As filed with the Securities and Exchange Commission on November 19, 2010

Registration No. 333-168336

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 5

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

UCI INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware

3714

16-1760186

(State or other jurisdiction of

incorporation or organization)

(Primary Standard Industrial

Classification Code Number)

(I.R.S. Employer

Identification No.)

14601 Highway 41 North

Evansville, Indiana 47725

(812) 867-4156

(Address, including zip code, and telephone number, including area code, of the registrant’s principal executive offices)

Keith A. Zar

Vice President, General Counsel and Secretary

UCI International, Inc.

14601 Highway 41 North

Evansville, Indiana 47725

(812) 867-4156

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Rachel Sheridan, Esq.

Wesley C. Holmes, Esq.

Latham & Watkins LLP

555 11^th Street, NW

Washington, DC 20002

(202) 637-2200

Valerie Ford Jacob, Esq.

Daniel J. Bursky, Esq.

Fried, Frank, Harris, Shriver & Jacobson LLP

One New York Plaza

New York, New York 10004

(212) 859-8000

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


¨ Large accelerated filer		¨ Accelerated filer		x Non-accelerated filer		¨ Smaller reporting company

CALCULATION OF REGISTRATION FEE

Title of Each Class of

Securities To Be Registered

Amount to be
Registered(1)

Proposed Maximum
Aggregate Offering
Price per Share(2)

Proposed Maximum
Aggregate

Offering Price(2)

Amount of
Registration Fee(3)

Common Stock, par value $0.01 per share

15,333,334

$16.00

$245,333,344

$17,493

(1)	Includes 2,000,000 shares that the underwriters have the option to purchase to cover overallotments, if any.

(2)	Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended.

(3)	A filing fee of $14,260 was previously paid in connection with the initial filing of this Registration Statement on July 27, 2010. The aggregate filing fee of $17,493 is being offset by the $14,260 aggregate payments previously made.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion

Preliminary Prospectus dated November 19, 2010

PROSPECTUS

13,333,334 Shares

LOGO

UCI International, Inc.

Common Stock

This is UCI International, Inc.’s initial public offering. We are selling 13,333,334 shares of our common stock.

We expect the public offering price to be between $14.00 and $16.00 per share. Currently, no public market exists for the shares. Our common stock has been approved for listing on the New York Stock Exchange under the symbol “UCII.”

Investing in the common stock involves risks that are described in the “Risk Factors” section beginning on page 16 of this prospectus.


	Per Share	Total
Public offering price	$	$
Underwriting discount	$	$
Proceeds, before expenses, to us	$	$

The underwriters may also purchase up to an additional 2,000,000 shares from us, at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover overallotments, if any.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The shares will be ready for delivery on or about , 2010.



BofA Merrill Lynch		Deutsche Bank Securities

The date of this prospectus is , 2010.

LOGO

TABLE OF CONTENTS


	Page
Prospectus Summary		1
Risk Factors		16
Forward-Looking Statements		34
Use of Proceeds		36
Dividend Policy		37
Capitalization		38
Dilution		40
Selected Consolidated Financial Data		42
Management’s Discussion and Analysis of Financial Condition and Results of Operations		45
Business		83
Management		98
Compensation Discussion and Analysis		102
Certain Relationships and Related Party Transactions		119
Principal Stockholders		121
Description of Capital Stock		123
Description of Our Indebtedness		127
Shares Eligible For Future Sale		129
Material U.S. Federal Tax Considerations For Non-U.S. Holders of Our Common Stock		131
Underwriting		135
Validity of Common Stock		140
Experts		140
Where You Can Find More Information		140
Index to Consolidated Financial Statements		F-1

You should rely only on the information contained in this document and any free writing prospectus prepared by or on behalf of us that we have referred to you. We have not and the underwriters have not authorized anyone to provide you with additional or different information from that contained in this prospectus. If anyone provides you with additional, different or inconsistent information, you should not rely on it. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information in this document may only be accurate on the date of this document, regardless of its time of delivery or of any sales of shares of our common stock. Our business, financial condition, results of operations or cash flows may have changed since such date.

MARKET AND INDUSTRY DATA

We obtained the industry, market and competitive position data used throughout this prospectus from our own internal estimates and research as well as from industry publications and research, surveys and studies conducted by third parties. Estimates of historical growth rates in the markets where we operate are not necessarily indicative of future growth rates in such markets. In addition, unless stated otherwise, market share and market position data used throughout this prospectus refer to our share of the North American light vehicle aftermarket.

Unless stated otherwise, all market industry statistics, excluding estimates that are qualified by our belief, are based on data included in the 2011 Automotive Aftermarket Industry Association, or AAIA, Digital Automotive Aftermarket Factbook, referred to herein as Factbook, which combines the latest available aftermarket industry data from many sources including original AAIA research, government sources and independent research suppliers.

CERTAIN TERMS USED IN THIS PROSPECTUS

Except as otherwise required by the context, any reference in this prospectus to:

•

“aftermarket” refers to the North American light and heavy-duty vehicle replacement products market;

•

“CAGR” refers to compounded annual growth rate;

•

“DIFM,” an acronym for ‘do-it-for-me,’ refers to consumers who use professionals to perform the maintenance and repair work needed on their own vehicles;

•

“DIY,” an acronym for ‘do-it-yourself,’ refers to consumers who themselves perform the maintenance and repair work needed on their vehicles;

•

“North America” and “North American” refers to the United States and Canada;

•

“OEM” refers to original equipment manufacturers;

•

“OES” refers to original equipment service providers (the service organizations connected with new car dealers);

•

the “traditional” distribution channel refers to warehouse distributors, jobber stores and professional installers;

•

“fill rate” refers to the percentage of orders received which we fill in their entirety in the time agreed upon; and

•

with respect to our customers, “Advance” refers to Advance Stores Company, Inc.; “AutoZone” refers to AutoZone, Inc.; “CARQUEST” refers to CARQUEST Auto Parts Inc.; “Chrysler” refers to Chrysler Group LLC; “Ford” refers to Ford Motor Company; “GM” refers to General Motors Company; “NAPA” refers to NAPA Autoparts Inc.; and “O’Reilly” refers to O’Reilly Automotive, Inc.

CERTAIN TRADEMARKS

This prospectus includes trademarks, such as Airtex, Champ, Wells, ASC, Master Parts, Luber-finer and Airtex Engine Management, which are protected under applicable intellectual property laws and are our property and/or the property of our subsidiaries. This prospectus also contains trademarks, service marks, copyrights and trade names of other companies, which are the property of their respective owners. Solely for convenience, our trademarks and tradenames referred to in this prospectus may appear without the ^® or ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks and tradenames.

iii

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. Because this is only a summary, it does not contain all of the information that may be important to you. You should read this entire prospectus and should consider, among other things, the matters set forth under “Risk Factors,” “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our financial statements and related notes thereto appearing elsewhere in this prospectus before making your investment decision. Unless otherwise noted in this prospectus, the terms “the Company,” “we,” “us,” “our” and “our company” refer to UCI International, Inc. and its subsidiaries, and “UCI” refers to United Components, Inc., our wholly-owned subsidiary.

Our Business

We are a leading supplier to the light and heavy-duty vehicle aftermarket for replacement parts, supplying a broad range of filtration, fuel delivery systems, vehicle electronics and cooling systems products. We believe, based on management estimates, that we maintain a leading market position in each of our four product lines, including the #1 market position by revenue in both fuel delivery systems and cooling systems in the North American light vehicle aftermarket. Approximately 87% of our net sales for the twelve months ended September 30, 2010 were generated from sales to a diverse group of aftermarket customers, including some of the largest and fastest growing companies in our industry. We have developed a global and low-cost manufacturing, sourcing and distribution platform and we sell into multiple sales channels, including retailers, wholesale distributors, dealers and the heavy-duty vehicle market. Our principal end-markets include light vehicles, commercial vehicles and construction, mining, agricultural, marine and other industrial equipment. We have one of the most comprehensive product lines in the aftermarket, offering approximately 47,000 part numbers that we deliver at an industry leading average fill rate of approximately 98%.

We have established longstanding customer relationships, which average approximately 20 years, with some of the largest companies in the aftermarket, such as Advance, AutoZone, CARQUEST, NAPA and O’Reilly. We also supply to select OEM platforms that complement our core aftermarket business and provide us with visibility into emerging product trends. We believe our high-quality product portfolio and superior services, combined with our product support and category management services, enhance our customers’ financial and operating performance, allows us to achieve strong operating margins and positions us well for profitable growth.

For the twelve months ended September 30, 2010, our net sales were $926.8 million, Adjusted EBITDA was $167.6 million, or 18.1% of net sales, and net income was $22.8 million. The following charts set forth our approximate net sales for the twelve months ended September 30, 2010 by percentage of product line and percentage of sales channel:

LOGO

Our Product Lines

We design, develop, manufacture and distribute replacement parts that can be used in a substantial majority of light vehicles in operation in North America, including approximately 95% of pre-2008 models. Our four product lines provide a stable and diverse base of business, even in difficult economic cycles, and can be classified into two groups:

•

Non-Discretionary: Our fuel delivery systems, vehicle electronics and cooling systems products are critical for vehicle operation and must be replaced upon failure for the vehicle to successfully operate.

•

Recurring Maintenance: Our filtration products are replaced at regular maintenance intervals, generating a predictable, recurring revenue stream.


	Filtration	Fuel Delivery Systems	Vehicle Electronics	Cooling Systems
Products	• Oil Filters • Air Filters • Fuel Filters • Cabin Air, Transmission, Hydraulic and Industrial Filters	• Fuel Pump Assemblies • Electric Fuel Pumps • Mechanical Fuel Pumps • Strainers and Kits	• Sensors • Coils • Switches • Caps and Rotors • Emission Control	• Aluminum and Cast Iron Cooling Systems • Fan Clutches


% of Total Net Sales ⁽¹⁾	38%	27%	19%	16%


Number of Parts ⁽²⁾	4,950	2,235	38,300	1,600


Number of Customers ⁽²⁾	1,400	1,000	275	1,000


Representative Brands ⁽³⁾

(1)	Based on net sales for the twelve months ended September 30, 2010.

(2)	Numbers reflected are approximate.

(3)	Includes our brands, licensed brands and private label brands.

Our Industry

We operate primarily in the North American aftermarket, which is large and fragmented. According to J.D. Power, the number of vehicles in operation globally totals over one billion, of which approximately 259 million are located in the United States. We believe the addressable market for our current product lines servicing vehicles in North America is approximately $10 billion.

The light vehicle aftermarket generally is stable and less susceptible to volatility in new vehicle sales. From 1999 to 2009, the aftermarket grew at a CAGR of 3.3% with annual growth rates varying between (1.7)% and 7.0%. As an example of the aftermarket’s stability, while sales of new light vehicles in North America during 2009 declined 21.2%, the aftermarket declined by only 1.7% in the same period.

•

Increasing global vehicle population: According to J.D. Power, the global vehicle population is expected to experience a 3.3% CAGR from 2009 to 2015, and light vehicles in operation in the United States are expected to grow at a projected CAGR of 1.3% between 2009 and 2015.

•

Aging of vehicle population: The average age of light vehicles in use in the United States grew from 8.8 years in 1999 to 10.2 years in 2009.

