidated~~in ~~Indirect Purchaser Complaint. On that same date, Champion,~~a ~~United~~related ~~Components~~action ~~and the other defendants jointly~~ filed ain ~~motion to dismiss~~ the ~~GASDA~~Superior ~~complaint. On~~Court ~~April 13,~~of ~~2009~~California, ~~GASDA~~for ~~voluntarily~~the ~~dismissed~~County ~~United~~of ~~Components from its case without prejudice.~~Los OnAngeles ~~November 5,~~on ~~2009,~~behalf ~~the~~of ~~U.S.~~a ~~District~~purported ~~Court~~class ~~for the Northern District~~ of ~~Illinois~~direct ~~(the~~and ~~“Illinois~~indirect ~~District~~purchasers ~~Court”) granted the~~of ~~motion~~aftermarket ~~to dismiss the GASDA complaint~~filters. On ~~Also~~March ~~on November~~ 5, 2009, ~~the~~one ~~Illinois District~~of ~~Court~~the ~~denied~~defendants infiled ~~part~~a notice ~~and~~of ~~granted~~removal ~~in part the motion~~ to ~~dismiss~~ the ~~Consolidated Indirect Purchaser Complaint~~U.S. ~~In particular, the Illinois~~ District Court ~~granted~~for the ~~defendants’~~Central District of ~~motion~~California, toand ~~dismiss~~then ~~Count~~subsequently IIrequested —that the ~~indirect~~JPML ~~purchaser~~transfer ~~plaintiffs’~~this ~~nationwide~~case ~~claim for unjust~~to ~~enrichment~~the —Northern ~~limited~~District ~~the~~of ~~damages~~Illinois ~~periods~~ for ~~claims~~coordinated ~~based~~pre-trial onproceedings, which the ~~antitrust~~JPML ~~laws~~granted. On ofFebruary ~~Nebraska~~25, ~~New Hampshire~~2010, ~~Utah~~ ~~and~~the ~~Wyoming~~plaintiff ~~and~~filed ~~granted~~a Consolidated ~~the~~Second ~~defendants’~~Amended ~~motion~~Class toAction ~~dismiss~~Complaint in the ~~indirect~~Northern ~~purchaser~~District ~~plaintiffs’~~of ~~consumer~~Illinois ~~protection~~on ~~law~~behalf ~~claims~~of ~~under~~a ~~the~~purported ~~laws~~class of ~~Kansas,~~California ~~Maine,~~gasoline ~~West~~retailers ~~Virginia, Wisconsin, New York and Rhode~~who ~~Island.~~indirectly ~~Champion~~purchase ~~and~~filters ~~the~~from ~~other~~ defendants ~~must file their answer to the remaining claims in the Consolidated Indirect Purchaser Complaint by December 28, 2009 and the Illinois District Court scheduled a status conference~~ for ~~January 13, 2010~~resale.

~~On January 12, 2009,~~ Champion, but not ~~United Components~~UCI, was also named as one of ~~ten~~five defendants in a ~~related~~ class action filed in Quebec, ~~the~~Canada. ~~Superior~~This ~~Court~~action ofalleges ~~California,~~conspiracy ~~for~~violations under the ~~County~~Canadian Competition Act and violations of ~~Los~~the ~~Angeles~~obligation onto ~~behalf~~act in good faith (contrary to art. 6 of athe ~~purported~~Civil ~~class~~Code of ~~direct~~Quebec) ~~and~~related ~~indirect~~to ~~purchasers~~the sale of aftermarket filters. The Onplaintiff ~~March 5,~~seeks ~~2009, one~~joint ofand several liability against the five defendants ~~filed~~in athe ~~notice~~amount of ~~removal to the U~~$5.S.0 ~~District~~million ~~Court~~in ~~for~~compensatory ~~the~~damages ~~Central~~and ~~District~~$1.0 ofmillion ~~California,~~in ~~and~~punitive ~~then~~damages. The ~~subsequently~~plaintiff ~~requested~~is ~~that~~seeking authorization to have the ~~JPML~~matter ~~transfer~~proceed ~~this~~as ~~case~~a toclass ~~the~~proceeding, ~~Northern District~~which ofmotion ~~Illinois~~has ~~for~~not ~~coordinated~~yet ~~pre-trial~~been ruled ~~proceedings~~on.

Champion, but not ~~United Components~~UCI, was also named as one of ~~five~~14 defendants in a class action filed on May 21, 2008, in ~~Quebec~~Ontario, Canada. This action alleges civil conspiracy, ~~violations~~intentional ~~under~~interference ~~the~~with ~~Canadian~~economic ~~Competition Act~~interests, and conspiracy violations ofunder the ~~obligation~~Canadian toCompetition ~~act~~Act ~~in good faith (contrary to art. 6 of the Civil Code of Quebec)~~ related to the sale of aftermarket filters. The plaintiff seeks joint and several liability against the 14 ~~five~~ defendants in the amount of $~~5.0~~ 150 million in ~~compensatory~~general damages and $~~1.0~~ 15 million in punitive damages. The plaintiff is also seeking authorization to have the matter proceed as a class proceeding, which motion has not yet been ruled on.

~~Champion~~On July 30, ~~but~~2008, ~~not~~the ~~United~~Office ~~Components,~~of ~~was~~the ~~also~~Attorney ~~named~~General asfor ~~one~~the State of 14Florida ~~defendants~~issued Antitrust inCivil aInvestigative ~~class~~Demands ~~action~~to ~~filed~~Champion and UCI requesting documents onand ~~May 21~~information related to the sale of oil, ~~2008~~air, infuel ~~Ontario,~~and ~~Canada~~transmission filters. We ~~This~~are ~~action~~cooperating ~~alleges~~with ~~civil~~the ~~conspiracy~~Attorney General’s requests. On April 16, ~~intentional~~2009, ~~interference~~the Florida Attorney General filed a ~~with~~complaint ~~economic~~against ~~interests,~~Champion and ~~conspiracy~~eight ~~violations~~other ~~under~~defendants in the ~~Canadian~~Northern ~~Competition~~District of Illinois. The complaint alleges violations of Section 1 of the Sherman Act and Florida law related to the sale of aftermarket filters. The ~~plaintiff~~complaint ~~seeks~~asserts ~~joint~~direct and ~~several~~indirect ~~liability~~purchaser ~~against~~claims on ~~the~~behalf ~~14 defendants~~of inFlorida ~~the~~governmental ~~amount~~entities ofand ~~$150 million~~Florida inconsumers. It seeks ~~general~~damages, including statutory treble damages, ~~and~~penalties, ~~$15 million~~fees, incosts ~~punitive~~and ~~damages.~~an injunction. The ~~plaintiff~~Florida Attorney General action is ~~also~~being ~~seeking~~coordinated with ~~authorization~~the torest ~~have~~of the ~~matter~~filters ~~proceed~~cases aspending ain ~~class~~the ~~proceeding,~~Northern ~~which motion~~District ~~has~~of ~~not~~Illinois before ~~yet~~the ~~been~~Honorable ~~ruled~~Robert onW. Gettleman.

The Antitrust Division of the Department of Justice (DOJ) is ~~also~~investigated ~~investigating~~ the ~~allegations~~ allegations raised in these suits and certain current and former employees of the defendants, including Champion, ~~have~~ testified pursuant to subpoenas. On ~~The~~January ~~Company~~21, is2010, ~~fully~~DOJ ~~cooperating~~sent ~~with~~a ~~the~~letter ~~DOJ~~to counsel for Champion stating that “the Antitrust Division’s investigation. into possible collusion in the replacement auto filters industry is now officially closed.”

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

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

Value-added Tax Receivable

UCI’s Mexican operation has outstanding receivables denominated in Mexican pesos in the amount of $3.5 7 million from the Mexican Department of Finance and Public ~~Credit, which are included in the~~ ~~balance sheet in “Other current assets”~~Credit. The receivables relate to refunds of Mexican value-added tax, to which UCI believes it is entitled in the ordinary course of business. The local Mexican tax authorities have rejected UCI’s claims for these refunds, and UCI has commenced litigation in the regional federal administrative and tax courts in Monterrey to order the local tax authorities to process these refunds.

United Components, Inc. ~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

Notes to Condensed Consolidated Financial Statements (Unaudited)

Patent Litigation

Champion is a defendant in litigation with Parker-Hannifin Corporation pursuant to which Parker-Hannifin claims that certain of Champion’s products infringe a Parker-Hannifin patent. ~~Champion~~ ~~has~~On ~~denied~~December ~~that~~11, it2009, ~~infringes~~following ~~the~~trial, a jury verdict ~~patent~~was reached, ~~and~~finding ~~has~~in ~~moved~~favor ~~for~~of ~~summary~~Parker-Hannifin ~~judgment~~with ondamages ~~the~~of ~~grounds~~approximately $6.5 ~~that~~million. On May 3, 2010, the ~~patent~~court isentered ~~invalid~~a ~~and~~partial ~~that~~judgment in this ~~Champion~~matter, ~~does~~awarding ~~not~~Parker-Hannifin ~~infringe~~$6.5 ~~The~~million ~~motion~~and ~~has~~a ~~not~~permanent injunction. Both ~~been~~parties ~~decided~~have byfiled ~~the~~post-trial motions. Parker-Hannifin ~~court,~~is seeking treble damages and ~~trial~~attorneys’ fees. Champion ~~has~~is ~~been~~seeking a judgment as a matter of law on the issues ~~scheduled~~of ~~for~~infringement ~~November 2009.~~and patent invalidity. Champion iscontinues to vigorously ~~defending~~defend this matter,; however, there can be no assurance with respect to the outcome of litigation. NoUCI ~~amounts,~~has ~~other~~recorded ~~than~~a ~~ongoing~~$6.5 ~~defense~~million ~~costs, have~~liability ~~been recorded~~ in the financial statements for this matter included in “Accrued expenses and other current liabilities” at March 31, 2010. During the first quarter of 2010, UCI incurred post-trial costs of $1.0 million.

Other Litigation

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

NOTE K — GEOGRAPHIC INFORMATION

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

	Three Months ended September 30,				Nine Months ended September 30,
	Three Months ended March 31,
	2009		2008		2009		2008
	2010		2009
United States	$	~~196~~195.19	$	~~183~~190.57	$	~~571.7~~	$	~~566.6~~
Mexico		6.0		65.19		~~18.3~~		~~22.6~~
Canada		7.31		76.35		~~21.1~~		~~23.2~~
United Kingdom		2.89		21.78		~~8.1~~		~~10.2~~
France		12.69		21.09		~~5.9~~		~~7.8~~
Venezuela		0.1		2.0		1.7		3.5
Germany		1.7		1.2
Germany		1.6		1.4		3.9		4.2
China		1.7		1.9
Spain		1.21		10.28		~~3.1~~		~~3.5~~
Other		1211.20		~~11.~~9.2		~~32.4~~		~~35.1~~
	$	~~228~~230.93	$	~~218~~219.19	$	~~666.2~~	$	~~676.7~~

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

	September 30,		December 31,
	March 31, 2010		December 31, 2009
	2009		2008
United States	$	190.2	$	192.9
United States	$	198.6	$	201.5
China		23.4		29.7
China		30.4		33.2
Mexico		9.1		8.9
Mexico		8.7		9.9
Spain		3.8		3.8
Spain		3.0		2.3
France		0.1		—
Goodwill		241.5		241.5
	$	~~482~~468.30	$	~~488~~476.48

United Components, Inc. ~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE L — OTHER INFORMATION

At ~~September 30~~March 31, ~~2009~~2010, 1,000 shares of common stock were authorized, issued and outstanding. ~~The~~ The par value of each share of common stock is $0.01 per share.

Cash payments ~~(receipts)~~ for interest in the first quarters of 2010 and ~~income~~2009 ~~taxes~~were $0.8 million and $2.6 million, respectively. Cash payments (net of refunds) ~~are~~for asincome ~~follows~~taxes for ~~(in~~the first quarters of 2010 and 2009 were $0.4 million and $0.4 million, ~~millions):~~ respectively.

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

For federal and for certain state tax purposes, UCI is included in the consolidated tax returns of Holdco. UCI records tax expense as if it were filing income tax returns on a stand-alone basis. To the extent UCI’s tax on its current taxable income is offset by Holdco’s current taxable losses, UCI records that portion of its tax expense as a payable to Holdco. Other income tax liabilities and refunds receivable are reported as income taxes payable and receivable. At March 31, 2010 and December 31, 2009, income tax-related payables to Holdco were $38.0 million and $34.9 million, respectively. These amounts are included in the net “Due to Holdco” amounts in the respective balance sheets.

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

InThe accounting ~~the~~guidance ~~second~~on ~~quarter~~fair ofvalue ~~2009,~~measurements ~~UCI~~uses ~~obtained~~the ~~exclusive~~term ~~customer~~“inputs” ~~contracts~~to ~~that~~broadly refer ~~provide~~to ~~for~~ the ~~incurrence~~ ofassumptions ~~up-front~~used ~~costs~~in ~~and~~estimating ~~additional~~fair ~~amounts~~values. ~~during~~It ~~the~~distinguishes between ~~remainder~~(i) ofassumptions ~~the~~based ~~contracts.~~on ~~The aggregate~~market ~~up-front~~data ~~costs~~obtained ~~and~~from ~~additional~~independent ~~amounts~~third party ofsources ~~approximately~~(“observable ~~$6.4 million~~inputs”) ~~were capitalized~~ and ~~are~~ ~~being~~(ii) ~~amortized~~UCI’s ~~over~~assumptions ~~the~~based ~~life~~on of the ~~contracts~~best information asavailable a(“unobservable ~~reduction to sales~~inputs”). AThe ~~corresponding~~accounting ~~amount was~~guidance ~~recorded as a liability~~ requires that isfair ~~being~~value ~~relieved~~valuation astechniques maximize the ~~amounts~~use ~~are~~of ~~funded.~~“observable ~~$4.3 million~~inputs” ofand minimize the ~~commitment~~ touse beof ~~amortized~~“unobservable ~~beyond~~inputs.” ~~one~~The ~~year~~fair isvalue ~~recorded~~hierarchy asconsists ~~a component~~ of ~~“Other long-term assets”~~ ~~and $4.6 million of~~ the ~~commitment~~three tobroad belevels ~~funded~~listed ~~beyond~~below. ~~one~~The ~~year~~highest priority is ~~recorded~~given asto aLevel ~~component of~~1, ~~“Other~~and ~~long-term~~the ~~liabilities”~~lowest atis ~~September 30,~~given ~~2009~~to Level 3.

~~NOTE~~Level M1 — ~~ADOPTION~~Quoted OFmarket ~~RECENTLY~~prices ~~ISSUED~~in ~~ACCOUNTING~~active ~~GUIDANCE~~ markets for identical assets or liabilities

OnLevel ~~September 30,~~2 ~~2009,~~— ~~UCI~~Inputs ~~adopted~~other ~~changes~~than ~~issued~~Level by1 ~~the~~inputs ~~Financial~~that Accounting Standards Board (FASB) to the authoritative hierarchy of accounting principles generally accepted in the United States of America (GAAP). These changes establish the FASB Accounting Standards CodificationTM (Codification) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are ~~also~~either ~~sources~~directly ~~of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions,~~ or ~~Emerging~~indirectly Issues Task Force Abstracts; instead the FASB will issue Accounting Standards Updates. Accounting Standards Updates will not be authoritative in their own right as they will only serve to update the Codification. These changes and the Codification itself do not change GAAP. Other than the manner in which new accounting guidance is referenced, the adoption of these changes had no impact on UCI’s financial statements. observable

~~Business~~Level ~~Combinations~~3 — Unobservable inputs developed using UCI’s estimates and ~~Consolidation~~assumptions, ~~Accounting~~ which reflect those that market participants would use when valuing an asset or liability

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

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

15During the three months ended March 31, 2010 and 2009, no assets were adjusted to their fair values on a nonrecurring basis.

United Components, Inc. Notes to Condensed Consolidated Financial Statements (unaudited)

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

Fair Value Accounting

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

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

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

Other

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

United Components, Inc. Notes to Condensed Consolidated Financial Statements (unaudited)

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

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

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

NOTE N — RECENTLY ISSUED ACCOUNTING GUIDANCE, NOT YET ADOPTED

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

NOTE O — FAIR VALUE ACCOUNTING

Interest rate swap measured at fair value on a recurring basis

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

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

Fair value of financial instruments

Cash and cash equivalents — - The carrying amount of cash equivalents ($152.4 million) approximates fair value because the original maturity is less than 90 days.

17Restricted cash – The carrying amount of restricted cash ($9.4 million) approximates fair value because the original maturity is less than 90 days.

~~United~~The following ~~Components,~~table ~~Inc.~~summarizes the valuation of cash equivalents and restricted cash ~~Notes~~measured toat ~~Condensed~~fair ~~Consolidated~~value ~~Financial~~in ~~Statements~~the March 31, 2010 and December 31, 2009 balance sheets (~~unaudited~~in millions) :

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

	Fair Value Measurements using Quoted Prices in Active Markets for Identical Assets (Level 1)
	March 31, 2010		December 31, 2009
Cash equivalents	$	156.6	$	122.7
Restricted cash	$	9.4	$	9.4

~~Trade accounts payable — The carrying amount of trade payables approximates fair value because of their short outstanding terms.~~ 15

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

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

~~The~~Trade ~~fair~~accounts ~~market~~receivable ~~value of the $230 million senior subordinated notes at September 30, 2009 and~~- ~~December 31,~~The ~~2008~~carrying ~~was~~amount ~~$183.7 million~~of ~~and~~trade ~~$94.9 million,~~receivables ~~respectively.~~approximates ~~The estimated~~ fair value because of ~~these~~their ~~notes~~short isoutstanding ~~based on bid/ask prices, as reported by a third party bond pricing service~~terms. ~~Due to the infrequency of trades of the senior subordinated notes, these inputs are considered to be Level 2 inputs.~~

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

AtShort-term ~~the~~borrowings ~~end~~- ~~of each quarter, UCI adjusted the~~ The carrying value of ~~this~~these ~~interest~~borrowings ~~rate~~equals ~~swap derivative to its estimated~~ fair value. ~~The~~because ~~change~~their ~~was recorded as an adjustment to “Accumulated other~~interest ~~comprehensive~~rates ~~loss”~~reflect incurrent ~~UCI’s~~market ~~stockholder’s equity~~rates.

~~NOTE~~Long-term Pdebt —- ~~GUARANTOR~~The ~~AND~~fair value ~~NON-GUARANTOR~~of ~~FINANCIAL~~the ~~STATEMENTS~~$190 million of term loan borrowings under the senior credit facility at March 31, 2010 and December 31, 2009 was $182.4 million and $176.7 million, respectively. The estimated fair value of the term loan was based on information provided by an independent third party who participates in the trading market for debt similar to the term loan. Due to the infrequency of trades, this input is considered to be a Level 2 input.

The ~~senior~~fair value ~~credit~~of ~~facility is secured by substantially all~~ the ~~assets~~$230 ofmillion ~~UCI. The~~ senior subordinated notes ~~(the~~at ~~“Notes”)~~March ~~are~~31, ~~unsecured~~2010 and December ~~rank~~31, ~~equally~~2009 inwas ~~right~~$230.3 ofmillion ~~payment~~and ~~with~~$221.1 ~~any~~million, ofrespectively. The ~~UCI’s~~estimated ~~future~~fair ~~senior~~value ~~subordinated~~of ~~indebtedness.~~these ~~The~~notes ~~Notes~~was ~~are~~based ~~subordinated~~on tobid/ask ~~indebtedness~~prices, ~~and~~as ~~other~~reported by ~~liabilities~~a ofthird ~~UCI’s~~party ~~subsidiaries~~bond ~~that~~pricing ~~are~~service. ~~not~~Due ~~guarantors~~to of the ~~Notes.~~infrequency ~~The~~of ~~Notes~~trades ~~and~~of the senior ~~credit facility~~subordinated ~~borrowings~~notes, ~~are~~these ~~guaranteed~~inputs onare aconsidered ~~full~~to ~~and~~be ~~unconditional~~Level ~~and joint and several basis by UCI’s~~2 ~~domestic subsidiaries~~inputs.

NOTE N — JOINT VENTURE SALE

In May 2010, UCI completed the sale of its entire 51% interest in its Chinese joint venture to its joint venture partner, Shandong Yanzhou Liancheng Metal Products Co. Ltd. (“LMC”). The sale price was approximately $0.9 million, plus the assumption of certain liabilities due UCI of approximately $2.2 million, less estimated transaction costs. Based upon the terms of the transaction, UCI recorded a non-cash charge of $1.5 million ($1.2 million after tax). UCI deconsolidated the Chinese joint venture and the net estimated realizable value of $2.9 million is recorded in the March 31, 2010 balance sheet as follows (in millions):

Current assets	$	3.8
Long-lived assets		3.9
Current liabilities		(2.8	)
Noncurrent liabilities		(0.3	)
Assets held for sale		4.6
Noncontrolling interest		(1.7	)
	$	2.9

In connection with the sale, UCI entered into a long-term supply agreement pursuant to which LMC will supply certain water pump components to UCI. As part of this long-term supply agreement, LMC will purchase from UCI all the aluminum necessary to produce aluminum parts to be supplied under the agreement.

NOTE O — GUARANTOR AND NON-GUARANTOR FINANCIAL STATEMENTS

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

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

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

United Components, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note O (continued)

Consolidating Condensed Balance Sheet

March 31, 2010

(in thousands)

	UCI Consolidated		Eliminations		UCI			Guarantors			Non- Guarantors
Assets
Current assets
Cash and cash equivalents	$	165,843	$	—	$	157,809		$	(592	)	$	8,626
Accounts receivable, net		263,753		—		—			247,307			16,446
Inventories, net		134,522		—		—			114,905			19,617
Deferred tax assets		30,932		—		(13	)		31,751			(806	)
Assets held for sale		4,637		—		—			—			4,637
Other current assets		18,314		—		1,543			8,023			8,748
Total current assets		618,001		—		159,339			401,394			57,268
Property, plant and equipment, net		142,400		—		194			107,969			34,237
Investment in subsidiaries		—		16,356		(45,963	)		29,607			—
Goodwill		241,461		—		241,461			—			—
Other intangible assets, net		67,099		—		6,927			59,932			240
Deferred financing costs, net		1,683		—		1,683			—			—
Restricted cash		9,400		—		—			9,400			—
Other long-term assets		5,931		—		367			5,423			141
Total assets	$	1,085,975	$	16,356	$	364,008		$	613,725		$	91,886

Liabilities and equity
Current liabilities
Accounts payable	$	111,385	$	—	$	3,460		$	94,564		$	13,361
Short-term borrowings		5,810		—		—			—			5,810
Current maturities of long-term debt		17,895		—		17,836			59			—
Accrued expenses and other current liabilities		118,037		—		16,296			99,319			2,422
Total current liabilities		253,127		—		37,592			193,942			21,593
Long-term debt, less current maturities		400,958		—		400,577			381			—
Pension and other postretirement liabilities		71,675		—		9,635			61,011			1,029
Deferred tax liabilities		8,492		—		22,215			(14,293	)		570
Due to Holdco		33,058		—		33,058			—			—
Other long-term liabilities		6,142		—		—			4,552			1,590
Intercompany payables (receivables)		—		—		(449,817	)		442,590			7,227
Total equity		312,523		16,356		310,748			(74,458	)		59,877
Total liabilities and equity	$	1,085,975	$	16,356	$	364,008		$	613,725		$	91,886

United Components, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note O (continued)

Consolidating Condensed Balance Sheet

December 31, 2009

(in thousands)

	UCI Consolidated		Eliminations		UCI			Guarantors			Non- Guarantors
Assets
Current assets
Cash and cash equivalents	$	131,913	$	—	$	122,968		$	536		$	8,409
Accounts receivable, net		261,210		—		—			245,606			15,604
Inventories, net		133,058		—		—			110,247			22,811
Deferred tax assets		30,714		—		(13	)		31,654			(927	)
Other current assets		23,499		—		6,048			9,594			7,857
Total current assets		580,394				129,003			397,637			53,754
Property, plant and equipment, net		149,753		—		261			109,918			39,574
Investment in subsidiaries		—		39,612		(68,955	)		29,343			—
Goodwill		241,461		—		241,461			—			—
Other intangible assets, net		68,030		—		7,453			60,087			490
Deferred financing costs, net		1,843		—		1,843			—			—
Restricted cash		9,400		—		—			9,400			—
Other long-term assets		6,304		—		367			5,759			178
Total assets	$	1,057,185	$	39,612	$	311,433		$	612,144		$	93,996