•

Increasing vehicle miles driven: Miles driven in the United States has increased steadily over the last several decades. For example, between 1981 and 2009, miles driven in the United States increased at a CAGR of 2.3%, according to the U.S. Department of Transportation, and declined in only one year, 2008, mainly due to sharp increases in fuel prices.

•

Growing heavy-duty aftermarket: According to FTR Associates, historical total truck ton-miles increased in each year over the past 17 years, except for 2008 and 2009, when fuel price increases and the economic downturn affected this trend. MacKay & Company estimates the heavy-duty vehicle aftermarket will grow by approximately 8% in 2010.

Further, we believe that aftermarket dynamics will continue to be impacted by additional longer-term trends, such as the increasing complexity of vehicles and proliferation of related parts, blurring distinctions between the retail and traditional channels and on-going industry consolidation, resulting in a customer base with more complex needs. These trends are driving industry participants to rely on suppliers that can provide a full product portfolio across multiple channels in a timely and reliable manner. We believe that we are well positioned to capitalize on these trends as we continue to partner with our customers who are leading aftermarket participants and have been active in industry consolidation.

Replacement parts for the light vehicle aftermarket are distributed through three main channels:

•

Retail: National chains that primarily serve the DIY group and are strategically pursuing the DIFM group by targeting independent repair shops and professional installers or “commercial” sales. Leading retail providers include Advance, AutoZone and O’Reilly.

•

Traditional: Independent repair shops and professional installers supplied through companies such as CARQUEST and NAPA, as well as buying groups such as The Aftermarket Auto Parts Alliance, or The Alliance, and the Automotive Distribution Network, or The Network.

•

OES: Dealership service bays associated with OEMs such as GM, Ford and Chrysler.

Our Competitive Strengths

Aftermarket focus with a leading position in our product lines. We are one of the largest aftermarket focused suppliers in North America, with approximately $804 million, or 87% of our net sales for the twelve months ended September 30, 2010, attributable to the aftermarket. We believe, based on management estimates, that we maintain a leading market position in each of our four product lines, including the #1 market position by revenue in both fuel delivery systems and cooling systems in the North American light vehicle aftermarket.

Attractive aftermarket product portfolio. We believe that we have an attractive product portfolio for several reasons, including:

•

Recurring Maintenance: Our filtration products are replaced at regular maintenance intervals, generating a predictable, recurring revenue stream.

•

Highly Engineered: Our product lines require significant engineering, product development, product support, sourcing and manufacturing capabilities.

Long-standing and deep relationships with industry leading customers. We are a leading supplier to some of the largest companies in the aftermarket and have maintained our key relationships for approximately 20 years on average. We have supplied our largest customer, AutoZone, since it opened its first store in 1979, and we are one of its largest suppliers today, with net sales of $265 million, or 30%, of our total net sales, in 2009. Underscoring the value we deliver, we have been selected as the “Category Captain” for our product lines at many of our customers. In this important role, we are responsible for analyzing market data and making product recommendations for a specific product category in order to drive higher customer sales and profitability. These recommendations, which include optimal inventory level and mix, marketing and promotion concepts and product positioning, are integral to our customers’ overall product strategy and procurement practices.

Capability to enhance customer financial and operating performance. Through our strong service and delivery capabilities, broad product coverage, high product quality, engineering resources and product management support (such as cataloging and technical support), we enhance our customers’ financial and operating performance. We supply approximately 47,000 unique part numbers and deliver at an industry leading average fill rate of approximately 98%, allowing our customers to offer the right product, at the right place, at the right time. Our ability to reliably deliver a broad variety of products in a timely fashion, evidenced by our ability to ship products within 24 to 48 hours of the order, also allows our customers to reduce their working capital investment. Additionally, we utilize a flexible branding strategy, which includes our own brands, licensed brands and private label brands to best meet the needs of our customers.

Innovative category management expertise. We believe our sophisticated category management capabilities are highly valued by our customers and provide us a competitive advantage. Our category management process utilizes our experienced professionals, specialized software and proprietary processes and tools to analyze industry, competitive and customer inputs to develop and recommend specific targeted actions to our customers. These targeted actions help our customers improve their sales growth and category profitability, increase consumer satisfaction through robust parts availability and minimize their working capital needs through enhanced inventory efficiency. Successful application of these services within our customer base has enabled us to increase our customer retention, expand sales of our products, optimize our product sourcing decisions through increased market visibility and penetrate new customers across the aftermarket.

Global and low-cost manufacturing, sourcing and distribution platform. We operate manufacturing facilities in low-cost countries, including an approximately 20-year presence in both China and Mexico, and have invested significantly in automation throughout our global operations. In addition to our three manufacturing facilities, we have two sourcing offices in China, with low-cost product development, supplier development, engineering resources and procurement capabilities. Our world-wide distribution network allows us to achieve average fill rates of approximately 98% and provide unique direct shipment capabilities.

Strong Adjusted EBITDA margins and cash flow profile. Our Adjusted EBITDA for the twelve months ended September 30, 2010 was $167.6 million, representing 18.1% of our net sales, and we generated net cash flow from operating activities for that period of $102.7 million. Even during the economic downturn of 2008, when we reported a net loss of $12.4 million, we achieved Adjusted EBITDA of $113.7 million, representing 12.9% of our net sales, and generated net cash flow from operating activities of $31.7 million. Our ability to generate Adjusted EBITDA margins and cash flow from operations, that we believe are strong relative to our industry, provides financial flexibility and enables us to reinvest capital in our business, support growth and finance strategic acquisitions. In addition, during the past five years, we generally have maintained relatively low capital expenditure levels of approximately 2% to 4% of net sales, further bolstering our cash flow profile.

Experienced management team with proven track record. Our core senior management team has an average of 20 years of industry experience. Under the leadership of Bruce Zorich, our Chief Executive Officer, we have achieved significant accomplishments since 2003, including:

•

increasing average fill rates from the low 90s to approximately 98%;

•

increasing annual net sales per employee from approximately $140,000 to $238,000;

•

expanding our global footprint, while reducing total facilities from 47 to 29; and

•

increasing our Adjusted EBITDA as a percentage of net sales from 13.1% in the year ended December 31, 2003 to 18.1% for the twelve months ended September 30, 2010.

Our Strategy

Our objective is to continue to be a market leader by providing superior products and services to our customers. Over the past several years we have invested significant resources to develop differentiated services for our customers, improve our operational efficiency and enhance our low-cost country manufacturing and sourcing capabilities. We believe these investments provide a solid foundation for profitable net sales growth and continued operational improvements as highlighted below.

Drive incremental net sales in excess of anticipated industry growth in our core markets. Our strategy is to use our category management expertise, broad product coverage and superior product support and delivery to continue to differentiate ourselves from our competition, drive incremental growth and attract new customers. Historically, some of our most important customers have grown faster than the overall market and as these customers continue to expand their revenue and market share, we seek to increase their reliance on our capabilities to increase our own market share. We are also actively marketing these capabilities to new customers across our aftermarket channels and anticipate that we will secure new business similar to our recent wins with, among others, CARQUEST, NAPA and O’Reilly, with whom we have recently entered into contracts for our fuel delivery systems and cooling systems products.

Selectively pursue opportunities outside of the retail and traditional aftermarket channels. Our product expertise and scalable platform enable us to add new customers and penetrate multiple end markets. We will continue to promote these attributes to pursue opportunities and expand our existing presence in the military, heavy-duty, power generation and other channels.

Expand sales in international markets. We have a long-standing presence in the international light and heavy-duty vehicle aftermarket from which we generated $130 million of non-U.S. net sales in 2009. We plan to leverage our established global footprint to significantly increase our sales to international markets. We are strategically investing in targeted international market initiatives, including increasing management resources, expanding international product offerings, leveraging internationally recognized brands, such as Luber-finer and Airtex, and expanding our international catalog.

Enhance margins through our culture of operational excellence. We have developed a culture that drives ongoing cost reduction and operational improvement through investments in automation and other process enhancements and the expansion of our global low-cost manufacturing, sourcing and distribution platform. We believe that our China manufacturing and sourcing capabilities, along with our Mexican operations, position us to realize continued cost savings. In addition, we recently launched our Product Source Optimization initiative, or PSO, which utilizes our existing global footprint and unique category management insights to optimize the mix of products manufactured versus sourced and to determine the optimal manufacturing or sourcing location.

Expand our platform through strategic partnerships and acquisitions. The aftermarket remains relatively fragmented and we are well positioned to capitalize on additional partnering and consolidation opportunities, though we have no current commitments or agreements for such partnering or consolidation transactions. We will continue to analyze and selectively pursue strategic opportunities where we can add value by leveraging our core competencies and realize synergies by applying our operating culture and processes to improve operating results. Our partnership and acquisition strategy also focuses on growth through product extensions that fit well within our existing distribution channels and expansion into new geographic markets.

Recent Developments

On September 23, 2010, we, along with UCI Acquisition Holdings, Inc., our wholly-owned subsidiary, or UCI Acquisition, and UCI, as the borrower, entered into a credit agreement, or the Credit Agreement, with Bank of America, N.A., as administrative agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Bank Securities Inc., as joint lead arrangers and joint bookrunners, Deutsche Bank Securities Inc., as syndication agent and General Electric Capital Corporation and KeyBank NA, as co-documentation agents. Pursuant to the Credit Agreement we and UCI Acquisition are the guarantors of UCI’s obligations.

The Credit Agreement provides for borrowings of up to $500.0 million, consisting of a term loan facility in an aggregate principal amount of $425.0 million, which was fully funded on the date of the Credit Agreement, and a revolving credit facility in an aggregate principal amount of $75.0 million, none of which was drawn on that date. The portion of the $75.0 million revolving credit facility available for borrowing at September 30, 2010 was approximately $23.7 million due to certain restrictions under our Senior PIK Notes due 2013. The maturity dates for the term loan facility and the revolving credit facility are 6.5 years and 5 years, respectively, from the date of the Credit Agreement. The Credit Agreement is secured by a guarantee and collateral agreement.

In connection with the entry by UCI into the Credit Agreement, on September 23, 2010 UCI’s senior credit facility was terminated and all obligations existing under the senior credit facility were repaid in full using a portion of the proceeds of the borrowings under the Credit Agreement.

On September 23, 2010, UCI discharged its senior subordinated notes due 2013 in accordance with the terms of the indenture governing the notes by depositing with the trustee all outstanding amounts due under the notes and instructing the trustee to provide holders of all of the notes with an irrevocable notice of redemption. The redemption date was October 25, 2010. As of September 23, 2010, the aggregate outstanding principal amount of the senior subordinated notes was approximately $228.2 million, net of unamortized original issue discount of $1.8 million. Pursuant to the terms of the indenture, all the senior subordinated notes outstanding on the redemption date were redeemed at 101.563% of their principal amount plus accrued and unpaid interest thereon to, but not including, the redemption date.

Risks Related to Our Business

Investing in our common stock involves substantial risk. You should carefully consider all of the information in this prospectus prior to investing in our common stock. There are several risks related to our business that are described under “Risk Factors” elsewhere in this prospectus. Among these important risks are the following:

•

Continued volatility in and disruption to the global economic environment may materially and adversely affect our business, financial condition and results of operations.

•

The current economic environment and adverse credit market conditions may significantly affect our ability to meet liquidity needs and may materially and adversely affect the financial soundness of our customers and suppliers.

•

Our relationship with AutoZone creates risks associated with a concentrated net sales source.

•

Our contracts with our customers are generally short-term and do not require the purchase of a minimum amount.

•

The introduction of new and improved products and services poses a potential threat to the aftermarket for light vehicle parts.

•

Increases in our raw materials and component costs or the loss of a number of our suppliers could adversely affect our financial health.

•

Our international operations are subject to uncertainties that could affect our operating results.

•

Our substantial indebtedness could adversely affect our financial health.

Our Sponsor

At September 30, 2010, affiliates of The Carlyle Group, or Carlyle, owned 90.8% of our common stock with the remainder owned by members of our board of directors and certain current and former employees. Carlyle is one of the largest and most diversified global private equity groups with more than $90.9 billion under management as of September 30, 2010 and international breadth and depth along with significant strategic, operational and financial resources. Since 1987, the firm has invested $61.2 billion of equity in 983 private equity and real estate transactions. Carlyle has over 20 years of investment experience and demonstrated expertise in the industrial, energy & power, automotive & transportation and aerospace & defense sectors, among others. In addition to its track record, Carlyle has a strong network of relationships and partnerships with seasoned industry executives and businesses.

Our History, Corporate Information and Organizational Structure

UCI International, Inc. was incorporated in Delaware on March 8, 2006, under the name UCI Holdco, Inc., as a holding company for UCI Acquisition Holdings, Inc., or UCI Acquisition, and United Components, Inc. UCI International, Inc. owns all of the common stock of United Components, Inc. through its wholly-owned subsidiary UCI Acquisition. UCI Acquisition and United Components, Inc. are corporations formed at the direction of Carlyle. All operations of UCI International, Inc. are conducted by United Components, Inc. and its subsidiaries. Through our predecessors, we commenced operations in 1958.

Our principal executive offices are located at 14601 Highway 41 North, Evansville, Indiana 47725 and our telephone number is (812) 867-4156. Our internet address is www.ucinc.com. The contents of our website are not part of this prospectus.

The following chart illustrates our current organizational structure as of September 30, 2010:

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The Offering

Common stock offered by us

13,333,334 shares.

Common stock outstanding after this offering

41,967,934 shares.

Overallotment option

We have granted the underwriters a 30-day option to purchase up to an additional 2,000,000 shares of our common stock at the initial public offering price to cover overallotments, if any.

Use of proceeds

We estimate that the net proceeds from the sale of shares by us will be approximately $184.0 million, after deducting underwriting discounts and commissions and $2.0 million of estimated expenses, assuming the shares are offered at $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus. We intend to use the net proceeds, together with cash on hand, to redeem all of our outstanding Senior PIK Notes. See “Use of Proceeds.”

Proposed NYSE symbol

“UCII.”

Risk factors

See “Risk Factors” beginning on page 16 of this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.

The number of shares of our common stock to be outstanding after completion of this offering is based on 28,634,600 shares outstanding as of September 30, 2010 and excludes:

•

1,277,150 shares of common stock issuable upon the exercise of options outstanding as of September 30, 2010 at a weighted average exercise price of $0.94 per share;

•

1,098,400 shares of restricted common stock that currently vest only upon the occurrence of a change in control of UCI International, Inc., as defined in our equity incentive plan but will generally time vest following the completion of this offering over a three-year period, subject to accelerated vesting upon a change of control, as described in “Compensation Discussion and Analysis—Discretionary Long-Term Incentive Awards;” and

•

2,695,600 shares of common stock reserved for issuance under our 2010 Equity Incentive Award Plan, which we plan to adopt in connection with this offering.

Unless we specifically state otherwise, all information in this prospectus assumes:

•

no exercise of the overallotment option by the underwriters; and

•

an initial offering price of $15.00 per share, the midpoint of the estimated offering price range set forth on the cover of this prospectus.

Concurrently with the closing of this offering, the number of our authorized common stock will be increased to 100,000,000 shares, and each share of common stock then outstanding will be split into ten shares of common stock by way of a stock split. Unless we specifically state otherwise, the share information in this prospectus reflects the increase in the authorized number of our common stock and the stock split.

Summary Historical Financial Data

The following tables set forth our summary historical financial data for the years ended December 31, 2009, 2008 and 2007, for the nine month periods ended September 30, 2010 and September 30, 2009 and as of and for the twelve months ended September 30, 2010. Our summary historical income statement data for each of the years in the three-year period ended December 31, 2009 have been derived from our audited financial statements included elsewhere in this prospectus. Our summary historical income statement data for the nine months ended September 30, 2010 and September 30, 2009 and our summary historical balance sheet data as of September 30, 2010 have been derived from our unaudited financial statements included elsewhere in this prospectus which, in the opinion of management, include all adjustments consisting only of normal, recurring adjustments necessary for a fair presentation of the results for the unaudited interim period. The unaudited financial data for the twelve months ended September 30, 2010 have been derived by adding our financial data for the year ended December 31, 2009 to our financial data for the nine months ended September 30, 2010 and subtracting our financial data for the nine months ended September 30, 2009. The unaudited financial data for the twelve months ended September 30, 2010 are presented to allow investors to assess our compliance with the covenants contained in UCI’s Credit Agreement. Results for the nine months and twelve months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010 or for any other period. The financial data set forth below are not necessarily indicative of future results of operations. This data should be read in conjunction with, and is qualified in its entirety by reference to, the “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Capitalization” sections and our financial statements and notes thereto included elsewhere in this prospectus.


	Year Ended December 31,									Nine Months Ended September 30,						Twelve Months Ended September 30,
	2009			2008			2007			2010			2009			2010
(Dollars in millions)										(unaudited)						(unaudited)
Income Statement Data:
Net sales (1)	$	885.0		$	880.4		$	969.8		$	708.0		$	666.2		$	926.8
Cost of sales (2)		685.4			702.5			748.8			528.8			523.8			690.4

Gross profit		199.6			177.9			221.0			179.2			142.4			236.4
Operating (expenses) income
Selling and warehousing		(56.6	)		(62.9	)		(61.1	)		(44.6	)		(42.4	)		(58.8	)
General and administrative		(47.8	)		(51.6	)		(50.0	)		(36.7	)		(34.3	)		(50.2	)
Amortization of acquired intangible assets		(5.7	)		(6.3	)		(7.0	)		(4.0	)		(4.4	)		(5.3	)
Restructuring gains (costs), net (2)(3)		(0.9	)		(2.4	)		0.8			(2.1	)		—			(3.0	)
Trademark impairment loss (4)		—			(0.5	)		(3.6	)		—			—			—
Patent litigation costs (5)		(7.0	)		—			—			(1.0	)		—			(8.0	)

Operating income		81.6			54.2			100.1			90.8			61.3			111.1
Other expense
Interest expense, net		(60.5	)		(65.4	)		(72.9	)		(44.8	)		(45.7	)		(59.6	)
Management fee expense		(2.0	)		(2.0	)		(2.0	)		(1.5	)		(1.5	)		(2.0	)
Loss on early extinguishment of debt (6)		—			—			—			(8.7	)		—			(8.7	)
Miscellaneous, net		(5.5	)		(3.5	)		(2.9	)		(3.0	)		(4.2	)		(4.3	)

Income (loss) before income taxes		13.6			(16.7	)		22.3			32.8			9.9			36.5
Income tax (expense) benefit		(5.1	)		4.3			(8.3	)		(12.9	)		(4.1	)		(13.9	)

Net income (loss) from continuing operations		8.5			(12.4	)		14.0			19.9			5.8			22.6
Gain on sale of discontinued operations, net of tax		—			—			2.7			—			—			—

Net income (loss)		8.5			(12.4	)		16.7			19.9			5.8			22.6
Less: Loss attributable to noncontrolling interest		(0.7	)		(0.8	)		(0.1	)		—			(0.5	)		(0.2	)

Net income (loss) attributable to UCI International, Inc.	$	9.2		$	(11.6	)	$	16.8		$	19.9		$	6.3		$	22.8


	Year Ended December 31,							Nine Months Ended September 30,
	2009		2008			2007		2010		2009
										(unaudited)
Earnings Per Share Data:
Basic earnings per share attributable to common stockholders:
Income (loss) from continuing operations	$	0.32	$	(0.41	)	$	0.50	$	0.69	$	0.22
Gain on sale of discontinued operations, net of tax		—		—			0.10		—		—

Net income (loss) attributable to UCI International, Inc.	$	0.32	$	(0.41	)	$	0.60	$	0.69	$	0.22

Weighted average shares outstanding (in thousands)		28,619		28,526			28,126		28,637		28,613

Diluted earnings per share attributable to common stockholders:
Income (loss) from continuing operations	$	0.32	$	(0.41	)	$	0.49	$	0.68	$	0.22
Gain on sale of discontinued operations, net of tax		—		—			0.10		—		—

Net income (loss) attributable to UCI International, Inc.	$	0.32	$	(0.41	)	$	0.59	$	0.68	$	0.22

Weighted average shares outstanding (in thousands)		29,135		28,526			28,610		29,364		29,010


	Year Ended December 31, 2009		Nine Months Ended September 30, 2010
Pro Forma Earnings Per Share Data: (unaudited) (7)
Basic earnings per share attributable to common stockholders:
Net income attributable to UCI International, Inc.	$	0.70	$	0.95
Weighted average shares outstanding (in thousands)		41,953		41,971

Diluted earnings per share attributable to common stockholders:
Net income attributable to UCI International, Inc.	$	0.69	$	0.93
Weighted average shares outstanding (in thousands)		42,469		42,698



	September 30, 2010
	Actual		As Adjusted (8)
(Dollars in millions)	(unaudited)
Balance Sheet Data:
Cash and cash equivalents	$	170.9	$	1.6
Total assets		1,141.1		970.8
Total debt (including current portion)		767.0		423.6



	Year Ended December 31,									Nine Months Ended September 30,						Twelve Months Ended September 30,
	2009			2008			2007			2010			2009			2010
(Dollars in millions)										(unaudited)						(unaudited)
Other Financial Data:
Capital expenditures	$	15.3		$	31.9		$	29.7		$	17.5		$	10.9		$	21.9
Depreciation and amortization		37.1			37.0			35.3			26.5			28.0			35.6
Adjusted EBITDA (9) (unaudited)		133.9			113.7			150.4			128.8			95.1			167.6
Adjusted EBITDA margin (9) (unaudited)		15.1	%		12.9	%		15.5	%		18.2	%		14.3	%		18.1	%

(1)	Net sales in 2008 includes a special $6.7 million warranty provision related to unusually high warranty returns related to one category of parts.

(2)	Cost of sales in 2007 includes $4.7 million of costs incurred in connection with the integration of our pre-ASC Acquisition water pump operations with the operations of ASC. The remaining $0.7 million of water pump integration costs in 2007 are included in “Restructuring gains (costs), net.”

(3)	Restructuring costs in the 2010, 2009 and 2008 periods result from our capacity consolidation and realignment actions. Restructuring gain in 2007 includes a gain on the sale of land and building.