Liabilities and equity
Current liabilities
Accounts payable	$	111,898	$	—	$	4,974		$	89,121		$	17,803
Short-term borrowings		3,460		—		—			—			3,460
Current maturities of long-term debt		17,925		—		17,866			59			—
Accrued expenses and other current liabilities		106,981		—		9,242			93,900			3,839
Total current liabilities		240,264		—		32,082			183,080			25,102
Long-term debt, less current maturities		400,853		—		400,460			393			—
Pension and other postretirement liabilities		70,802		—		9,716			60,072			1,014
Deferred tax liabilities		8,546		—		21,469			(13,499	)		576
Due to UCI Holdco		30,105		—		30,105			—			—
Other long-term liabilities		6,672		—		—			4,739			1,933
Intercompany payables (receivables)		—		—		(480,531	)		475,936			4,595
Total equity		299,943		39,612		298,132			(98,577	)		60,776
Total liabilities and equity	$	1,057,185	$	39,612	$	311,433		$	612,144		$	93,996

United Components, Inc. ~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~Note~~Notes to PCondensed Consolidated Financial Statements (~~continued~~Unaudited)

~~Consolidating Condensed Balance Sheet~~Note ~~September 30,~~O ~~2009~~ (~~in thousands~~continued)

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

Consolidating Condensed Income Statement

Three Months Ended March 31, 2010

(in thousands)

	UCI Consolidated			Eliminations			UCI			Guarantors			Non- Guarantors

Net sales	$	230,304		$	(22,354	)	$	—		$	218,119		$	34,539
Cost of sales		173,076			(22,354	)		—			164,709			30,721
Gross profit		57,228			—			—			53,410			3,818
Operating expense
Selling and warehousing		(14,295	)		—			(288	)		(12,405	)		(1,602	)
General and administrative		(10,620	)		—			(4,671	)		(4,897	)		(1,052	)
Amortization of acquired intangible assets		(1,335	)		—			—			(1,335	)		—
Restructuring costs		(2,036	)		—			—			(127	)		(1,909	)
Patent litigation costs		(964	)		—			—			(964	)		—
Operating income (loss)		27,978			—			(4,959	)		33,682			(745	)
Other expense
Interest expense, net		(6,847	)		—			(6,810	)		(8	)		(29	)
Intercompany interest		—			—			6,116			(6,028	)		(88	)
Management fee expense		(500	)		—			(500	)		—			—
Miscellaneous, net		(951	)		—			—			(951	)		—
Income (loss) before income taxes		19,680			—			(6,153	)		26,695			(862	)
Income tax (expense) benefit		(7,382	)		—			2,384			(10,155	)		389
Increase (decrease) before equity in earnings of subsidiaries		12,298			—			(3,769	)		16,540			(473	)
Equity in earnings of subsidiaries		—			(16,305	)		16,102			203			—
Net income (loss)		12,298			(16,305	)		12,333			16,743			(473	)
Less: loss attributable to noncontrolling interest		(35	)		—			—			—			(35	)
Net income (loss) attributable to United Components, Inc.	$	12,333		$	(16,305	)	$	12,333		$	16,743		$	(438	)

United Components, Inc. ~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~Note~~Notes to PCondensed Consolidated Financial Statements (~~continued~~Unaudited)

~~Consolidating Condensed Balance Sheet~~Note ~~December 31,~~O ~~2008~~ (~~in thousands~~continued)

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

Consolidating Condensed Income Statement

Three Months Ended March 31, 2009

(in thousands)

	UCI Consolidated			Eliminations			UCI			Guarantors			Non- Guarantors

Net sales	$	219,862		$	(29,629	)	$	—		$	209,177		$	40,314
Cost of sales		180,442			(29,629	)		—			173,851			36,220
Gross profit		39,420			—			—			35,326			4,094
Operating expense
Selling and warehousing		(14,298	)		—			(174	)		(12,849	)		(1,275	)
General and administrative		(11,052	)		—			(4,298	)		(5,453	)		(1,301	)
Amortization of acquired intangible assets		(1,480	)		—			—			(1,480	)		—
Restructuring costs		(205	)		—			—			(205	)		—
Operating income (loss)		12,385			—			(4,472	)		15,339			1,518
Other expense
Interest expense, net		(7,999	)		—			(7,935	)		(7	)		(57	)
Intercompany interest					—			6,412			(6,252	)		(160	)
Management fee expense		(500	)		—			(500	)		—			—
Miscellaneous, net		(1,485	)		—			—			(1,485	)		—
Income (loss) before income taxes		2,401			—			(6,495	)		7,595			1,301
Income tax (expense) benefit		(1,135	)		—			3,309			(3,802	)		(642	)
Increase (decrease) before equity in earnings of subsidiaries		1,266			—			(3,186	)		3,793			659
Equity in earnings of subsidiaries		—			(5,648	)		4,756			892			—
Net income (loss)		1,266			(5,648	)		1,570			4,685			659
Less: loss attributable to noncontrolling interest		(304	)		—			—			—			(304	)
Net income (loss) attributable to United Components, Inc.	$	1,570		$	(5,648	)	$	1,570		$	4,685		$	963

United Components, Inc. ~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~Note~~Notes to PCondensed Consolidated Financial Statements (~~continued~~Unaudited)

~~Consolidating Condensed Income Statement~~Note ~~Three~~O ~~Months Ended September 30, 2009~~ (~~in thousands~~continued)

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

Consolidating Condensed Statement of Cash Flows

Three Months Ended March 31, 2010

(in thousands)

	UCI Consolidated			Eliminations		UCI			Guarantors			Non- Guarantors

Net cash provided by (used by) operating activities	$	37,570		$	—	$	4,312		$	36,715		$	(3,457	)

Cash flows from investing activities:
Capital expenditures		(5,841	)		—		(114	)		(4,506	)		(1,221	)
Proceeds from sale of other property, plant and equipment		77			—		—			21			56
Net cash used in investing activities		(5,764	)		—		(114	)		(4,485	)		(1,165	)

Cash flows from financing activities:
Issuances of debt		5,557			—		—			—			5,557
Debt repayments		(3,290	)		—		(71	)		(12	)		(3,207	)
Change in intercompany indebtedness		—			—		30,714			(33,346	)		2,632
Net cash generated by (used in) financing activities		2,267			—		30,643			(33,358	)		4,982

Effect of currency exchange rate changes on cash		(143	)		—		—			—			(143	)

Net increase (decrease) in cash and cash equivalents		33,930			—		34,841			(1,128	)		217

Cash and cash equivalents at beginning of year		131,913			—		122,968			536			8,409

Cash and cash equivalents at end of period	$	165,843		$	—	$	157,809		$	(592	)	$	8,626

United Components, Inc. ~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~Note~~Notes to PCondensed Consolidated Financial Statements (~~continued~~Unaudited)

~~Consolidating Condensed Income Statement~~Note ~~Nine~~O ~~Months Ended September 30, 2009~~ (~~in thousands~~continued)

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

Consolidating Condensed Statement of Cash Flows

Three Months Ended March 31, 2009

(in thousands)

	UCI Consolidated			Eliminations		UCI			Guarantors			Non- Guarantors

Net cash provided by operating activities	$	49,239		$	—	$	207		$	35,238		$	13,794

Cash flows from investing activities:
Capital expenditures		(4,018	)		—		(194	)		(2,993	)		(831	)
Proceeds from sale of other property, plant and equipment		24			—		—			15			9
Net cash used in investing activities		(3,994	)		—		(194	)		(2,978	)		(822	)

Cash flows from financing activities:
Issuances of debt		3,672			—		—			—			3,672
Debt repayments		(22,391	)		—		(20,103	)		(15	)		(2,273	)
Change in intercompany indebtedness		—			—		47,857			(32,425	)		(15,432	)
Net cash provided by (used in) financing activities		(18,719	)		—		27,754			(32,440	)		(14,033	)

Effect of currency exchange rate changes on cash		(133	)		—		—			—			(133	)

Net increase (decrease) in cash and cash equivalents		26,393			—		27,767			(180	)		(1,194	)

Cash and cash equivalents at beginning of year		46,612			—		39,061			860			6,691

Cash and cash equivalents at end of period	$	73,005		$	—	$	66,828		$	680		$	5,497

United Components, Inc. Notes to Condensed Consolidated Financial Statements (unaudited)

Note P (continued)

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

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

United Components, Inc. Notes to Condensed Consolidated Financial Statements (unaudited)

Note P (continued)

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

	UCI												Non-
	Consolidated			Eliminations			UCI			Guarantors			Guarantors
Net sales	$	676,695		$	(70,530	)	$	—		$	641,645		$	105,580
Cost of sales		531,430			(70,530	)		—			499,758			102,202
Gross profit		145,265			—			—			141,887			3,378
Operating expense
Selling 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	)		—
Restructuring costs		(684	)		—			—			(684	)		—
Operating income (loss)		54,202			—			(13,854	)		73,315			(5,259	)
Other (expense) income
Interest expense, net		(25,838	)		—			(25,715	)		(22	)		(101	)
Intercompany interest		—			—			20,822			(20,190	)		(632	)
Management fee expense		(1,500	)		—			(1,500	)		—			—
Miscellaneous, net		(2,429	)		—			—			(2,428	)		(1	)
Income (loss) before income taxes		24,435			—			(20,247	)		50,675			(5,993	)
Income tax (expense) benefit		(9,772	)		—			7,639			(18,708	)		1,297
Increase (decrease) before equity in earnings of subsidiaries		14,663			—			(12,608	)		31,967			(4,696	)
Equity in earnings of subsidiaries		—			(22,702	)		27,830			(5,128	)		—
Net income (loss)		14,663			(22,702	)		15,222			26,839			(4,696	)
Less: Loss attributable to noncontrolling interest		(559	)		—			—			—			(559	)
Net income (loss) attributable to United Components, Inc.	$	15,222		$	(22,702	)	$	15,222		$	26,839		$	(4,137	)

United Components, Inc. Notes to Condensed Consolidated Financial Statements (unaudited)

Note P (continued)

Consolidating Condensed Statement of Cash Flows Nine Months Ended September 30, 2009 (in thousands)

	UCI											Non-
	Consolidated			Eliminations		UCI			Guarantors			Guarantors
Net cash provided by operating activities	$	105,619		$	—	$	666		$	78,106			26,847
Cash flows from investing activities:
Capital expenditures		(10,893	)		—		(704	)		(7,127	)		(3,062	)
Proceeds from sale of property, plant and equipment		2,483			—		—			61			2,422
Increase in restricted cash		(9,400	)		—		—			(9,400	)		—
Net cash used in investing activities		(17,810	)		—		(704	)		(16,466	)		(640	)
Cash flows from financing activities:
Issuances of debt		9,728			—		—			—			9,728
Debt repayments		(29,142	)		—		(20,285	)		(44	)		(8,813	)
Change in intercompany indebtedness		—			—		86,129			(62,407	)		(23,722	)
Net cash (used in) provided by financing activities		(19,414	)		—		65,844			(62,451	)		(22,807	)
Effect of currency exchange rate changes on cash		58			—		—			—			58
Net increase (decrease) in cash and cash equivalents		68,453			—		65,806			(811	)		3,458
Cash and cash equivalents at beginning of year		46,612			—		39,061			860			6,691
Cash and cash equivalents at end of period	$	115,065		$	—	$	104,867		$	49		$	10,149

United Components, Inc. Notes to Condensed Consolidated Financial Statements (unaudited)

Note P (continued)

Consolidating Condensed Statement of Cash Flows Nine Months Ended September 30, 2008 (in thousands)

	UCI											Non-
	Consolidated			Eliminations		UCI			Guarantors			Guarantors
Net cash provided by (used in) operating activities	$	24,551		$	—	$	5,593		$	24,656		$	(5,698	)
Cash flows from investing activities:
Capital expenditures		(25,977	)		—		(271	)		(16,406	)		(9,300	)
Proceeds from sale of property, plant and equipment		366			—		—			94			272
Net cash used in investing activities		(25,611	)		—		(271	)		(16,312	)		(9,028	)
Cash flows from financing activities:
Issuances of debt		22,798			—		20,003			—			2,795
Debt repayments		(21,718	)		—		(10,289	)		(46	)		(11,383	)
Change in intercompany indebtedness		—			—		(15,169	)		(10,055	)		25,224
Net cash (used in) provided by financing activities		1,080			—		(5,455	)		(10,101	)		16,636
Effect of currency exchange rate changes on cash		68			—		—			—			68
Net increase (decrease) in cash and cash equivalents		88			—		(133	)		(1,757	)		1,978
Cash and cash equivalents at beginning of year		41,440			—		36,684			1,234			3,522
Cash and cash equivalents at end of period	$	41,528		$	—	$	36,551		$	(523	)	$	5,500

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations must be read together with the “Item 1. Business” and “Item 7. Management’s Discussion & Analysis of Financial Condition and Results of Operations” sections of our ~~Annual~~2009 ~~Report on~~ Form 10-K ~~for the year ended December 31, 2008,~~ filed ~~with the Securities and Exchange Commission (the “SEC”)~~ March 31 19, ~~2009~~2010 and the financial statements included herein and therein.

Forward-Looking Statements

In this Quarterly Report on Form 10-Q for the period ended ~~September 30~~March 31, ~~2009~~2010, United Components, Inc. (“UCI”) makes some “forward-looking” statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. These statements are included throughout this report on Form 10-Q and relate to analyses and other information based on forecasts of future results and estimates of amounts not ~~yet~~ yet determinable, including but not limited to, demand for vehicle replacement parts, retail gasoline price and economic conditions. These forward-looking statements are identified by their use of terms and phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “continue,” and other similar terms and phrases, including references to assumptions.

These forward-looking statements are based on UCI’s expectations and beliefs concerning future events affecting UCI. They are subject to uncertainties and factors relating to UCI’s operations and business environment, all of which are difficult to predict and many of which are beyond UCI’s control. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not know whether our expectations will prove correct. They can be affected by inaccurate assumptions we make or by known or unknown risks and uncertainties. Many factors mentioned in our discussion in this report will be important in determining future results. UCI cautions the reader that these uncertainties and factors, including those discussed in Item 1A of our Annual Report on Form 10-K and in other SEC filings, could cause UCI’s actual results to differ materially from those stated in the forward-looking statements.

Although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, we can give no assurance that we will attain these expectations or that any deviations will not be material. Except as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this Quarterly Report on Form 10-Q or any other SEC filings to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Overview

Sales. We are among North America’s largest and most diversified companies servicing the ~~vehicle~~ vehicle replacement parts market, or the aftermarket. We supply a broad range of ~~filtration~~ filtration products, fuel delivery and cooling systems, and engine management systems to the automotive, trucking, marine, mining, construction, agricultural and industrial vehicle markets. We estimate that ~~over 87%~~approximately ~~and~~ 88% of our net sales in ~~2008 and the first nine months of~~ 2009, ~~respectively,~~ were made in the aftermarket, ~~comprised~~to of a diverse customer base that includes some of the largest and fastest growing companies servicing the aftermarket. Sales in the North American light vehicle aftermarket, excluding tires, ~~grew~~have grown at an a compounded average annual growth rate of approximately 3.95% from 1998 through ~~2007~~2009. However, ~~with~~aftermarket ~~the~~sales ~~lowest~~grew ~~year~~by ~~of growth~~only ~~during that period, approximately 2~~0.1%, ~~occurring~~ in ~~1998.~~2008 Inand ~~2008,~~are ~~however,~~estimated ~~aftermarket~~to ~~sales~~have ~~grew~~ declined by ~~only 0~~1.2% in 2009.

Our sales to General Motors Corporation (GM) comprise less than 7% of our consolidated sales. More than 85% of our sales to GM are to dealerships in the original equipment service (OES) channel, with the remainder to the original equipment manufacturing (OEM) sales channel for inclusion in new vehicle production. Our sales to Chrysler LLC (Chrysler) comprise less than 1% of our consolidated sales and are largely to the service organization in the OES channel. Both GM and Chrysler filed petitions under chapter 11 of the U.S. Bankruptcy Code in the Southern District of New York during the three months ended June 30, 2009, with both emerging from bankruptcy in the third quarter of 2009. GM and Chrysler have assumed all contracts with UCI companies. As widely publicized, GM and Chrysler’s reorganization plans include substantial reductions to the dealership base. Given that the majority of our sales to GM and Chrysler are to dealerships in the OES channel, the closure of these dealerships could result in lower UCI sales to these customers. To date there has been no material change in our post-bankruptcy sales levels to GM and Chrysler, however there can be no assurance as to the level of demand for our products from those customers in the future.

Because most of our sales are to the aftermarket, we believe that our sales are primarily driven by the number of vehicles on the road, the average age of those vehicles, the average number of miles driven per year, the mix of light trucks to passenger cars on the road and the relative strength of our sales channels. Historically, our sales have not been materially adversely affected by market cyclicality, as we believe that our aftermarket sales are less dependent on economic conditions than our sales to OEMs, due to the generally non-discretionary nature of vehicle maintenance and repair. While many vehicle maintenance and repair expenses are non-discretionary in nature, high gasoline prices and difficult economic conditions can lead to a reduction in miles driven, which then results in increased time intervals for routine maintenance and vehicle parts lasting longer before needing replacement. Historic highs in crude oil prices experienced in 2008 and corresponding historic highs in retail gasoline prices at the pump impacted consumers’ driving and vehicle maintenance habits. In addition, we believe consumers’ driving and vehicle maintenance habits have been impacted by the generally weak economic conditions experienced in the latter part of 2008 and through 2009.

A key metric in measuring aftermarket performance is miles driven. For 2008, the U.S. Department of Energy reported a decrease in miles driven of 3.2% (equaling 96 billion fewer miles). This was the first annual decrease in miles driven since 1980. We believe that high gasoline prices and generally weak economic conditions adversely affected our sales during the second half of 2008 and ~~into~~ into 2009. During 2009, retail gasoline prices were significantly lower than the historic highs experienced at the beginning of the third quarter of 2008. Despite the lower retail gasoline prices, ~~general economic conditions continue to be weak in 2009, and~~ the negative trend in miles ~~driven~~ driven continued in the first quarter of 2009, ~~with~~ (a 2.7% decrease over the comparable quarter in 2008) due to the ongoing weak economic conditions. The negative trend reversed in the ~~second~~last ~~and~~three ~~third~~ quarters of 2009 as miles driven exceeded ~~the~~ the comparable 2008 quarters. For bythe full year of 2009, miles driven increased 0.61% ~~and~~from 12008.7% However, ~~respectively~~during the first quarter of 2010 miles driven decreased 1.3% as compared to the first quarter of 2009.

While the conditions described above have adversely affected our sales, other trends resulting from the current economic conditions may have a positive impact on sales in the future. Specifically, with new car sales remaining at historically low levels, consumers are keeping their cars longer, resulting in an increased demand for replacement parts as consumers repair their increasingly older cars. In addition, a significant number of new car dealers have closed in recent months, either voluntarily or as a result of the Chrysler and GM restructurings. This decline in the number of dealerships has the potential of sending more consumers to our customers in other channels of the aftermarket for their replacement parts. 23

~~Recently,~~While the conditions ~~U.S.~~described ~~Congress~~above ~~acted~~have toadversely ~~stimulate~~affected ~~new~~our ~~car~~ sales, inother ~~the~~trends resulting ~~U.S.~~from ~~by enacting~~ the ~~so-called “Cash~~current ~~for~~economic ~~Clunkers”~~conditions ~~legislation.~~may ~~This~~have ~~legislation~~a ~~financially~~positive ~~incentivized~~impact ~~consumers to purchase~~on ~~new~~sales ~~more fuel-efficient vehicles~~ in ~~exchange~~the ~~for scrapping their older less fuel-efficient vehicles~~future. ~~Due~~Specifically, towith ~~the~~new ~~ultimate~~car ~~size~~sales ofremaining ~~the~~at ~~program~~low inlevels, consumers ~~relation~~are tokeeping ~~the~~their ~~entire~~cars ~~U.S. vehicle population~~longer, ~~the~~resulting ~~“Cash~~in ~~for~~an ~~Clunkers”~~increased ~~program~~demand ~~did not have a material impact on our financial~~for ~~condition~~replacement orparts ~~results~~as ofconsumers ~~operations~~repair ~~during~~their ~~the~~increasingly ~~nine~~older ~~months ended September 30, 2009~~cars.

Management believes that we have leading market positions in our primary product lines. We ~~continue~~ continue to expand our product and service offerings to meet the needs of our customers. We believe that a key competitive advantage is that we ~~offer~~have one of the most comprehensive ~~lines~~product ofofferings ~~products~~ in the vehicle replacement parts market, consisting of over 4347,000 parts. This product breadth, along with ~~our~~ our extensive manufacturing and distribution capabilities, product innovation, and reputation for quality and service, makes us a leader in our industry.

However, it is also important to note that in ~~2008~~2009, ~~2007~~2008 and ~~2006~~2007, approximately 2930%, 2829% and 2428%, respectively, of our total net sales were derived from our business with AutoZone~~, Inc~~. Our failure to maintain a healthy relationship with AutoZone would result in a significant decrease in our net sales. Even if we maintain our relationship, this sales concentration with one customer increases the potential ~~adverse~~ impact to our business that could result from any changes in the economic ~~terms~~ terms of this relationship.

Cost of sales. Cost of sales includes all ~~manufacturing~~ costs of manufacturing required to bring a product to a ready-for-sale condition. Such costs include direct and indirect materials ~~(net of vendor consideration)~~, direct and indirect labor costs (including pension, postretirement and other fringe benefits), supplies, utilities, freight, depreciation, insurance, ~~information technology costs~~ and other costs. Cost of sales also includes all costs to procure, package and ship products that we purchase and resell.

During much of 2008, the cost of commodities, including steel, aluminum, iron, plastic and other petrochemical products, packaging materials and media, increased significantly compared to 2007. Energy costs also increased significantly during this period. These higher costs affected the prices we paid for raw materials and for purchased component parts and finished products. ~~During~~Due to our inventory being accounted for on the first-in, ~~nine~~first-out (FIFO) method, a time lag of approximately three months exists from the time we experience cost increases until these increases flow through cost of sales. As a result of this time lag, our results for the first quarter of 2009 were negatively impacted by the higher cost of materials purchased in the latter part of 2008. During 2009, general market prices for most commodities decreased from 2008 levels in reaction to global economic conditions and uncertainties regarding short-term demand. This decrease in most commodities during 2009 had a favorable impact on our results for the first quarter of 2010 in relation to the first quarter of 2009. A recovering economy, however, would likely increase the demand for many of the commodities used in our business. While we have been, and expect to continue to be, able to obtain sufficient quantities of these commodities to satisfy our needs, increased demand from current levels for these commodities could result in cost increases and may make procurement more difficult in the future.

28In addition to the adverse impact of increasing commodities and energy costs, we have been adversely affected by changes in foreign currency exchange rates, primarily relating to the Mexican peso. Our Mexican operations source a significant amount of inventory from the United States. During the period September 30, 2008 through March 31, 2009, the U.S. dollar strengthened against the Mexican peso by approximately 33%. During the period March 31, 2009 through March 31, 2010, the U.S. dollar weakened against the Mexican peso by approximately 16%, partially offsetting the trend experienced in the prior six months. A strengthening U.S. dollar against the Mexican peso means that our Mexican operations must pay more pesos to obtain inventory from the United States.

~~term~~Generally, we ~~demand.~~attempt ~~While~~to wemitigate ~~have~~the ~~been,~~effects of cost increases and ~~expect~~currency tochanges ~~continue~~via toa combination beof design changes, ~~able~~material tosubstitution, ~~obtain~~global resourcing efforts ~~sufficient~~and ~~quantities~~increases ofin ~~these~~the ~~commodities~~selling toprices ~~satisfy~~for our ~~needs,~~products. ~~increased~~With ~~demand~~respect ~~from~~to ~~current~~pricing, ~~levels~~it ~~for~~should ~~these~~be ~~commodities~~noted ~~could~~that, ~~result~~while inthe ~~cost~~terms ~~increases~~of supplier and ~~may~~customer ~~make~~contracts ~~procurement~~and special ~~more~~pricing ~~difficult~~arrangements can vary, generally a time lag exists between when inwe incur increased costs and when we might recover a portion of the ~~future~~higher costs through increased pricing. ~~Due~~This totime ~~our~~lag ~~inventory~~typically ~~being~~spans ~~accounted~~a ~~for~~fiscal quarter or more, depending on the ~~first-in,~~specific ~~first-out~~situation. ~~(FIFO) method~~During 2008, awe secured customer ~~time~~price ~~lag~~increases that offset a portion of ~~approximately~~the ~~three~~cost ~~months~~increase ~~exists~~we experienced in 2008. However, because of reductions from 2008 highs in both energy costs and the ~~time~~costs of certain commodities used in our operations, we ~~experience~~have ~~cost~~not ~~increases~~been orable ~~decreases~~to ~~until~~retain ~~these~~the entire effect of customer price increases orsecured ~~decreases~~in ~~flow~~2008. ~~through~~We continue ~~cost~~to pursue efforts to mitigate the effects of ~~sales~~any cost increases; however, there are no assurances that we will be entirely successful. To the extent that we are unsuccessful, our profit margins will be adversely affected. Because of uncertainties regarding future commodities and energy prices, and the success of our mitigation efforts, it is difficult to estimate the impact of commodities and energy costs on future operating results.