(4)	Includes trademark impairment losses due to a customer’s decision to market a significant portion of our products under the customer’s own private label brand. This decision has not affected, and is not expected to affect, our sales of these products.

(5)	Includes trial costs and damages awarded in connection with an unfavorable jury verdict on a patent infringement matter. See Note 16 to our audited consolidated financial statements and Note J to our unaudited condensed consolidated financial statements included elsewhere in this prospectus.

(6)

The loss on early extinguishment of debt relates to the termination of UCI’s senior credit facility and the discharge of UCI’s senior subordinated notes due 2013 discussed under “Prospectus Summary—Recent Developments.” The loss consists of the call premium on the senior subordinated notes ($3.6 million), interest during the senior subordinated notes redemption period ($1.9 million) and the write-off of unamortized deferred financing costs and original issue discount ($3.2 million).

(7)

As adjusted to reflect the (i) issuance of 13,333,334 shares offered hereby, including the application of the net proceeds therefrom and use of cash on hand as described in “Use of Proceeds,” assuming an initial public offering price of $15.00 per share, the midpoint of the offering price range set forth on the cover of this prospectus, (ii) incurrence of $425.0 million of indebtedness under the Credit Agreement, (iii) payment in full, and termination of, UCI’s senior credit facility and (iv) redemption of UCI’s senior subordinated notes due 2013, in each case giving effect to such transactions as if they had occurred as of the beginning of the applicable period. See the reconciliation of actual interest expense to pro forma interest expense below. The net proceeds from the sale of shares, together with cash on hand, will be used to redeem our Senior PIK Notes, which had an aggregate outstanding balance of $348.4 million, including accrued and unpaid interest of $1.3 million, as of September 30, 2010. The Senior PIK Notes mature on December 13, 2013 and have a floating interest rate based on three-month LIBOR plus 800 basis points. A $1.00 increase in the assumed initial public offering price of $15.00 per share would not affect either pro forma basic or diluted earnings per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus remains the same. A $1.00 decrease in the assumed initial public offering price of $15.00 per share would decrease each of pro forma basic and diluted earnings per share by approximately $0.01 per share, assuming the number of shares offered by us, as set forth on the cover of this prospectus remains the same. An increase of 1.0 million in the number of shares offered by us would decrease each of pro forma basic earnings per share and pro forma diluted earnings per share by approximately $0.02 per share and $0.01 per share, respectively. A decrease of 1.0 million in the number of shares offered by us would not affect either pro forma basic or diluted earnings per share. If the variable interest rate on our indebtedness were to increase (decrease) by 0.25% per annum, pro forma interest expense would increase (decrease) by approximately $1.9 million.


	Year Ended December 31, 2009			Nine Months Ended September 30, 2010			Weighted Average Interest Rate						OID and Deferred Financing Cost Amortization in Interest Expense
(Dollars in millions)	Year Ended December 31, 2009			Nine Months Ended September 30, 2010			2009			2010			2009			2010
Interest Expense as Reported	$	60.5		$	44.8

Incurrence of Indebtedness under Credit Agreement		29.0			21.8			6.25	%		6.25	%	$	2.4		$	1.8
Payment in full of UCI’s senior credit facility		(7.0	)		(3.3	)		3.15	%		1.70	%		(0.6	)		(0.2	)
Redemption of UCI’s senior subordinated notes		(22.5	)		(16.4	)		9.375	%		9.375	%		(0.9	)		(0.6	)
Redemption of Senior PIK Notes		(30.5	)		(24.3	)		9.42	%		9.25	%		(1.5	)		(1.3	)

Pro Forma Interest Expense	$	29.5		$	22.6

(8)

As adjusted to reflect the issuance of 13,333,334 shares offered hereby, including the application of the net proceeds therefrom and use of cash on hand as described in “Use of Proceeds,” assuming an initial public offering price of $15.00 per share, the midpoint of the offering price range set forth on the cover of this prospectus. A $1.00 increase (decrease) in the assumed initial public offering price of $15.00 per share would increase (decrease) each of as adjusted cash and cash equivalents and total assets by approximately $12.4 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus remains the same. An increase (decrease) of 1.0 million in the number of shares offered by us would increase (decrease) each of as adjusted cash and cash equivalents and total assets by approximately $14.0 million. As adjusted total debt will remain unchanged. The foregoing is based upon as adjusted numbers as of September 30, 2010. To the extent the net proceeds from the offering together with our actual cash on hand are not sufficient to redeem all of our Senior PIK Notes following the offering, we intend to temporarily draw down our revolving credit facility in an amount sufficient to cover such shortfall.

(9)

We present Adjusted EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. “Adjusted EBITDA” represents net income before interest expense, income tax expense and depreciation and amortization, or EBITDA, as further adjusted to exclude certain other items as set forth in the reconciliation presented below. “Adjusted EBITDA margin” is our Adjusted EBITDA as a representative percentage of net sales. You are encouraged to evaluate each adjustment and whether you consider each to be appropriate. In addition, in evaluating Adjusted EBITDA, you should be aware that in the future, we may incur expenses similar to the adjustments in the presentation of Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our calculations of Adjusted EBITDA may not be comparable to similarly entitled measures reported by other companies.

Adjusted EBITDA and, as a result, Adjusted EBITDA margin have limitations as analytical tools and you should not consider them in isolation, or as a substitute for analysis of our results as reported under generally accepted accounting principles in the United States, or GAAP. Some of these limitations include:

•

Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

•

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

•

Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our outstanding debt;

•

non-cash compensation is and will remain a key element of our overall long-term incentive compensation package, although we exclude it as an expense when evaluating our ongoing operating performance for a particular period;

•

Adjusted EBITDA does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and

•

other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only as supplemental information.

The following is a reconciliation of net income (loss) from continuing operations applicable to UCI International, Inc. to Adjusted EBITDA and a calculation of Adjusted EBITDA margin:


	Year Ended December 31,									Nine Months Ended September 30,						Twelve Months Ended September 30,
	2009			2008			2007			2010			2009			2010
(Dollars in millions)	(unaudited)
Net income (loss) from continuing operations attributable to UCI International, Inc.	$	9.2		$	(11.6	)	$	14.1	(a)	$	19.9		$	6.3		$	22.8
Interest expense, net of noncontrolling interest		60.5			65.4			72.9			44.8			45.7			59.6
Income tax expense (benefit), net of noncontrolling interest		5.2			(4.1	)		8.3			12.9			4.1			14.0
Depreciation expense, net of noncontrolling interest		27.9			27.3			25.2			20.3			21.1			27.1
Amortization expense		8.5			9.0			9.6			6.1			6.5			8.1

EBITDA		111.3			86.0			130.1			104.0			83.7			131.6
Restructuring costs and severance (b)		4.0			2.8			5.0			2.1			2.6			3.5
Trademark impairment loss (c)		—			0.5			3.6			—			—			—
Patent litigation costs (d)		7.0			—			—			1.0			—			8.0
Cost of defending class action litigation (e)		1.5			4.0			—			5.4			1.1			5.8
Special warranty expense (f)		—			6.7			—			—			—			—
New business changeover and sales commitment costs (g)		5.0			5.0			5.0			1.5			3.7			2.8
Establishment of new facilities in China (h)		0.5			3.6			1.1			—			0.5			—
Resolution of pre-acquisition matters (i)		—			—			(1.3	)		—			—			—
Valuation allowance for non-trade receivables (j)		—			—			0.8			1.4			—			1.4
UCI International, Inc. non-operating expenses (k)		2.2			2.3			0.7			2.9			1.8			3.3
Loss on early extinguishment of debt (l)		—			—			—			8.7			—			8.7
Non-cash stock options expense		0.4			0.8			3.4			0.3			0.2			0.5
Management fee (m)		2.0			2.0			2.0			1.5			1.5			2.0

Adjusted EBITDA	$	133.9		$	113.7		$	150.4		$	128.8		$	95.1		$	167.6

Net sales	$	885.0		$	880.4		$	969.8		$	708.0		$	666.2		$	926.8
Adjusted EBITDA margin		15.1	%		12.9	%		15.5	%		18.2	%		14.3	%		18.1	%

(a)	In 2007, net income from continuing operations attributable to UCI International, Inc. does not include the $2.7 million gain on our sale of discontinued operations, net of tax.

(b)	We have taken various restructuring actions since 2007 to align our cost structure with customers’ spending and current market conditions. These actions have included the integration of our pre-ASC acquisition water

pump product line into the water pump operations of ASC, as well as other targeted actions to reduce excess capacity and reduce our operating expenses. See Note 2 to our audited consolidated financial statements and Note B to our unaudited condensed consolidated financial statements included elsewhere in this prospectus for further information regarding our restructuring actions.

(c)

In 2008 and 2007, we recognized trademark impairment losses of $0.5 million and $3.6 million, respectively. These non-cash losses were due to a customer’s decision to market a significant portion of UCI-supplied products under the customer’s own private label brand, instead of UCI’s brand. This decision has not affected and is not expected to affect UCI’s sales of these products.

(d)

Our wholly-owned subsidiary, Champion Laboratories, Inc., 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. On December 11, 2009, following trial, a jury verdict was reached, finding in favor of Parker-Hannifin with damages of approximately $6.5 million. We recorded a provision of $6.5 million in the fourth quarter of 2009 and incurred trial costs of $0.5 million in the fourth quarter of 2009 related to this matter. During the nine months ended September 30, 2010, we incurred post-trial costs of $1.0 million. On May 3, 2010, the court entered a partial judgment in this matter, awarding Parker-Hannifin $6.5 million in damages and a permanent injunction. Both parties have filed post-trial motions. Parker-Hannifin is seeking treble damages and attorneys’ fees. See “Business—Litigation—Patent Litigation.”

(e)	We incurred costs to defend ourselves in litigation, including class action litigation, alleging violations of antitrust and consumer protection laws by us and other parties in the North American automotive filter aftermarket.

(f)	The special warranty expense of $6.7 million in 2008 related to a higher than normal failure rate of a specific category of parts resulting in an unusually high level of warranty returns.

(g)	New business changeover and sales commitment costs were up-front costs incurred to obtain new business and to extend existing long-term sales commitments.

(h)	In 2009, 2008 and 2007, we incurred nonrecurring start-up costs to establish two new factories in China.

(i)	In 2007, we resolved certain pre-acquisition liabilities for less than the amounts accrued resulting in income of $1.3 million.

(j)	In 2007, we provided an $0.8 million valuation allowance due to uncertainties of collection of Mexican value-added tax refund receivables. During the nine months ended September 30, 2010, we recorded an additional $1.4 million valuation allowance against these receivables.

(k)	From time to time, we have incurred costs related to evaluating strategic opportunities including potential merger and acquisition and capital structure activities that are non-operating in nature.

(l)

(m)

Pursuant to our management agreement with TC Group, L.L.C., an affiliate of Carlyle, for management and financial advisory services and oversight to be provided to us and our subsidiaries, we pay an annual management fee of $2.0 million and out-of-pocket expenses. The agreement terminates either when Carlyle or its affiliates own less than 10% of our equity interest or when we and Carlyle mutually agree to terminate the agreement. See “Certain Relationships and Related Party Transactions.”

RISK FACTORS

An investment in our common stock involves a high degree of risk. You should consider carefully the following risks and other information contained in this prospectus before you decide whether to buy our common stock. If any of the events contemplated by the following discussion of risks should occur, our business, results of operations and financial condition could suffer significantly. As a result, the market price of our common stock could decline, and you may lose all or part of the money you paid to buy our common stock. The following is a summary of all the material risks known to us; however, additional risks not known to us or that we believe to be immaterial could also impair our business.

Risks Related to Our Business

Continued volatility in and disruption to the global economic environment may materially and adversely affect our business, financial condition and results of operations.

The global economy has continued to experience a period of significant uncertainty, characterized by very weak or negative economic growth, high unemployment, reduced spending by consumers and businesses, the bankruptcy, failure, collapse or sale of various businesses and financial institutions and a considerable level of intervention from the U.S. federal government and various foreign governments. Demand for automotive products such as ours is linked to consumer demand for automobiles, which has been, and may continue to be, adversely impacted by the continuing uncertain economic environment.

First, consumers’ driving habits are impacted by deteriorating economic conditions, leading to a reduction in miles driven thereby increasing the periods between maintenance and repairs. In the latter part of 2008 and 2009, consumers’ driving habits were impacted by deteriorating economic conditions. U.S. Department of Energy statistics indicate that miles driven in the United States for the year 2008 were 3.2% lower than for 2007. Miles driven in 2009 increased only slightly from 2008. If total miles driven were to continue to decrease and consumers extend the mileage interval for routine maintenance, we could experience a decline in demand for our products due to a reduction in the need for replacement parts. Further, as economic conditions result in a reduction in discretionary spending for auto repair by the end users of our products, our results of operations could be impacted.

Second, difficult economic conditions may cause changes to the business models, products, financial condition or consumer financing and rebate programs of the OEMs, adversely affecting the number of cars produced and purchased. North American light vehicle sales reached their lowest point in nearly three decades in 2009 and the number of light vehicle registrations remained flat from 2008 to 2009. The effect of fewer cars being sold and fewer cars on the road adversely affected the demand for our products, reducing purchases by our customers in the aftermarket and by the OEMs.

If economic conditions continue to deteriorate or do not show signs of improvement, we may experience material adverse impacts to our business and operating results.

The capital and credit markets have been experiencing extreme volatility and disruption since the latter part of 2008 and as a result, the markets have exerted downward pressure on the availability of liquidity and credit capacity for many issuers. While currently these conditions have not materially impaired our ability to operate our business, there can be no assurance that there will not be a further deterioration in financial markets and confidence in major economies, which could increase the cost of financing.

We need liquidity to pay our operating expenses, interest on our debt and capital expenditures. Without sufficient liquidity, we will be forced to curtail our operations, and our business will suffer. Our primary sources of liquidity are cash on hand, cash flow from operations, factoring of customer trade accounts receivable and available borrowing capacity under the Credit Agreement. Subject to certain limitations, the Credit Agreement permits sales of and liens on receivables, which are being sold pursuant to factoring arrangements arranged for us by certain customers with a number of banks. At September 30, 2010, we had factoring relationships arranged by four customers with eight banks. The terms of these relationships are such that the banks are not obligated to factor 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, or our customers could discontinue their participation in the arrangements, which could have a material adverse impact on our liquidity.

In addition to the potential liquidity risks we face, some of our customers and suppliers are likely to experience serious cash flow problems and, as a result, may find it difficult to obtain financing, if financing is available at all. As a result, our customers’ need for and ability to purchase our products or services may decrease, and our suppliers may increase their prices, reduce their output or change their terms of sale. Any inability of customers to pay us for our products and services, or any demands by suppliers for different payment terms, may materially and adversely affect our earnings and cash flow. Furthermore, our suppliers may not be successful in generating sufficient revenue or securing alternate financing arrangements, and therefore may no longer be able to supply goods and services to us. In that event, we would need to find alternate sources of these goods and services, and there is no assurance that we would be able to find such alternate sources on favorable terms, if at all. Any such disruption in our supply chain could adversely affect our ability to manufacture and deliver our products on a timely basis, and thereby affect our results of operations.

Our relationship with AutoZone creates risks associated with a concentrated net sales source.

We generate a large percentage of our net sales from our business with AutoZone, but we cannot be assured that AutoZone will continue to purchase from us. Net sales to AutoZone accounted for approximately 30% of our total net sales in fiscal 2009 and 29% of our total net sales in 2008. Several of our competitors are likely to pursue business opportunities with this customer and threaten our current position. If we fail to maintain this relationship, our net sales will be significantly diminished. Even if we maintain our relationship, our net sales concentration as a result of this relationship increases the potential impact to our business that could result from any changes in the economic terms of this relationship. Any change in the terms of our sales to this customer could have a material impact on our financial position and results of operations. Further, to the extent AutoZone’s overall business or market share decreases, or does not increase as anticipated, we may be adversely impacted.

Our contracts with our customers are generally short-term and do not require the purchase of a minimum amount.

We do not typically enter into firm, long-term agreements with customers for the sale of our products. Instead, our products are sold through a series of purchase orders based on our customers’ current or projected needs. By not entering into long-term agreements we risk losing customers, or sales of a certain product to any particular customer, on relatively short notice. The loss of a significant customer, or a significant reduction in sales to a particular customer, could have a material impact on our financial position and results of operations.

Increases in our raw materials and component costs or the loss of a number of our suppliers could adversely affect our financial health.

We depend on third parties for the raw materials and components used in our manufacturing processes. We generally purchase our materials on the open market. However, in certain situations we have found it advantageous to enter into long-term contracts for certain commodities purchases. 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. The prices of these commodities have fluctuated significantly in recent years and such volatility in the prices of these commodities could increase the costs of manufacturing our products and providing our services. We may not be able to pass on these costs to our customers and this could have a material adverse effect on our financial condition, results of operations or cash flows. Even in the event that increased costs can be passed through to customers, our gross margin percentages would decline. While we currently maintain alternative sources for steel and other raw materials, our business is subject to the risk of additional price fluctuations and periodic delays in the delivery of our raw materials. Any such price fluctuations or delays, if material, could harm our profitability or operations. In addition, the loss of a substantial number of suppliers could result in material cost increases or reduce our production capacity. We are also significantly affected by the cost of natural gas used for fuel and the cost of electricity. Natural gas and electricity prices have historically been volatile.

We monitor sources of supply to attempt to assure that adequate raw materials and other supplies needed in manufacturing processes are available. However, we do not typically enter into hedge transactions to reduce our exposure to price risks and cannot assure you that we will be successful in passing on these attendant costs if these risks were to materialize. In addition, if we are unable to continue to purchase our required quantities of raw materials on commercially reasonable terms, or at all, if we are unable to maintain or enter into purchasing contracts for commodities, or if delivery of materials from suppliers is delayed or non-conforming, our operations could be disrupted or our profitability could be adversely impacted.

We face competition in our markets.

We operate in some very competitive and fragmented markets, and we compete against numerous different types of businesses, some of which have greater financial or other resources than we do. Although we have significant market positions in each of our product lines within the aftermarket, we cannot be assured that we will be able to maintain our current market share. In the OEM sales channel, some of our competitors have achieved substantially greater market penetration in many of the product lines which we offer. Competition is based on a number of considerations, including product performance, quality of customer service and support, timely delivery and price. Our customers increasingly demand a broad product range, and we must continue to develop our expertise in order to manufacture and market these products successfully. To remain competitive, we will need to invest continuously in manufacturing, working capital, customer service and support, marketing and our distribution networks. We cannot be assured that we will have sufficient resources to continue to make such investments or that we will maintain our competitive position within each of the markets we serve. As a result of competition, we have experienced pricing pressure. There can be no guarantee that this downward price pressure will not continue, and we may be forced to adjust the prices of some of our products to stay competitive, or not compete at all in some markets, possibly giving rise to revenue loss.

The trend toward consolidation and bankruptcies among automotive parts suppliers is resulting in fewer, larger suppliers who benefit from purchasing and distribution economies of scale. If we cannot achieve cost savings and operational improvements sufficient to allow us to compete favorably in the future with these larger companies, our financial condition and results of operations could be adversely affected due to a reduction of, or inability to increase, sales.

We are subject to increasing pricing pressure from import activity, particularly from Asia.

Price competition from light vehicle aftermarket suppliers, particularly based in Asia and other locations with lower production costs, have historically played a role and may play an increasing role in the aftermarket channels in which we compete. Pricing pressures have historically been more prevalent with respect to our filter products than our other products. While aftermarket manufacturers in these locations have historically competed

primarily in markets for less technologically advanced products and manufactured a limited number of products, they are expanding their manufacturing capabilities to move toward producing a broad range of lower cost, higher quality products and providing an expanded product offering. Partially in response to these pressures, we opened two new factories in China in 2008. In the future, competitors in Asia may be able to effectively compete in our premium markets and produce a wider range of products, which may force us to move additional manufacturing capacity offshore and/or lower our prices, reducing our margins and/or decreasing our net sales.

Our international operations are subject to uncertainties that could affect our operating results.

Our business is subject to certain risks associated with doing business internationally. Our non-U.S. sales represented approximately 14.7% of our total net sales for the year ended December 31, 2009. In addition, we operate seven manufacturing facilities outside of the United States. Accordingly, our future results could be harmed by a variety of factors, including:

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fluctuations in currency exchange rates;

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geopolitical instability;

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exchange controls;

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compliance with U.S. Department of Commerce export controls;

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tariffs or other trade protection measures and import or export licensing requirements;

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transport availability and cost;

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potentially negative consequences from changes in tax laws;

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fluctuations in interest rates;

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unexpected changes in regulatory requirements;

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differing labor regulations;

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enforceability of contracts in the People’s Republic of China;

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requirements relating to withholding taxes on remittances and other payments by subsidiaries;

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restrictions on our ability to own or operate subsidiaries, make investments or acquire new businesses in these jurisdictions;

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restrictions on our ability to repatriate dividends from our subsidiaries;

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exposure to liabilities under the U.S. Foreign Corrupt Practices Act;

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difficulty of enforcing judgments or other remedies in foreign jurisdictions;

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diminished protection for intellectual property outside of the United States; and

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the potential for terrorism against U.S. interests.

In addition, we may face obstacles in the People’s Republic of China, including a cumbersome bureaucracy and significant political, economic and legal risks which may adversely affect our operations in that country.

As we continue to expand our business globally, our success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated with our international operations. However, any of these factors could adversely affect our international operations and, consequently, our operating results.

We could be materially adversely affected by changes or imbalances in currency exchange and other rates.

As a result of increased international production and sourcing of components and completed parts for resale, we are exposed to risks related to the effects of changes in foreign currency exchange rates, principally exchange rates between the U.S. dollar and the Chinese yuan and the U.S. dollar and the Mexican peso. The currency exchange rate from Chinese yuan to U.S. dollars has historically been fairly stable, in large part due to the economic policies of the Chinese government. However, the value of the yuan has recently increased as a result of the Chinese government changing its policy on “pegging” the yuan against the U.S. dollar during the third quarter of 2010. If we are unable to negotiate commensurate price decreases from our Chinese suppliers, these higher prices would eventually translate into higher costs of sales. In that event, we would attempt to obtain corresponding price increases from our customers, but there are no assurances that we would be successful.