In addition to the adverse impact of increasing commodities and energy costs, we have been adversely affected by changes in foreign currency exchange rates, primarily relating to the Mexican peso. Our Mexican operations source a significant amount of inventory from the United States. In 2008, our Mexican operations sourced approximately $11.7 million from the United States. During the period September 30, 2008 through March 31, 2009, the U.S. dollar strengthened against the Mexican peso by approximately 33%. In the second and third quarters of 2009 combined, the U.S. dollar weakened against the Mexican peso by approximately 6%, partially offsetting the trend experienced in the prior six months. A strengthening U.S. dollar against the Mexican peso means that our Mexican operations must pay more pesos to obtain inventory from the United States. 24

When comparing our results of operations for the first six months of 2009 with the first six months of 2008, the easing of market prices in most of the commodities used in our operations, together with our mitigation efforts discussed below, have largely offset the negative effects of the higher commodity and energy costs and unfavorable currency exchange rates experienced in the second half of 2008. For the third quarter of 2009, the impact of lower commodity and energy costs and the benefit of our mitigation efforts, partially offset by currency exchange rates, was an approximate $3.3 million pre-tax improvement in our results of operations over the third quarter of 2008. However, there are no assurances that these favorable commodity and energy cost trends will continue in the future.

Generally, we attempt to mitigate the effects of cost increases and currency changes via a combination of design changes, material substitution, global resourcing efforts and increases in the selling prices for our products. With respect to pricing, it should be noted that, while the terms of supplier and customer contracts and special pricing arrangements can vary, generally a time lag exists between when we incur increased costs and when we might recover a portion of the higher costs through increased pricing. This time lag typically spans a fiscal quarter or more, depending on the specific situation. During 2008, we secured customer price increases that offset a portion of the cost increase we experienced in 2008. However, because of reductions from 2008 highs in both energy costs and the costs of certain commodities used in our operations, we have not been able to retain the entire effect of customer price increases secured in 2008. We continue to pursue efforts to mitigate the effects of any cost increases; however, there are no assurances that we will be entirely successful. To the extent that we are unsuccessful, our profit margins will be adversely affected. Because of uncertainties regarding future commodities and energy prices, and the success of our mitigation efforts, it is difficult to estimate the impact of commodities and energy costs on future operating results. However, we currently expect the fourth quarter of 2009 to show improvement over the fourth quarter of 2008. This forecast is based on the aforementioned 2009 Capacity Consolidation and European Realignment Actions, management’s 2009 cost reduction efforts and assumptions regarding the future cost of commodities and our ability to mitigate these costs. Actual events could vary significantly from our assumptions and the actual effect could be significantly different than our forecast.

Selling and warehousing expenses. Selling and warehousing expenses primarily include sales and marketing, warehousing and distribution costs. Our major cost elements include salaries and wages, pension and fringe benefits, depreciation, advertising and information technology costs.

General and administrative expenses. General and administrative expenses primarily include executive, accounting and administrative personnel salaries and fringe benefits, professional fees, pension benefits, insurance, provision for doubtful accounts, rent and information technology costs.

Critical Accounting Policies and Estimates

The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our financial statements. We evaluate our estimates and judgments on an on-going basis. We base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances. Our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may vary from what we anticipate, and different assumptions or estimates about the future could change our reported results.

We believe the following accounting policies are the most critical in that they significantly affect our financial statements, and they require our most significant estimates and complex judgments.

~~Inventory~~Revenue recognition. We record ~~inventory~~sales atwhen ~~the~~title ~~lower~~and risk of ~~cost~~loss ortransfers ~~market.~~to ~~Cost is principally determined using~~the ~~standard cost or average cost~~customer, ~~which approximates~~ the ~~first-in,~~sale ~~first-out~~price ~~method. Estimated market value~~ is ~~based~~fixed onand ~~assumptions~~determinable, ~~for future demand~~ and ~~related~~the ~~pricing.~~collection Ifof ~~actual market conditions~~the ~~are~~related ~~less~~accounts ~~favorable~~receivable ~~than~~is ~~those~~reasonably ~~projected by management, reductions in the value of inventory may be required~~assured.

Revenue recognition. We record sales when title transfers to the customer, the sale price is fixed and determinable, and the collection of the related accounts receivable is reasonably assured. In the case of sales to the aftermarket, we recognize revenue when these conditions are met for our direct customers, which are the aftermarket retailers and distributors.

Where we have sales rebate programs with some of our customers, we estimate amounts due under these sales rebate programs when the sales are recorded. Net sales relating to any particular shipment are based upon the amounts invoiced for the shipped goods less estimated future rebate payments. These estimates are based upon our historical experience, current trends and our expectations regarding future experience. Revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known.

Additionally, we have agreements with our customers that provide for sales discounts, marketing allowances, return allowances and performance incentives. Any discount, allowance or incentive is treated as a reduction to sales, based on estimates of the criteria that give rise to the discount, allowance or incentive, such as sales volume and marketing spending. We routinely review these criteria and our estimating process and make adjustments as facts and circumstances change. Historically, we have not found material differences between our estimates and actual results.

In order to obtain exclusive contracts with certain customers, we may incur up-front costs or assume the cost of returns of products sold by the previous supplier. These costs are capitalized and amortized over the life of the contract. The amortized amounts are recorded as a reduction of sales.

New business changeover costs also can include the costs related to removing a new customer’s inventory and replacing it with UCI inventory, commonly referred to as a “stocklift.” Stocklift costs are recorded as a reduction to revenue when incurred.

Product returns. Our customers have the right to return parts that ~~have~~are ~~failed~~covered under our standard warranty within stated warranty ~~time~~ periods. Our customers also have the right, in varying degrees, to return excess quantities of product. Credits for parts returned under warranty and parts returned because of customer excess ~~quantities~~ quantities are estimated and recorded at the time of the related sales. These estimates are ~~based~~ based on historical experience, current trends and UCI’s expectations regarding future experience. Revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known. Any significant increase in the amount of product returns above historical levels could have a material adverse effect on our financial results.

Inventory. We record inventory at the lower of cost or market. Cost is principally determined using standard cost or average cost, which approximates the first-in, first-out method. Estimated market value is based on assumptions for future demand and related pricing. If actual market conditions are less favorable than those projected by management, reductions in the value of inventory may be required.

Impairment of intangible assets. Goodwill is subject to annual review unless conditions arise that require a more frequent evaluation. The review for impairment is based on a two-step accounting test. The first step is to compare the estimated fair value with the recorded net book value (including the goodwill). If the estimated fair value is higher than the recorded net book value, no impairment is deemed to exist and no further testing is required. If, however, the estimated fair value is below the recorded net book value, then a second step must be performed to determine the goodwill impairment required, if any. In this second step, the estimated fair value from the first step is used as the purchase price in a hypothetical acquisition. Purchase business combination accounting rules are followed to determine a hypothetical purchase price allocation to the reporting unit’s assets and liabilities. The residual amount of goodwill that results from this hypothetical purchase price allocation is compared to the recorded amount of goodwill, and the recorded amount is written down to the hypothetical amount, if lower.

30We perform our annual goodwill impairment review in the fourth quarter of each year using discounted future cash flows, unless conditions exist that would require a more frequent evaluation. Management retains the services of an independent valuation company in order to assist in evaluating the estimated fair value of the Company. The process of evaluating the potential impairment of goodwill is subjective because it requires the use of estimates and assumptions as to future cash flows of the Company, discount rates commensurate with the risks involved in the assets, future economic and market conditions, competition, customer relations, pricing, raw material costs, production costs, selling, general and administrative costs, and income and other taxes. Although we base cash flow forecasts on assumptions that are consistent with plans and estimates we use to manage the Company, there is significant judgment in determining the cash flows.

We perform our annual goodwill impairment review in the fourth quarter of each year using discounted future cash flows. The process of evaluating the potential impairment of goodwill is subjective because it requires the use of estimates and assumptions as to future cash flows of the company, discount rates commensurate with the risks involved in the assets, future economic and market conditions, competition, customer relations, pricing, raw material costs, production costs, selling, general and administrative costs, and income and other taxes. Although we base cash flow forecasts on assumptions that are consistent with plans and estimates we use to manage our company, there is significant judgment in determining the cash flows.

Trademarks with indefinite lives are tested for impairment on an annual basis in the fourth quarter, unless conditions arise that would require a more frequent evaluation. In assessing the recoverability of these assets, projections regarding estimated discounted future cash flows and other factors are made to determine if impairment has occurred. If we conclude that there has been impairment, we will write down the carrying value of the asset to its fair value.

Each year, we evaluate ~~our~~those trademarks with indefinite lives to determine whether events and circumstances continue to support the indefinite useful lives. We have concluded that events and circumstances continue to support the indefinite lives of these trademarks.

Retirement benefits. Pension obligations are actuarially determined and are affected by assumptions including discount rate, life expectancy, annual compensation increases and the expected rate of return on plan assets. Changes in the discount rate, and differences between actual results and assumptions, will affect the amount of pension expense we recognize in future periods.

Postretirement health obligations are actuarially determined and are based on assumptions including discount rate, life expectancy and health care cost trends. Changes in the discount rate, and differences between actual results and assumptions, will affect the amount of expense we recognize in future periods.

Insurance reserves. Our insurance for workers’ compensation, automobile, product and general ~~liability~~ liability include ~~high~~ deductibles (less than $1 million) for which we are responsible. ~~Deductibles~~ Deductibles for which we are responsible are recorded in accrued expenses. Estimates of such losses involve substantial uncertainties including litigation trends, the severity of reported claims and incurred but not yet reported claims. External actuaries are used to assist us in estimating these losses.

Environmental expenditures. Our expenditures for environmental matters fall into two categories. The first category is routine compliance with applicable laws and regulations related to the protection of the environment. The costs of such compliance are based on actual charges and do not require significant estimates.

The second category of expenditures is for matters related to investigation and remediation of contaminated sites. The impact of this type of expenditure requires significant estimates by management. The estimated cost of the ultimate outcome of these matters is included as a liability in our ~~UCI’s~~March ~~September 30~~31, ~~2009~~ 2010 balance sheet. This estimate is based on all currently available information, including input from outside legal and environmental professionals, and numerous assumptions. Management believes that the ultimate outcome of these matters will not exceed the $21.3 7 million accrued at ~~September 30~~March 31, ~~2009~~2010 by a material amount, if at all. However, because all investigation and site analysis has not yet been completed and because of the inherent uncertainty in such environmental matters and related litigation, there can be no assurance that the ultimate outcome of these matters will not be significantly different than our estimates.

31 26

Results of Operations

The following table is UCI’s unaudited condensed consolidated income statements for the three ~~months~~ ~~and nine~~ months ended ~~September 30~~March 31, ~~2009~~2010 and ~~2008~~2009. The amounts are presented in thousands of dollars.

	Three Months ended September 30,						Nine Months ended September 30,
	Three Months ended March 31,
	2009			2008			2009			2008
	2010			2009
Net sales	$	~~228~~230,~~913~~304		$	~~218~~219,~~136~~862		$	~~666,197~~		$	~~676,695~~
Cost of sales		173,~~099~~076			~~170~~180,~~621~~442			~~521,847~~			~~531,430~~
Gross profit		5557,~~814~~228			4739,~~515~~420			~~144,350~~			~~145,265~~
Operating expense
Selling and warehousing		(14,~~051~~295	)		(1514,~~679~~298	)		~~(42,435~~	)		~~(47,210~~	)
General and administrative		(1110,~~058~~620	)		(1311,~~028~~052	)		~~(34,521~~	)		~~(38,367~~	)
Amortization of acquired intangible assets		(1,~~398~~335	)		(1,~~545~~480	)		~~(4,359~~	)		~~(4,802~~	)
Restructuring costs, net		(394	)		(196	)		(1	)		(684	)
Restructuring costs		(2,036	)		(205	)
Operating income		28,913			17,067			63,034			54,202
Patent litigation costs		(964	)		—
Other expense
Operating income		27,978			12,385
Interest expense, net		(7,220	)		(8,282	)		(23,012	)		(25,838	)
Other expense
Management fee expense		(500	)		(500	)		(1,500	)		(1,500	)
Interest expense, net		(6,847	)		(7,999	)
Miscellaneous, net		(1,011	)		(920	)		(4,165	)		(2,429	)
Management fee expense		(500	)		(500	)
Income before income taxes		20,182			7,365			34,357			24,435
Miscellaneous, net		(951	)		(1,485	)
Income tax expense		(7,200	)		(3,164	)		(12,696	)		(9,772	)
Income before income taxes		19,680			2,401
Net income		12,982			4,201			21,661			14,663
Income tax expense		(7,382	)		(1,135	)
Less: Loss attributable to noncontrolling interest		(132	)		(239	)		(511	)		(559	)
Net income		12,298			1,266
Net income attributable to United Components, Inc.	$	13,114		$	4,440		$	22,172		$	15,222
Less: Loss attributable to noncontrolling interest		(35	)		(304	)
Net income attributable to United Components, Inc.	$	12,333		$	1,570

Three Months Ended ~~September 30~~March 31, ~~2009~~ 2010 compared with the Three Months Ended ~~September 30~~March 31, ~~2008~~ 2009

Net sales. Net sales of $~~228~~230.9 3 million in the ~~third~~first quarter of ~~2009~~2010 increased $10.8 4 million, or 4.97%, compared to net sales in the ~~third~~first quarter of ~~2008~~2009. In connection with obtaining ~~new~~ new business, sales were reduced by $0.2 6 million in the ~~third~~first quarter of ~~2009~~ 2010 and $2.0 4 million in the ~~third~~ first quarter of ~~2008~~2009. asThese areductions ~~result~~were the result of accepting returns of the inventory of our customers’ previous suppliers.