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 September 30, 2010, the U.S. dollar weakened against the Mexican peso by approximately 15%, 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 in pesos to obtain inventory from the United States, which translates into higher cost of sales for the Mexican operations. We are attempting to obtain price increases from our customers for the products sold by our Mexican operations, but there are no assurances that we will be successful.

We currently do not enter into foreign exchange forward contracts to hedge certain transactions in major currencies and even if we wished to do so in the future, we may not be able, or it may not be cost-effective, to enter into contracts to hedge our foreign currency exposure.

If the North American light vehicle aftermarket adopts more expansive return policies or practices such as extended payment terms, our cash flow and results of operations could be harmed.

We are subject to returns from customers, some of which may manage their excess inventory through returns. In line with industry practices, arrangements with customers typically include provisions that permit them to return specified levels of their purchases. Returns have historically represented approximately 3% to 5% of our sales. If returns from our customers significantly increase, for reasons such as obsolescence or changes in inventory management by our customers, our profitability may be adversely affected. Further, certain of our products may not be reused or resold upon return. In addition, some customers in the North American light vehicle aftermarket are pursuing ways to shift their costs of working capital, including extending payment terms. To the extent customers extend payment terms, our cash flow may be adversely affected.

The introduction of new and improved products and services poses a potential threat to the aftermarket for light vehicle parts.

Improvements in technology and product quality are extending the longevity of light vehicle parts and delaying aftermarket sales. In particular, the introduction of oil change indicators and the use of synthetic motor oils may extend oil filter replacement cycles. The introduction of electric, fuel cell and hybrid light vehicles may pose a long-term risk to our business because these vehicles are unlikely to utilize many of our existing product lines. The introduction of new and improved service initiatives by OEMs also poses a risk to our market share in the light vehicle replacement parts market. In particular, we face market share risk from general automakers,

which have introduced increased warranty and maintenance service initiatives, which are gaining popularity. These service initiatives have the potential to decrease the demand on aftermarket sales of our products in the traditional and retail sales channels.

The consolidation of our customers can have adverse effects on our business.

Our financial condition and results of operations could also be adversely affected because the customer base for automotive parts is decreasing in both the OEM channel and aftermarket. As a result, we are competing for business from fewer customers. Due to the growing market share of these major customers, we have been, and expect to continue to be, requested to reduce prices. We cannot be certain that we will be able to generate cost savings and operational improvements in the future that are sufficient to offset price reductions requested by existing customers and necessary to win additional business.

Our lean manufacturing and other cost saving plans may not be effective.

Our strategy includes goals such as improvement of inventory management and customer delivery and plant and distribution facility consolidation. While we have and will continue to implement these strategies, there can be no assurance that we will be able to do so successfully or that we will realize the projected benefits of these and other cost saving plans. If we are unable to realize these anticipated cost reductions, our financial health may be adversely affected. Moreover, our continued implementation of cost saving plans and facilities integration may disrupt our operations and performance.

It may be difficult for us to recruit and retain the types of highly-skilled employees we need to remain competitive.

Our continued success depends in part on our ability to recruit, retain and motivate highly-skilled sales, marketing and engineering personnel. Competition for persons in our industry is intense, and we may not be able to successfully recruit, train or retain qualified personnel. If we fail to retain and recruit the necessary personnel, our business and our ability to obtain new customers and retain existing customers, develop new products and provide acceptable levels of customer service could suffer. We have entered into employment agreements with certain of our key personnel. However, we cannot be assured that these individuals will stay with us. If any of these persons were to leave our company, it could be difficult to replace him or her, and our operations and ability to manage day-to-day aspects of our business may be materially adversely affected.

We may be subject to work stoppages at our facilities, or our customers may be subjected to work stoppages, either of which could negatively impact the profitability of our business.

As of September 30, 2010, we had approximately 3,900 employees, with union affiliations and collective bargaining agreements at two of our facilities, representing approximately 11% of our workforce. The bargaining agreements for our Fond du Lac, Wisconsin plant and our Fairfield, Illinois plant expire in 2012 and 2013, respectively. Since 1984, we have had only one work stoppage, which lasted for three days at our Fairfield, Illinois plant. Although we believe that our relations with our employees are currently good, if our unionized workers were to engage in a strike, work stoppage or other slowdown in the future, we could experience a disruption of our operations, which could interfere with our ability to deliver products on a timely basis and could have other negative effects, such as decreased productivity and increased labor costs. We may also incur increased labor costs in the event our work force becomes more unionized or as a result of any renegotiation of our existing labor arrangements. In addition, many of our direct and indirect customers and vendors have unionized work forces. Strikes, work stoppages or slowdowns experienced by these customers or vendors or their other suppliers could result in slowdowns or closings of assembly plants that use our products or supply materials for use in the production of our products. Organizations responsible for shipping our products may also be impacted by occasional strikes. Any interruption in the delivery of our products could reduce demand for our products and could have a material adverse effect on us.

Increased crude oil and energy prices and overall economic conditions could reduce global demand for and use of automobiles, which could have an adverse effect on our profitability.

Material increases in the price of crude oil have, historically, been a contributing factor to the periodic reduction in the global demand for and use of automobiles. A significant increase in the price of crude oil could reduce global demand for and use of automobiles and shift customer demand away from larger cars and light trucks, including SUVs, which we believe have more frequent replacement intervals for our products, which could have an adverse effect on our profitability. For example, historic highs in crude oil prices and corresponding historic highs in gasoline prices at the pump in 2008 impacted consumers’ driving habits. See “Risks Related to Our Business—Continued volatility in and disruption to the global economic environment may materially and adversely affect our business, financial condition and results of operations.” Further, higher gasoline prices may result in a reduction in discretionary spending for auto repair by the end users of our products, which could materially adversely impact our results of operations. A reduction in discretionary spending can also result in a decrease in the number of new cars purchased, which adversely affects the demand for our products by our customers in the aftermarket and by the OEMs. Additionally, higher energy costs may increase our freight expenses associated with the shipping of our products to customers.

Environmental, health and safety laws and regulations may impose significant compliance costs and liabilities on us.

We are subject to many environmental, health and safety laws and regulations governing emissions to air, discharges to water, the generation, handling and disposal of waste and the clean up of contaminated properties. Compliance with these laws and regulations is costly. We have incurred and expect to continue to incur significant costs to maintain or achieve compliance with applicable environmental, health and safety laws and regulations. Moreover, if these environmental, health and safety laws and regulations become more stringent in the future, we could incur additional costs. We cannot assure we are in full compliance with all environmental, health and safety laws and regulations. Our failure to comply with applicable environmental, health and safety laws and regulations and permit requirements could result in civil or criminal fines, penalties or enforcement actions, third-party claims for property damage and personal injury, requirements to clean up property or to pay for the costs of clean up or regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures, including the installation of pollution control equipment or remedial actions.

We may be subject to liability under the Comprehensive Environmental Response, Compensation and Liability Act and similar state or foreign laws for contaminated properties that we currently own, lease or operate or that we or our predecessors have previously owned, leased or operated, and sites to which we or our predecessors sent hazardous substances. Such liability may be joint and several so that we may be liable for more than our share of contamination, and any such liability may be determined without regard to causation or knowledge of contamination. We or our predecessors have been named potentially responsible parties at contaminated sites from time to time in the past. We are currently investigating and/or remediating, or are otherwise currently responsible for, contamination at five sites, for which management believes it has made adequate reserves. See “Business—Environmental, Health and Safety Matters.” In addition, we occasionally evaluate various alternatives with respect to our facilities, including possible dispositions or closings. Investigations undertaken in connection with these activities may lead to discoveries of contamination that must be remediated, and closings of facilities may trigger remediation requirements that are not applicable to operating facilities. We may also face lawsuits brought by third parties that either allege property damage or personal injury as a result of, or seek reimbursement for costs associated with, such contamination.

If the products we manufacture or distribute are found to be defective, we could incur significant costs and our reputation could be adversely affected.

We face a business risk of exposure to product liability claims in the event that the use of our products has, or is alleged to have, resulted in injury, death or other adverse effects. We currently maintain product liability insurance coverage, but we cannot be assured that we will be able to obtain such insurance on acceptable

terms in the future, if at all, or that any such insurance will provide adequate coverage against potential claims. Product liability claims can be expensive to defend and can divert the attention of management and other personnel for long periods of time, regardless of the ultimate outcome. An unsuccessful product liability defense could have a material adverse effect on our business, financial condition, results of operations or prospects. If one of our products is determined to be defective, we may face substantial warranty costs and may be responsible for significant costs associated with a product recall or a redesign. In addition, our business depends on the strong brand reputation we have developed. In the event that our reputation is damaged, we may face difficulty in maintaining our pricing positions with respect to some of our products or have reduced demand for our products, which could negatively impact our net sales and profitability.

We are subject to class action lawsuits alleging conspiracy violations of Section 1 of the Sherman Act, 15 U.S.C. § 1 and state law, related to aftermarket oil, air, fuel and transmission filters and lawsuits alleging violations of the Canadian Competition Act. If the plaintiffs in these lawsuits against us are successful, our financial condition, results of operations and liquidity, as well as our reputation may be materially and adversely affected.

UCI’s wholly-owned subsidiary, Champion Laboratories, Inc., or Champion, has been named as one of multiple defendants in three consolidated amended complaints alleging conspiracy violations of Section 1 of the Sherman Act, 15 U.S.C. § 1 and state law, related to aftermarket oil, air, fuel and transmission filters. The complaints are styled as putative class actions. One asserts claims on behalf of a putative class of direct filter purchasers, one asserts claims on behalf of a putative class of indirect end user filter purchases and one asserts claims on behalf of a class of operators of service stations in California who indirectly purchased filters from defendants for resale. All three complaints seek damages, including statutory treble damages, an injunction against future violations, costs and attorney’s fees. Champion was also named as one of multiple defendants in a related complaint filed by William G. Burch in the United States District Court for the Northern District of Oklahoma on behalf of the United States pursuant to the False Claims Act, 31 U.S.C. § 3730. The United States declined to intervene in that case. Champion was also named as one of five defendants in a putative class action filed in Quebec, Canada. This action alleges conspiracy violations of the Canadian Competition Act and violations of the obligation to act in good faith (contrary to art. 6 of the Civil Code of Quebec) related to the sale of aftermarket filters. The plaintiff seeks compensatory damages against the five defendants in the amount of $5 million and $1 million in punitive damages. Champion, but not UCI, was also named as one of 14 defendants in a putative class action filed in Ontario, Canada. This action alleges civil conspiracy, intentional interference with economic interests, and conspiracy violations under the Canadian Competition Act related to the sale of aftermarket filters. The plaintiff seeks $150 million in general damages against the 14 defendants and $15 million in punitive damages. The Offices of the Attorney Generals for the State of Florida and the State of Washington are also investigating the allegations raised in these suits. We are fully cooperating with the Florida and Washington Attorney General investigations. The Florida Attorney General filed a complaint against Champion and eight other defendants in the Northern District of Illinois. The complaint alleges violations of Section 1 of the Sherman Act and Florida law related to the sale of aftermarket filters. The complaint asserts direct and indirect purchaser claims on behalf of Florida governmental entities and Florida consumers. It seeks damages, including statutory treble damages, penalties, fees, costs and an injunction.

The Antitrust Division of the Department of Justice, or DOJ, investigated the allegations raised in these suits, and certain current and former employees of the defendants, including Champion, testified pursuant to subpoenas. On January 21, 2010, DOJ sent a letter to counsel for Champion stating that “the Antitrust Division’s investigation into possible collusion in the replacement auto filters industry is now officially closed.”

We intend to vigorously defend against these claims. However, the outcome of these class actions, like other litigation proceedings, is uncertain. Also, litigation and other steps taken to defend these lawsuits can be costly, and we may incur substantial costs and expenses in doing so. Multidistrict litigation is particularly complex and can extend for a protracted time, which can substantially increase the cost of such litigation. The defense of these lawsuits is also expected to divert the efforts and attention of some of our key management and personnel from the normal business operations of our company. As a result, our defense of this litigation,

regardless of its eventual outcome, will likely be costly and time consuming. If the plaintiffs in these lawsuits against us are successful, it may result in substantial monetary damages, which could have a material adverse effect on our business, financial condition, results of operations, and liquidity as well as our reputation.

Entering new markets poses commercial risks.

We have recently made significant investments as part of our strategy to expand into new markets. Maintaining continued expansion requires significant investment and resources and we cannot be assured these resources will continue to be available as needed. We also cannot guarantee that our expansion into any new market will be successful, or whether we will be able to meet the needs of new customers or compete favorably in any new market. Therefore, we may be unable to recover the costs associated with such efforts.

If we are unable to meet future capital requirements, our business may be adversely affected.

We periodically make capital investments to, among other things, maintain and upgrade our facilities and enhance our production processes. As we grow, we may have to incur capital expenditures. Historically, we have been able to fund these expenditures through cash flow from operations and borrowings under UCI’s previous senior credit facilities and expect to continue to do so under the Credit Agreement. However, the Credit Agreement contains limitations that could affect our ability to fund our future capital expenditures and other capital requirements. We cannot be assured that we will have, or be able to obtain, adequate funds to make all necessary capital expenditures when required, or that the amount of future capital expenditures will not be materially in excess of our anticipated or current expenditures. If we are unable to make necessary capital expenditures, our product line may become dated, our productivity may be decreased and the quality of our products may be adversely affected, which, in turn, could reduce our net sales and profitability.

We are subject to risks associated with changing manufacturing techniques, which could place us at a competitive disadvantage.

The successful implementation of our business strategy requires us to continuously evolve our existing products and introduce new products to meet customers’ needs in the industries we serve. Our products are characterized by stringent performance and specification requirements that mandate a high degree of manufacturing and engineering expertise. If we fail to meet these requirements, our business could be at risk. We believe that our customers rigorously evaluate their suppliers on the basis of a number of factors, including:

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product quality;

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technical expertise and development capability;

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new product innovation;

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reliability and timeliness of delivery;

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price competitiveness;

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product design capability;

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manufacturing expertise;

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operational flexibility;

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customer service; and

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overall management.

Our success will depend on our ability to continue to meet our customers’ changing specifications with respect to these criteria. We cannot be assured that we will be able to address technological advances or introduce new products that may be necessary to remain competitive within our businesses. Furthermore, we cannot be assured that we can adequately protect any of our own technological developments to produce a sustainable competitive advantage.

We may not be able to continue to grow through acquisitions of, or investments in, other companies.

In the past we have grown through acquisitions and partnership opportunities and we may engage in similar transactions in the future. Such transactions, however, involve significant risks including the integration of the newly acquired business, the diversion of management’s attention from other business concerns and effects on our business relationships with customers and suppliers. We cannot be assured we will successfully identify suitable acquisition or partnership opportunities in the future, and in the event we do commence with such transactions, we cannot assure we will be successful at integrating the newly acquired businesses or that they will perform as anticipated. Any such failure could have a material and adverse affect on our business.

Our intellectual property may be misappropriated or subject to claims of infringement.

We attempt to protect our intellectual property rights through a combination of patent, trademark, copyright and trade secret protection, as well as licensing agreements and third-party nondisclosure and assignment agreements. The costs associated with the protection of our intellectual property are ongoing and in some instances may be substantial. We cannot be assured that any of our applications for protection of our intellectual property rights will be approved or that others will not infringe or challenge our intellectual property rights. We currently do, and may continue in the future to, rely on unpatented proprietary technology. It is possible that our competitors will independently develop the same or similar technology or otherwise obtain access to our unpatented technology. To protect our trade secrets and other proprietary information, we require employees, consultants and advisors to maintain the confidentiality of our trade secrets and proprietary information. We cannot be assured that these measures will provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure. If we are unable to maintain the proprietary nature of our technologies, our ability to sustain margins on some or all of our products may be affected, which could reduce our sales and profitability.

In addition, from time to time, we pursue and are pursued in potential litigation relating to the protection of certain intellectual property rights, including with respect to some of our more profitable products. In some instances, we may be found to have infringed on the intellectual property rights of others. In such a case, we may incur significant costs or losses and may be subject to an injunction that would prevent us from selling a product found to infringe. For example, in December of 2009, a jury determined that Champion, our wholly-owned subsidiary, had infringed on a competitor’s patent and, on May 3, 2010, the court entered a partial judgment in this matter, awarding the plaintiff $6.5 million in damages and a permanent injunction. The plaintiff is currently seeking treble damages and attorneys’ fees. See “Business—Litigation—Patent Litigation.”

An impairment in the carrying value of goodwill or other assets could negatively affect our consolidated results of operations and net worth.

Pursuant to accounting principles generally accepted in the United States, we are required to annually assess our goodwill, intangibles and other long-lived assets to determine if they are impaired. In addition, interim reviews must be performed whenever events or changes in circumstances indicate that impairment may have occurred. If the testing performed indicates that impairment has occurred, we are required to record a non-cash impairment charge for the difference between the carrying value of the goodwill or other intangible assets and the implied fair value of the goodwill or other intangible assets in the period the determination is made. Disruptions to our business, end market conditions, protracted economic weakness and unexpected significant declines in operating results may result in charges for goodwill and other asset impairments. We assess the

potential impairment of goodwill on an annual basis, as well as when interim events or changes in circumstances indicate that the carrying value may not be recoverable. We assess definite lived intangible assets when events or changes in circumstances indicate that the carrying value may not be recoverable. Our annual goodwill impairment test resulted in no goodwill impairment. Although our analysis regarding the fair value of goodwill indicates that it exceeds its carrying value, materially different assumptions regarding the future performance of our businesses could result in goodwill impairment losses.

Our pension obligations could adversely impact our business.

We sponsor defined benefit plans that were underfunded by $61.1 million at December 31, 2009. If the performance of the assets in the pension plans does not meet our expectations or actuarial assumptions, our required contributions may be significantly greater than we currently expect. In such an event, our cash flows may be insufficient to make such a payment or otherwise be negatively impacted.

Our substantial indebtedness could adversely affect our financial health.

As of September 30, 2010, we and our subsidiaries had total indebtedness of $767.0 million (not including intercompany indebtedness), of which $116.5 million and $239.3 million is due in 2012 and 2013, respectively.

Our substantial indebtedness could have important consequences to you. For example, it could:

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require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund acquisitions, working capital, capital expenditures, research and development efforts and other general corporate purposes;

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increase our vulnerability to and limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

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expose us to the risk of increased interest rates as our Senior PIK Notes and borrowings under the Credit Agreement are subject to variable rates of interest;

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place us at a competitive disadvantage compared to our competitors that have less debt;

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limit our ability to borrow additional funds; and

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could make us more vulnerable to a general economic downturn than a company that is less leveraged.

Since a significant amount of our indebtedness is due in 2012 and 2013, the above factors could be accelerated or magnified and we may not be able to repay such indebtedness or refinance such indebtedness on attractive terms, if at all.

In addition, the indenture governing our Senior PIK Notes, as well as the Credit Agreement, contain financial and other restrictive covenants that limit our ability to engage in activities that may be in our long-term best interests. See “Description of Our Indebtedness.” Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our debts.

To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.

Our cash interest expense for fiscal year 2009 was $28.7 million. Our ability to make payments on and to refinance our indebtedness, and to fund planned capital expenditures will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

We cannot be assured that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to pay our indebtedness, including our Senior PIK Notes and indebtedness under the Credit Agreement, or to fund our other liquidity needs. In such circumstances, we may need to refinance all or a portion of our indebtedness on or before maturity, and we cannot be assured that we will be able to refinance any of our indebtedness including our Senior PIK Notes and indebtedness under the Credit Agreement, on commercially reasonable terms or at all. If we cannot service our indebtedness, we may have to take actions such as selling assets, seeking additional equity or reducing or delaying capital expenditures, strategic acquisitions, investments and alliances. We cannot be assured that any such actions, if necessary, could be effected on commercially reasonable terms or at all. Even in the event these actions are taken, we cannot be assured that we will generate sufficient cash flow to enable us to pay our indebtedness. In addition, the indenture governing our Senior PIK Notes and the Credit Agreement limit our ability to sell assets and will also restrict the use of proceeds from any such sale. Furthermore, our obligations under the Credit Agreement are secured by substantially all of the assets of UCI. Therefore, we may not be able to sell assets quickly enough or for sufficient amounts to enable us to meet our debt service obligations. If we fail to make scheduled payments on our debt, such a failure to pay would be an event of default and would likely result in a cross default under other debt instruments enabling our lenders to declare all outstanding principal and interest due and payable. Further, if we are unable to repay debt, lenders having secured obligations could proceed against the collateral securing that debt. As a result of such a default or action against the collateral, we may be forced into bankruptcy or liquidation, which may result in a partial or total loss of your investment.

Despite current indebtedness levels, we and our subsidiaries may still be able to incur substantially more debt. This could further exacerbate the risks associated with our substantial financial leverage.

We and our subsidiaries may be able to incur substantial additional indebtedness in the future because the terms of the indenture governing our Senior PIK Notes and the Credit Agreement do not fully prohibit us or our subsidiaries from doing so. If new debt is added to our and our subsidiaries’ current debt levels, the related risks that we and they now face could intensify.

Restrictive covenants in the indenture governing our debt may restrict our ability to pursue our business strategies.

The indenture governing our Senior PIK Notes and the Credit Agreement limit our ability and the ability of our restricted subsidiaries, among other things, to:

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pay dividends and make distributions, investments or other restricted payments;

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incur additional indebtedness;

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sell assets, including capital stock of restricted subsidiaries;

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agree to payment restrictions affecting our restricted subsidiaries;

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consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;

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enter into transactions with our affiliates;

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incur liens; and

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designate any of our subsidiaries as unrestricted subsidiaries.

In addition, as of the end of any given quarter, the Credit Agreement requires us to maintain a maximum consolidated leverage ratio and a minimum consolidated interest coverage ratio, covering the previous four quarters, through the term of the senior credit facilities. These ratio requirements change annually under the terms of the Credit Agreement. Our ability to comply with these ratios may be affected by events beyond our control.

The restrictions contained in the indenture governing our Senior PIK Notes and the agreement governing the Credit Agreement could limit our ability to plan for or react to market conditions, meet capital needs or make acquisitions or otherwise restrict our activities or business plans.