Excluding the effects of obtaining new business from both quarters, sales were 43.19% higher in the ~~third~~ first quarter of ~~2009~~2010 compared to the ~~third~~first quarter of ~~2008~~2009. ~~Within the~~ Automotive aftermarket ~~channel~~sales, ~~our retail~~which ~~and~~comprised ~~traditional~~approximately ~~channel~~86% of our sales ~~both~~in the first quarter of 2010, increased approximately 8.2.6%, ~~respectively~~compared to the first quarter of 2009. Within the automotive aftermarket channel, ~~while~~our retail channel sales toincreased ~~dealerships~~approximately in5.6%, while the ~~OES~~traditional channel ~~were~~was flat ~~with~~and the ~~prior~~OES channel ~~year~~decreased ~~quarter~~approximately 8.2%. The increased sales in the retail ~~and~~channel reflects ~~traditional channels reflected~~ the sales growth experienced by our retail ~~and traditional~~ customer base. ~~OEM~~The ~~sales,~~lower ~~which~~OES channel ~~comprise only 6% of our~~ sales, ~~were~~relates ~~only~~primarily ~~slightly higher compared~~ to the ~~third~~closure ~~quarter~~ of ~~2008~~dealerships ~~due~~in toconnection with the ~~continued~~Chrysler ~~weakness~~bankruptcy in the ~~automotive~~second ~~and construction~~quarter ~~industries~~of 2009. Additionally, heavy ~~After~~duty ~~several~~channel ~~quarters of declining~~ sales toand ~~the~~ OEM ~~and~~channel ~~OES~~sales ~~channels,~~in the ~~slightly~~ ~~higher~~first ~~sales~~quarter ~~from~~of ~~the~~2010 increased ~~third~~approximately ~~quarter~~5.2% ofand ~~2008~~43.0%, torespectively, over the ~~third~~first quarter of 2009 ~~might~~suggesting ~~indicate the~~signs ~~stabilizing~~ of ~~sales~~recovery in ~~these channels. Our heavy-duty aftermarket sales decreased approximately 3.8% from~~ the ~~third~~transportation ~~quarter of 2008~~sector.

Gross profit. Gross profit, as reported, was $5557.8 2 million for the ~~third~~first quarter of ~~2009~~2010 ~~compared to~~and $4739.~~5 million~~4 million for the ~~third~~first quarter of ~~2008~~2009. Both ~~quarters~~periods included special ~~items:~~costs associated with the ~~adverse~~ effects of obtaining new business, with a $0.2 6 million cost in the first ~~third~~ quarter of ~~2009~~2010 ~~compared~~and to a $2.0 4 million cost in the ~~third~~first quarter of ~~2008~~2009. Additionally ~~The~~gross ~~2008~~profit ~~quarter~~for ~~also~~the ~~included~~first aquarter ~~special~~of ~~item~~2009 of included $0.3 4 million of costs related to establishing two new factories in China and $0.4 million of severance expense incurred in connection with cost saving initiatives to reduce headcount.

Excluding the adverse effects of these special items, adjusted gross profit increased to $5657.0 8 million in the ~~third~~first quarter of ~~2009~~2010 from $4942.8 6 million in the ~~third~~ first quarter of ~~2008~~2009, and the related gross margin percentage increased to 2425.41% in the ~~third~~first quarter of ~~2009~~2010 from 2219.62% in the ~~third~~ first quarter of ~~2008~~2009. The ~~2009 and 2008~~ gross margin ~~percentages~~percentage ~~are~~is based on sales before the effects of obtaining new business, which isare discussed in the net sales comparison above.

32Higher sales volume in the first quarter of 2010 was a significant factor in our gross profit increase year over year. The 2010 results were also positively affected by the favorable effects of cost reduction initiatives to align our cost structure with our customers’ spending and current market conditions, lower commodity and energy costs and favorable exchange rates. The cost reduction initiatives included workforce reductions and other employee cost saving actions, as well as the institution of tight controls over discretionary spending. Partially offsetting these factors were the effect of price concessions and higher product returns.

The higher gross profit was due to the higher sales volume in the third quarter of 2009 as compared to the third quarter of 2008, lower commodity costs, price increases and the favorable effect of cost reduction initiatives to align our cost structure with our customers’ spending and current market conditions. The cost reduction initiatives included workforce reductions and other employee cost saving actions, as well as the institution of tight controls over discretionary spending. These reductions were partially offset by higher product return expenses and price reductions. 27

Selling and warehousing expenses. Selling and warehousing expenses were $14.1 3 million in ~~the~~both ~~third~~the first quarter of ~~2009,~~2010 ~~$1.6 million~~and ~~lower than~~ the ~~third~~first quarter of ~~2008~~ 2009. ~~The~~Selling ~~decrease,~~and ~~despite higher~~warehousing ~~sales~~expenses ~~volume,~~were ~~was~~6.2% ~~the result~~ of ~~cost~~sales ~~saving~~in ~~initiatives~~the to2010 ~~reduce~~quarter ~~headcount~~ and a6.5% ~~general containment~~in ofthe ~~discretionary spending~~2009 quarter. Shipping ~~Selling~~ and warehousing expenses ~~were~~increased 6$0.1%3 ofmillion to support the increased sales involume. The ~~the~~higher shipping and ~~2009~~warehousing ~~quarter~~costs were offset by lower selling and ~~7.2%~~marketing inexpenses ~~the~~resulting from ~~2008~~cost ~~quarter~~control initiatives.

General and administrative expenses. General and administrative expenses were $1110.1 6 million in the ~~third~~first quarter of ~~2009~~2010, $2.0 .4 million lower than the ~~third~~first quarter of ~~2008~~2009. This reduction ~~was primarily~~includes ~~attributable~~the tofavorable ~~the~~effect ~~fact~~of ~~that~~lower ~~the~~employee ~~2009~~expenses ~~quarter~~in ~~included~~the ~~$0.3 million~~first quarter of ~~costs~~2010 ~~incurred~~due ~~in connection~~to ~~with~~headcount ~~our~~reductions ~~antitrust~~in ~~litigation~~2009, ~~(discussed~~inclusive inof ~~Note~~severance related J to the ~~financial~~headcount ~~statements~~reductions inand ~~this~~cost control ~~Form~~initiatives. Partially ~~10-Q)~~offsetting ~~compared~~these toitems ~~$1.7 million~~were inhigher bad debt expense (the ~~2008~~first quarter. ~~The~~of 2009 ~~quarter~~included ~~also~~the ~~benefited~~collection ~~from~~of ~~lower~~accounts ~~salary~~receivable ~~expense~~amounts ~~due~~previously towritten ~~headcount~~down), ~~reductions~~$0.4 ~~and~~million ~~lower~~of ~~other~~higher ~~litigation~~ costs. incurred ~~These~~in ~~items~~connection ~~were partially~~with ~~offset~~our byantitrust ~~higher~~litigation ~~other~~(discussed ~~employee~~in ~~costs~~Note ~~related~~J to ~~matters~~the financial ~~other~~statements ~~than~~included ~~headcount.~~in this Form 10-Q) and higher incentive compensation.

Restructuring costs~~, net~~. See Note B to the financial statements included in this Form 10-Q.

~~Interest~~Patent ~~expense,~~litigation ~~net~~costs. ~~Net interest expense was $1.1 million lower in the third quarter of 2009~~See ~~compared~~Note J to the ~~third~~financial ~~quarter~~statements ofincluded ~~2008. This decrease was due to lower debt levels and lower interest rates~~ in ~~the~~this ~~third~~Form ~~quarter of 2009~~10-Q.

~~Miscellaneous~~Interest expense, net. ~~Miscellaneous~~Net interest expense was $0.1 .2 million ~~higher~~lower in the ~~third~~first quarter of ~~2009~~ 2010 compared to the ~~third~~first quarter of ~~2008~~2009. This ~~increase~~decrease ~~was~~is due to ~~higher~~lower ~~costs~~interest ofrates ~~selling~~in ~~accounts~~the ~~receivable~~first ~~resulting~~quarter ~~from~~of ~~higher~~2010 ~~levels~~and oflower ~~factored~~average ~~accounts~~debt ~~receivable.~~levels in the 2010 quarter.

~~Income~~Miscellaneous, ~~tax~~net. Miscellaneous expense. ~~Income~~which ~~tax~~consists ~~expense~~of incosts ~~the~~associated ~~third~~with ~~quarter~~the sale of receivables ~~2009~~ was $4.0 .5 million ~~higher~~lower ~~than~~ in the ~~third~~first quarter of ~~2008,~~2010 ~~due~~compared to ~~higher pre-tax income in~~ the first ~~2009~~ quarter ~~partially~~of ~~offset by a lower effective tax rate~~2009. ~~The~~This decrease inis ~~the~~due ~~effective~~to ~~tax~~the ~~rate~~lower ~~resulted~~level ~~primarily~~of ~~from~~receivables ~~the~~we ~~reversal~~sold ~~of certain tax reserves~~ in the ~~current~~first ~~period~~quarter ~~due to the expiration~~ of ~~applicable~~2010 ~~statutes of limitation and changes~~ in ~~taxes~~relation ~~related~~ to ~~foreign~~the ~~operations.~~first quarter of 2009.

~~Net~~Income ~~income~~tax expense. ~~Due~~Income tax toexpense in the ~~factors~~first ~~described~~quarter ~~above~~of 2010 was $6.2 million higher than the first quarter of 2009, wedue ~~reported~~to ahigher ~~net~~pre-tax income ofin ~~$13~~the 2010 quarter.~~0 million~~ The effective tax rate for the ~~third~~ first quarter of ~~2009~~2010 ~~and~~was 37.5% $4as compared to 47.2 ~~million~~% for the ~~third~~first quarter of ~~2008~~2009. The lower effective tax rate relates primarily to foreign income taxes.

Net income ~~attributable to United Components, Inc~~. ~~After~~Due ~~deducting losses attributable~~ to athe ~~noncontrolling~~factors ~~interest~~described above, we reported net income ~~attributable~~of ~~to United Components, Inc. was~~ $1312.1 3 million in for the ~~third~~ first quarter of ~~2009~~2010 ~~compared~~and to $41.4 3 million infor the ~~third~~first quarter of ~~2008~~2009.

~~Nine~~Net ~~Months~~income ~~Ended~~attributable ~~September 30~~to UCI. After deducting losses attributable to a noncontrolling interest, net ~~2009~~income ~~compared~~attributable ~~with~~to UCI was $12.3 million for the ~~Nine~~first quarter ~~Months~~of ~~Ended~~2010 ~~September 30,~~compared ~~2008~~to $1.6 million for the first quarter of 2009.

Net sales. Net sales of $666.2 million in the first nine months of 2009 decreased $10.5 million, or 1.6%, compared to net sales in the first nine months of 2008. In connection with obtaining new business, sales were reduced by $3.7 million in the first nine months of 2009 and $3.9 million in the first nine months of 2008 as a result of accepting returns of the inventory of our customers’ previous suppliers. Sales in 2008 were also reduced by the $5.8 million loss provision resulting from an unusually high level of warranty returns related to a category of parts.

Excluding the effects of obtaining new business from both nine month periods and the 2008 $5.8 million warranty loss provision, sales were 2.4% lower in the first nine months of 2009 compared to the first nine months of 2008. Within the aftermarket channel, our retail and traditional channel sales increased approximately 6.2% and approximately 4.9%, respectively, while sales to dealerships in the OES channel decreased approximately 10.9%. The increased sales in the retail and traditional channels reflects the sales growth experienced by our retail and traditional customer base. The overall uncertainty surrounding GM and Chrysler leading up to their bankruptcy proceedings initiated during the second quarter of 2009 resulted in the decreased OES channel sales. Our heavy-duty aftermarket sales also decreased approximately 17.3% due

to weakness in the transportation segment. OEM sales, which comprise only 6% of our sales, decreased approximately 26.8% compared to the first nine months of 2008 due to the significant downturn in the automotive industry. We believe that the sales decline was due primarily to general economic conditions in the United States and a reduction in vehicles manufactured.

Gross profit. Gross profit, as reported, was $144.4 million for the first nine months of 2009 and $145.3 million for the first nine months of 2008. Both periods included special items. Both nine month periods included the adverse effects of obtaining new business, a $3.7 million cost in the first nine months of 2009 and a $3.9 million cost in the first nine months of 2008. The 2009 and 2008 nine month periods included $0.5 million and $2.7 million, respectively, of costs related to establishing two new factories in China. The 2008 nine month period included the aforementioned adverse affect of the $5.8 million provision for warranty returns.

Excluding the adverse effects of these special items, adjusted gross profit decreased to $149.2 million in the first nine months of 2009 from $157.7 million in the first nine months of 2008, and the related gross margin percentage decreased to 22.3% in the first nine months of 2009 from 23.0% in the first nine months of 2008. The 2009 gross margin percentage is based on sales before the effects of obtaining new business, which are discussed in the net sales comparison above. The 2008 gross margin percentage is based on sales before the effects of obtaining new business and before deducting the special $5.8 million warranty loss provision discussed above.

The lower gross profit was primarily due to the lower sales volume in the first nine months of 2009 as compared to the first half of 2008, higher commodity costs, higher product returns expense (excluding the aforementioned special $5.8 million charge in 2008) and a higher percentage of third-party sourced products which have lower margins than manufactured product. Partially offsetting these factors were the favorable effects of cost reduction initiatives to align our cost structure with our customers’ spending and current market conditions and price increases. The cost reduction initiatives included workforce reductions and other employee cost saving actions, as well as the institution of tight controls over discretionary spending.

Selling and warehousing expenses. Selling and warehousing expenses were $42.4 million in the first nine months of 2009, $4.8 million lower than the first nine months of 2008. The reduction was driven by lower sales, cost saving initiatives to reduce headcount, and a general containment of discretionary spending. Selling and warehousing expenses were 6.4% of sales in the 2009 nine month period and 7.0% in the 2008 nine month period.

General and administrative expenses. General and administrative expenses were $34.5 million in the first nine months of 2009, $3.8 million lower than the first nine months of 2008. This reduction was partially attributable to the fact that the first nine months of 2009 included $1.1 million of costs incurred in connection with our antitrust litigation (discussed in Note J to the financial statements included in this Form 10-Q) compared to $3.2 million in the first nine months of 2008. The 2009 reduction also included the favorable effects of lower salary expense due to headcount reductions and lower bad debt expense due to the unanticipated collection of a receivable that was previously written down. The reduction in 2009 compared to 2008 was also attributable to 2008 costs associated with establishing two factories in China. These cost reductions were partially offset by $2.3 million of higher severance expense in 2009 and higher other employee costs related to matters other than headcount.

Restructuring costs, net. See Note B to the financial statements included in this Form 10-Q.

Interest expense, net. Net interest expense was $2.8 million lower in the first nine months of 2009 compared to the first nine months of 2008. This decrease was due to lower interest rates in the first nine months of 2009, partially offset by higher average debt levels in the 2009 nine month period. Results for the first nine months of 2008 included $0.1 million of accelerated amortization of deferred financing costs associated with the voluntary prepayments of debt.

Miscellaneous, net. Miscellaneous expense was $1.7 million higher in the first nine months of 2009 compared to the first nine months of 2008. This increase was due to higher costs of selling accounts receivable resulting from higher levels of factored accounts receivable.

Income tax expense. Income tax expense in the first nine months of 2009 was $2.9 million higher than in the first nine months of 2008, due to higher pre-tax income in the 2009 period partially offset by a lower effective tax rate.

The decrease in the effective tax rate resulted primarily from the reversal of certain tax reserves in the current period due to the expiration of applicable statutes of limitation and changes in taxes related to foreign operations.

Net income. Due to the factors described above, we reported a net income of $21.7 million for the first nine months of 2009 and $14.7 million for the first nine months of 2008.

Net income attributable to United Components, Inc. After deducting losses attributable to a noncontrolling interest, net income attributable to United Components, Inc. was $22.2 million in the first nine months of 2009 compared to $15.2 million in the first nine months of 2008.

Liquidity and Capital Resources

Historical Cash Flows

Net cash provided by operating activities. Net cash provided by operating activities for the nine months ended September 30, 2009 was $105.6 million. Profits, before deducting depreciation and amortization, and other non-cash items, generated $50.1 million. A decrease in inventory resulted in a generation of cash of $31.6 million. The decrease in inventory was due to (i) focused efforts to reduce inventory investments through improved inventory turns, (ii) higher sales in the three months ended September 30, 2009 compared to the fourth quarter of 2008 and (iii) reduced material costs as compared to December 31, 2008 resulting from decreases in costs of certain commodities used in our operations. An increase in accounts payable resulted in a generation of cash of $1.1 million. The increase in accounts payable was due to initiatives with our vendors to reduce our working capital investment levels, which offset reductions in accounts payable related to the significantly lower inventory balances at September 30, 2009 compared to December 31, 2008. An increase in accounts receivable resulted in a use of cash of $9.2 million. The increase in accounts receivable was due to an increase in sales of $29.2 million in the second and third quarters of 2009, as compared to the third and fourth quarters of 2008, and the impact of the higher mix of retail and traditional channel sales in relation to OEM and OES channels. Accounts receivable dating terms with OEM and OES customers are significantly shorter than retail and traditional customers. As a result of the higher mix of retail and traditional channel sales, gross account receivable days sales outstanding has increased. The effect of higher sales and channel mix changes was partially offset by an increase in factored accounts receivable during the nine months ended September 30, 2009. Factored accounts receivable totaled $134.6 million and $80.1 million at September 30, 2009 and December 31, 2008, respectively.

~~UCI’s~~Three ~~cash~~Months ~~flow~~Ended ~~was~~March ~~also positively affected by $8.9 million because of an increase in UCI’s liability to Holdco~~31, ~~due primarily to UCI’s use of Holdco’s taxable losses to offset UCI taxes that~~ would otherwise be payable in cash. Changes in all other assets and liabilities netted to a $23.1 million increase in cash. This amount consisted primarily of timing of payment of employee-related accrued liabilities, including salaries and wages, incentive compensation and employee insurance, timing of product returns and customer rebates and credits, timing of income tax payments and the timing of interest payments on our senior subordinated notes and term debt. 2010

Net cash provided ~~used~~by inoperating ~~investing~~ activities. ~~Historically,~~for ~~net~~the ~~cash~~three ~~used~~months inended ~~investing~~March ~~activities has~~31, ~~been~~2010 ~~for~~was $37.6 ~~capital~~million. ~~expenditures~~Profits, ~~including~~before ~~routine~~deducting ~~expenditures~~depreciation ~~for~~and ~~equipment~~amortization, ~~replacement~~ and ~~efficiency~~other ~~improvements~~non-cash items, ~~offset~~generated by$22.2 ~~proceeds~~million. ~~from~~An ~~the~~increase ~~disposition~~in accounts receivable and inventory resulted in a use of ~~property,~~cash ~~plant~~of $3.5 million and ~~equipment~~$3.7 ~~Capital~~million, ~~expenditures~~respectively. ~~for~~The increase in accounts receivable was primarily due to an increase in sales of $11.5 million in the ~~nine~~three months ended ~~September 30~~March 31, 2010 as compared to the fourth quarter of 2009, ~~and~~partially ~~September 30~~offset by increased factoring of accounts receivable during the three months ended March 31, ~~2008~~2010. Factored ~~were~~accounts receivable totaled $10132.9 4 million and $26121.0 5 million at March 31, 2010 and December 31, 2009, respectively. The ~~2008~~increase ~~expenditures~~in ~~included~~inventory ~~$3.3 million~~was ~~for~~due primarily ~~our~~to ~~two~~inventory builds to support customers annual restocking programs. ~~new~~An ~~factories~~increase in ~~China~~accounts payable resulted in a generation of cash of $1.8 ~~The~~million due ~~lower~~to ~~capital~~the ~~expenditures~~higher inventory levels. An increase in ~~2009~~interest ~~are~~payable, which will reverse in the ~~result~~second quarter of ~~capital~~2010 ~~spending~~when interest on our senior subordinated ~~being~~notes ~~limited~~is paid, had a $5.7 million positive effect on cash. UCI’s cash flow was also positively affected by $3.0 million because of an increase in UCI’s liability to ~~expenditures~~Holdco, ~~necessary~~due primarily to ~~maintain~~UCI’s ~~current~~use ~~operations~~of ~~and~~Holdco’s ~~projects~~taxable losses to offset UCI taxes that ~~have~~would ~~short~~otherwise be payable in cash. Changes in all other ~~payback~~assets ~~periods~~and liabilities netted to a $12.1 million increase in cash. This change primarily related to the timing of income tax payments and other accrued expenses.

Proceeds from the sale of property, plant and equipment for the nine months ended September 30, 2009 and September 30, 2008 were $2.5 million and $0.4 million, respectively. During the nine months ended September 30, 2009, our Spanish operation was relocated to a new leased facility in order to accommodate expected growth in the European market resulting in the idling of an owned facility. Proceeds for the nine months ended September 30, 2009 primarily related to the sale of this facility in Spain. 28

~~During~~Three ~~the~~Months ~~second~~Ended ~~quarter~~March ~~of 2009~~31, ~~we posted $9.4 million of cash to collateralize a letter of~~ credit required by our workers’ compensation insurance carrier. Historically, assets pledged pursuant to the terms of our senior credit facility provided the collateral for the letters of credit. As a result of the revolving credit facility termination, we were required to post $9.4 million of cash to collateralize the letter of credit. This 2009

35Net cash provided by operating activities for the three months ended March 31, 2009 was $49.2 million. Profits, before deducting depreciation and amortization, and other non-cash items, generated $12.2 million. A decrease in accounts receivable and inventory resulted in a generation of cash of $7.1 million and $11.7 million, respectively. The decrease in accounts receivable was primarily due to increased factoring of accounts receivable during the three months ended March 31, 2009, partially offset by an increase in sales of $16.3 million in the three months ended March 31, 2009 as compared to the fourth quarter of 2008. Factored accounts receivable totaled $105.4 million and $80.1 million at March 31, 2009 and December 31, 2008, respectively. The decrease in inventory was due to (i) focused efforts to reduce inventory investments through improved inventory turns, (ii) higher sales in the three months ended March 31, 2009 over the fourth quarter of 2008 and (iii) reduced material costs resulting from decreases in costs of certain of the commodities used in our operations experienced in the latter part of 2008 and in the first quarter of 2009. An increase in accounts payable resulted in a generation of cash of $5.5 million. The increase in accounts payable was due to initiatives with our vendors to reduce our working capital investment levels. An increase in interest payable, which will reverse in the second quarter when interest on our senior subordinated notes is paid, had a $5.1 million positive effect on cash. UCI’s cash flow was also positively affected by $0.9 million because of an increase in UCI’s liability to Holdco, due primarily to UCI’s use of Holdco’s taxable losses to offset UCI taxes that would otherwise be payable in cash. Changes in all other assets and liabilities netted to a $6.8 million increase in cash. This amount included timing of payment of employee-related accrued liabilities, including salaries and wages and insurance, and timing of product returns.

Net cash isused in investing ~~recorded~~activities. asHistorically, ~~“Restricted~~net cash” asused ain ~~component~~investing ofactivities ~~long-term~~has ~~assets~~been for oncapital ~~UCI’s~~expenditures, ~~balance~~including ~~sheet~~routine atexpenditures for equipment ~~September 30~~replacement and efficiency improvements, ~~2009.~~offset ~~This~~by ~~cash~~proceeds isfrom ~~not~~the ~~available~~disposition of ~~for~~property, ~~general~~plant ~~operating~~and ~~purposes~~equipment. asCapital ~~long~~expenditures asfor the ~~letter~~three months ofended ~~credit~~March ~~remains~~31, ~~outstanding~~2010 orand ~~until~~March ~~alternative~~31, ~~collateral~~2009 iswere ~~posted~~$5.8 million and $4.0 million, respectively, used primarily for cost reduction and maintenance activities.

Net cash ~~(used in)~~ provided by / used in financing activities. Net cash ~~used~~provided inby financing activities in the three ~~nine~~ months ended ~~September 30~~March 31, ~~2009~~2010 was $192.4 3 million compared to net cash ~~provided~~used byin financing activities ~~of $1.1 million~~ in the ~~nine~~three months ended ~~September 30~~March 31, ~~2008~~2009 of $18.7 million.

Borrowings of $95.6 and $3.7 million during the ~~nine~~three months ended ~~September 30~~March 31, 2010 and 2009, respectively, consisted solely of short-term borrowings payable to foreign credit institutions.

During the ~~nine~~three months ended ~~September 30~~March 31, ~~2008~~2010, ~~we borrowed $20.0 million under~~ our ~~revolving credit~~Spanish ~~facility.~~and ~~The~~Chinese ~~remainder of our borrowings during the nine months ended September 30, 2008~~subsidiaries ~~were~~repaid short-term notes borrowings ~~payable~~ to foreign credit institutions. in the amount of $3.3 million.

During the ~~second~~three ~~quarter~~months ofended March 31, 2009, we repaid the $20.0 million of outstanding borrowings under our revolving credit facility. Additionally, during the ~~nine~~three months ended ~~September 30~~March 31, 2009, our Spanish and Chinese subsidiaries repaid short-term notes borrowings to foreign credit institutions in the amount of $82.8 3 million.

During the nine months ended September 30, 2008, we used cash on hand to voluntarily repay $10.0 million of our term loan. Additionally, during the nine months ended September 30, 2008, our Spanish and Chinese subsidiaries repaid short-term notes borrowings to foreign credit institutions in the amount of $11.4 million.

Current Debt Capitalization and Scheduled Maturities

At ~~September 30~~March 31, ~~2009~~2010 and December 31, ~~2008~~2009, UCI had $~~115~~165.1 8 million and $46131.6 9 million of cash and cash equivalents, respectively. Outstanding debt was as follows (in millions):

	September 30,			December 31,
	March 31, 2010			December 31, 2009
	2009			2008
Short-term borrowings	$	5.8		$	3.5
Short-term borrowings	$	6.1		$	5.2
Capitalized lease obligations		0.9			0.9
Revolving credit line borrowings		—			20.0
Capitalized leases		1.0			1.2
Term loan		190.0			190.0
Senior subordinated notes		230.0			230.0
Amount of debt requiring repayment		~~427~~426.17			~~446~~424.4
Unamortized debt discount		(2.40	)		(2.82	)
	$	424.7		$	~~443~~422.62

Below is a schedule of required future repayments of all debt outstanding on March 31, 2010. The amounts are presented in millions of dollars.

Remainder of 2010	$	23.7
2011		27.5
2012		145.2
2013		230.1
2014		0.1
Thereafter		0.1
	$	426.7

Short-term borrowings are routine short-term borrowings by our foreign operations.

Because of previous prepayments of our term loan, we do not have any scheduled repayments of the senior credit facility term loan until December 2011. While there are no scheduled repayments until December 2011, the senior credit facility does require mandatory prepayments of the term loan when ~~the~~we ~~company generates~~ generate Excess Cash Flow as defined in the senior credit facility. ~~Based~~We ~~upon current~~generated ~~cash flow forecasts, the company expects to generate~~ Excess Cash Flow in the year ending December 31, 2009 resulting in a mandatory prepayment ~~in the range~~ of $1017.07 ~~to $20.0~~ million, payable within 95 days of December 31, 2009. ~~The~~This mandatory prepayment is presented as a component of “Current maturities of long-term debt” in our balance sheet at March 31, 2010 and is included in the “Remainder of 2010” amount in the maturities table above. On April 1, 2010, we made the $17.7 million mandatory prepayment, reducing the amount outstanding under the term loan to $172.3 million. The term loan matures in June 2012. Our $230.0 million senior subordinated notes are due in 2013.

In addition to the debt discussed above, our parent, UCI Holdco, has $~~316~~331.~~7 million~~5 million in Floating Rate Senior PIK Notes (the “Holdco Notes”) outstanding at ~~September 30,~~March ~~2009~~31, 2010. The Holdco Notes do not appear on our balance sheet and the related interest expense is not included in our income statement. While UCI has no direct obligation under the Holdco Notes, UCI is the sole source of ~~cash~~ cash generation for UCI Holdco. The interest on the Holdco Notes is payable “in kind” ~~until~~ until December 2011, so no cash interest is payable until after that date. Accordingly, the Holdco Notes will not have any material ~~affect~~effect on the cash flow or liquidity of UCI until after that date. In addition, the covenants contained in the Holdco Notes indenture are substantially the same as those contained in the senior subordinated notes indenture, so we expect that the Holdco Notes will have no effect on the current operations of UCI.

36The terms of UCI’s senior credit facility permit UCI to repurchase from time to time up to $75 million in aggregate principal amount of senior subordinated notes. As of May 14, 2010, we had not repurchased any of the senior subordinated notes, although we or Holdco may, under appropriate market conditions, do so in the future through cash purchases or exchange offers, in open market, privately negotiated or other transactions. Similarly, we or Holdco may from time to time seek to repurchase or retire the Holdco Notes. We will evaluate any such transactions in light of then-existing market conditions, taking into account contractual restrictions, our current liquidity and prospects for future access to capital. The amounts involved may be material.

~~Holdco~~Our significant ~~Notes~~debt ~~will~~service ~~have~~obligation nois ~~effect~~an onimportant ~~the~~factor ~~current~~when assessing UCI’s ~~operations~~liquidity and capital resources. At our March 31, 2010 debt level and borrowing rates, annual interest expense, including amortization of ~~UCI~~deferred financing costs and debt discount, is approximately $27.4 million. An increase of 0.25 percentage points (25 basis points) on our variable interest rate debt would increase our annual interest cost by $0.5 million.

Below is a schedule of required future repayments of all debt outstanding on September 30, 2009. The amounts are presented in millions of dollars.

Remainder of 2009	$	6.2
2010		0.2
2011		45.2
2012		145.2
2013		230.1
Thereafter		0.2
	$	427.1

The terms of UCI’s senior credit facility permit UCI to repurchase from time to time up to $75 million in aggregate principal amount of senior subordinated notes. As of November 13, 2009, we had not repurchased any of the senior subordinated notes, although we or Holdco may, under appropriate market conditions, do so in the future through cash purchases or exchange offers, in open market, privately negotiated or other transactions. Similarly, we or Holdco may from time to time seek to repurchase or retire the Holdco Notes. We will evaluate any such transactions in light of then-existing market conditions, taking into account contractual restrictions, our current liquidity and prospects for future access to capital. The amounts involved may be material.

Our significant debt service obligation is an important factor when assessing our liquidity and capital resources. At our September 30, 2009 debt level and borrowing rates, annual interest expense, including amortization of deferred financing costs and debt discount, is approximately $28.3 million. An increase of 0.25 percentage points (25 basis points) on our variable interest rate debt would increase our annual interest cost by $0.5 million.

Management’s Action Plan and Outlook

Historically, our primary sources of liquidity have been cash on hand, cash flow from operations, accounts receivable factoring arrangements and borrowings under the revolving credit facility that terminated in June 2009.

Revolving Credit Facility

UCI’s senior credit facility included a $75.0 million revolving credit facility, which terminated in June 2009. Given the current capital markets environment, we believed that it would be difficult to extend our revolver commitment. We conducted an evaluation with respect to extending the facility, analyzing the size of a commitment that could be secured against the total cost of obtaining the commitment, including the related credit facility amendment. We had productive conversations with key lenders in the revolver group and a core group of lenders were committed to extending. However, a number of the existing revolving credit facility lenders had effectively left the revolving credit facility market. Based upon our evaluation, we concluded that the size of the potential commitment did not justify the cost and, accordingly, the revolving credit facility was terminated.

At December 31, 2008, revolving credit facility borrowings were $20.0 million, all of which were repaid during the nine months ended September 30, 2009. Additionally, $9.4 million of revolving credit facility capacity was used to support an outstanding letter of credit related to our workers’ compensation insurance liabilities. Historically, the assets pledged pursuant to the terms of the senior credit facility provided the collateral for the letter of credit. As a result of the revolving credit facility termination, we were required to post $9.4 million of cash to collateralize the letter of credit. This cash is recorded as “Restricted cash” as a component of long-term assets on UCI’s balance sheet at September 30, 2009. This cash is not available for general business purposes as long as the letter of credit remains outstanding or until alternative collateral is posted.

Accounts Receivable Factoring

Factoring of customer trade accounts receivable is a significant part of our liquidity and is common in the automotive aftermarket industry. Subject to certain limitations, UCI’s senior credit facility agreement permits sales of and liens on receivables, which are being sold pursuant to factoring arrangements. At September 30, 2009, we had factoring relationships with eight banks. The terms of these relationships are such that the banks are not obligated to purchase any amount of receivables. Because of the current challenging capital markets, it is possible that

these banks may not have the capacity or willingness to fund these factoring arrangements at the levels they have in the past, or at all.

We sold approximately $165.4 million and $158.0 million of receivables during the nine months ended September 30, 2009 and 2008, respectively. If those receivables had not been sold, $134.6 million and $80.1 million of additional receivables would have been outstanding at September 30, 2009 and December 31, 2008, respectively. If we had not sold these receivables, we would have had to finance these receivables in some other way, including borrowings and reducing cash on hand.

Short-Term Liquidity Outlook

As a result of the termination of the revolving credit facility, our ability to make scheduled payments of principal or interest on, or to refinance, our indebtedness or to fund capital expenditures will depend on our ability to generate cash from operations and from factoring arrangements as discussed previously. Such cash generation is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

In addition to the increased level of factoring previously discussed, we have implemented a number of measures to improve the level of cash generated by our operations in order to increase our liquidity. Specific actions taken include activities to align our cost structure with our customers’ spending and current market conditions. These restructuring activities include:

• Employment cost savings — We have implemented hourly and salaried workforce reductions across all overhead and selling, general and administrative cost centers to align staffing levels with current business levels. At September 30, 2009, we had approximately 4,400 employees as compared to approximately 4,900 at December 31, 2008. Additionally, we have implemented wage freezes, suspended certain matching contributions to defined contribution and profit sharing plans and other cost reduction activities.

• Additional cost savings — We have critically evaluated overall overhead and selling, general and administrative discretionary spending and have instituted tight controls over discretionary spending, requiring additional approvals for all such spending across the Company.

2007 and 2008 capital spending levels were higher than 2009 estimated spending levels. Spending levels in 2007 and 2008 included $5.3 million for our two new facilities in China which are substantially complete, as well as funds to support other strategic initiatives. As part of our plans to conserve cash, 2009 capital spending will continue to be limited to expenditures necessary to maintain current operations and projects that have short payback periods. 2009 capital expenditures are expected to be in the range of $15 million to $20 million.

Additionally, we have implemented initiatives to reduce our investment in working capital. These reductions are expected to be achieved through focus on inventory reductions and initiatives related to accounts payable.

Based on our forecasts, we believe that cash flow from operations and available cash will be adequate to service debt, meet liquidity needs, and fund necessary capital expenditures for the next twelve months.

Long-Term Liquidity Outlook

As presently structured, UCI would be the sole source of cash for the payment of cash interest on the Holdco Notes beginning in 2012, and we can give no assurance that the cash for those interest payments will be available. In the future, we may also need to refinance all or a portion of the principal amount of the senior subordinated notes and/or the senior credit facility borrowings, on or prior to maturity. If refinancing is necessary, there can be no assurance that we will be able to secure such financing on acceptable terms, or at all.

Covenant Compliance

Our senior credit facility requires us to maintain certain financial covenants and ~~requires~~ requires mandatory prepayments ~~upon~~under ~~the occurrence of~~ certain events as defined in the agreement. Also, the facility includes certain negative covenants restricting or limiting our ability to, among other things: declare dividends or redeem stock; prepay certain debt; make loans or investments; guarantee or incur additional debt; make capital expenditures; engage in acquisitions or other business combinations; sell assets; and alter our business. In addition, the senior credit facility contains the following financial covenants: a maximum leverage ratio and a minimum interest coverage ratio. The financial covenants are calculated on a trailing four consecutive quarters basis. As of March 31, 2010, we were in compliance with all of these covenants.

38Our covenant compliance levels and actual ratios for the quarter ended March 31, 2010 are as follows:

facility contains the following financial covenants: a maximum leverage ratio and a minimum interest coverage ratio. The financial covenants are calculated on a trailing four consecutive quarters basis. As of September 30, 2009, we were in compliance with all of these covenants.

		Covenant Compliance Level				Actual Ratio
Minimum Adjusted EBITDA to interest expense ratio

Filing Compare · UNITED COMPONENTS INC