The breach of any of these covenants or restrictions could result in a default under the indenture governing our Senior PIK Notes and the Credit Agreement. An event of default under the indenture or the Credit Agreement would permit our lenders to declare all amounts borrowed from them to be due and payable, and there is no assurance that we would have sufficient assets to repay our indebtedness. An event of default under the indenture or the Credit Agreement would likely result in a cross default under either or both of the other instruments. If we are unable to repay debt, lenders having secured obligations could proceed against the collateral securing that debt. As a result of such a default or action against collateral, we may be forced into bankruptcy or liquidation, which may result in a partial or total loss of your investment.

We will incur significant increased costs as a result of operating as a publicly traded company, and our management will be required to devote substantial time to new compliance initiatives.

As a publicly traded company, we will incur significant legal, accounting and other expenses that we did not previously incur. Although we are currently unable to estimate these costs with any degree of certainty, they are likely to be material in amount. In addition, the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley Act, and the rules of the Securities and Exchange Commission, or SEC, and the New York Stock Exchange, or NYSE, have imposed various requirements on public companies. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage.

If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired and investors’ views of us could be harmed.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, with auditor attestation of the effectiveness of our internal controls, beginning with our annual report on Form 10-K for the fiscal year ending December 31, 2011. We have been compliant with the requirements of the Sarbanes-Oxley Act since 2007. However, if we are not able to continue to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of shares of common stock could decline and we could be subject to sanctions or investigations by the NYSE, the SEC or other regulatory authorities, which would require additional financial and management resources.

Our ability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate financial statements. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures or controls, may cause our operations to suffer and we may be unable to conclude that our internal control over financial reporting is effective and to obtain an unqualified

report on internal controls from our auditors as required under Section 404 of the Sarbanes-Oxley Act. Moreover, we cannot be certain that these measures would ensure that we implement and maintain adequate controls over our financial processes and reporting in the future. Even if we were to conclude, and our auditors were to concur, that our internal control over financial reporting provided reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements. This, in turn, could have an adverse impact on trading prices for our shares of common stock, and could adversely affect our ability to access the capital markets.

We are controlled by Carlyle, whose interests in our business may be different than yours.

As of September 30, 2010, Carlyle Partners III, L.P. and CP III Coinvestment, L.P., both of which are affiliates of Carlyle, owned 90.8% of our equity and are able to control our affairs in all cases. Our entire board has been designated by the affiliates of Carlyle and a majority of the board is associated with Carlyle. As a result, the affiliates of Carlyle control the appointment of our management, the entering into of mergers, sales of substantially all of our assets and other extraordinary transactions. So long as the affiliates of Carlyle continue to own a majority of our equity, they will have the ability to control the vote in any election of directors and will have the ability to prevent any transaction that requires stockholder approval regardless of whether others believe that the transaction is in our best interests. In addition, pursuant to an amended and restated stockholders agreement, Carlyle will have certain rights to appoint directors to our board. See “Certain Relationships and Related Party Transactions.” The interests of Carlyle and its affiliates could conflict with yours. In addition, Carlyle or its affiliates may in the future own businesses that directly compete with ours. Following this offering, Carlyle will continue to own 62.0 % of our equity (or 59.1% if the underwriters exercise their overallotment option in full).

We are a “controlled company” within the meaning of the NYSE rules and, as a result, expect to qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to shareholders of companies that are subject to such requirements.

Following the consummation of this offering, we expect that Carlyle will continue to control a majority of the voting power of our outstanding common stock. As a result, we expect to be a “controlled company” within the meaning of the NYSE corporate governance standards. Under these rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including:

•

the requirement that a majority of the Board of Directors consist of independent directors;

•

the requirement that we have a nominating/corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;

•

the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

•

the requirement for an annual performance evaluation of the nominating/corporate governance and compensation committees.

Following this offering, we intend to utilize these exemptions, if we continue to qualify as a “controlled company.” If we do utilize the exemption, we will not have a majority of independent directors and our nominating and corporate governance and compensation committees will not consist entirely of independent directors and such committees will not be subject to annual performance evaluations. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE.

Risks Related to our Common Stock

There is no existing market for our common stock, and we do not know if one will develop to provide you with adequate liquidity to sell our common stock at prices equal to or greater than the price you paid in this offering.

Prior to this offering, there has not been a public market for our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market on the NYSE or otherwise or how liquid that market might become. If an active trading market does not develop, you may have difficulty selling any of our common stock that you buy. The initial public offering price for the common stock will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell our common stock at prices equal to or greater than the price you paid in this offering, or at all.

The price of our common stock may fluctuate significantly, and you could lose all or part of your investment.

Volatility in the market price of our common stock may prevent you from being able to sell your common stock at or above the price you paid for your common stock. The market price of our common stock could fluctuate significantly for various reasons, including:

•

our operating and financial performance and prospects;

•

our quarterly or annual earnings or those of other companies in our industry;

•

the public’s reaction to our press releases, our other public announcements and our filings with the SEC;

•

changes in, or failure to meet, earnings estimates or recommendations by research analysts who track our common stock or the stock of other companies in our industry;

•

the failure of analysts to cover our common stock;

•

strategic actions by us or our competitors, such as acquisitions or restructurings;

•

new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

•

changes in accounting standards, policies, guidance, interpretations or principles;

•

the impact on our profitability temporarily caused by the time lag between when we experience cost increases until these increases flow through cost of sales because of our method of accounting for inventory;

•

material litigations or government investigations;

•

changes in general conditions in the United States and global economies or financial markets, including those resulting from war, incidents of terrorism or responses to such events;

•

changes in key personnel;

•

sales of common stock by us or members of our management team;

•

termination of lock-up agreements with our management team;

•

the granting or exercise of employee stock options;

•

volume of trading in our common stock; and

•

the realization of any risks described under “Risk Factors.”

In addition, in the past two years, the stock market has experienced significant price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies, including companies in our industry. The changes frequently appear to occur without regard to the operating performance of the affected companies. Hence, the price of our common stock could fluctuate based upon factors that have little or nothing to do with our company, and these fluctuations could materially reduce our share price and cause you to lose all or part of your investment. Further, in the past, market fluctuations and price declines in a company’s stock have led to securities class action litigations. If such a suit were to arise, it could have a substantial cost and divert our resources regardless of the outcome.

If securities analysts do not publish research or reports about our business or if they downgrade our stock, the price of our stock could decline.

The research and reports that industry or financial analysts publish about us or our business may vary widely and may not predict accurate results, but will likely have an effect on the trading price of our common stock. If an industry analyst decides not to cover our company, or if an industry analyst decides to cease covering our company at some point in the future, we could lose visibility in the market, which in turn could cause our stock price to decline. We may be subject to greater risk of losing analyst coverage as a result of the size of this offering and the relative number of shares which will be available for trading in the public market. If an industry analyst downgrades our stock, our stock price would likely decline rapidly in response.

We have no plans to pay regular dividends on our common stock, so you may not receive funds without selling your common stock.

We have no plans to pay regular dividends on our common stock. We generally intend to invest our future earnings, if any, to fund our growth. Any payment of future dividends will be at the discretion of our Board of Directors and will depend on, among other things, our earnings, financial condition, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations that our Board of Directors deems relevant. UCI’s Credit Agreement and our Senior PIK Notes also effectively limit our ability to pay dividends. Accordingly, you may have to sell some or all of your common stock in order to generate cash flow from your investment. You may not receive a gain on your investment when you sell your common stock and you may lose the entire amount of the investment.

Our management will have broad discretion over the use of the proceeds from this offering and might not apply the proceeds of this offering in ways that increase the value of your investment.

Our management will have broad discretion to use the net proceeds from this offering. We expect to use the net proceeds from this offering and cash on hand to redeem all of our outstanding Senior PIK Notes. We may fail to use these funds effectively to yield a significant return, or any return, on any investment of these net proceeds and we cannot assure you the proceeds will be used in a manner which you would approve.

You will suffer immediate and substantial dilution.

The initial public offering price per share of our common stock is substantially higher than our net tangible book value per common share immediately after the offering. As a result, you will pay a price per share that substantially exceeds the book value of our assets after subtracting our liabilities. At an offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, you will incur immediate and substantial dilution in the amount of $17.35 per share. We also have outstanding stock options to purchase our common stock at a weighted average exercise price of $0.94 per share. To the extent these options are exercised, there will be further dilution. See “Dilution.”

Provisions of our amended and restated certificate of incorporation and amended and restated bylaws and Delaware law might discourage, delay or prevent a change of control of our company or changes in our management and, as a result, depress the trading price of our common stock.

Following this offering, we anticipate that our amended and restated certificate of incorporation and amended and restated bylaws will contain provisions that could discourage, delay or prevent a change in control of our company or changes in our management that the stockholders of our company may deem advantageous. These provisions will:

•

establish a classified board of directors so that not all members of our board are elected at one time;

•

authorize the issuance of blank check preferred stock that our board could issue to increase the number of outstanding shares and to discourage a takeover attempt;

•

limit the ability of stockholders to remove directors if a “group,” as defined under Section 13(d)(3) of the Exchange Act, ceases to own more than 50% of our common stock;

•

prohibit our stockholders from calling a special meeting of stockholders;

•

prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders, if a “group” ceases to own more than 50% of our common stock;

•

provide that the board of directors is expressly authorized to adopt, or to alter or repeal our bylaws;

•

establish advance notice requirements for nominations for election to our board or for proposing matters that can be acted upon by stockholders at stockholder meetings;

•

grant to our board the sole power to set the number of directors and to fill any vacancy on the board; and

•

require approval of two-thirds of stockholders to amend the bylaws.

In addition, we expect to opt out of Section 203 of the DGCL, which, subject to some exceptions, prohibits business combinations between a Delaware corporation and an interested stockholder, which is generally defined as a stockholder who becomes a beneficial owner of 15% or more of a Delaware corporation’s voting stock for a three-year period following the date that the stockholder became an interested stockholder, until affiliates of Carlyle no longer own more than 25% of our common stock. After such time, we will be governed by Section 203. Section 203 could have the effect of delaying, deferring or preventing a change in control that our stockholders might consider to be in their best interests. See “Description of Capital Stock.”

These anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and cause us to take corporate actions other than those you desire.

Future sales of our common stock in the public market could lower our share price, and any additional capital raised by us through the sale of equity or convertible debt securities may dilute your ownership in us and may adversely affect the market price of our common stock.

We and substantially all of our stockholders may sell additional shares of common stock in subsequent public offerings. We may also issue additional shares of common stock or convertible debt securities to finance future acquisitions. After the consummation of this offering, we will have 100,000,000 shares of common stock authorized and 41,967,934 shares of common stock outstanding. This number includes 13,333,334 shares that we

are selling in this offering, which may be resold immediately in the public market. Of the remaining shares, 28,634,600, or 68.2% of our total outstanding shares, are restricted from immediate resale under the lock-up agreements between our current stockholders and the underwriters described in “Underwriting,” but may be sold into the market in the near future. These shares will become available for sale following the expiration of the lock-up agreements, which, without the prior consent of the representatives of the underwriters, is 180 days after the date of this prospectus, subject to compliance with the applicable requirements under Rule 144 of the Securities Act of 1933, or the Securities Act.

We cannot predict the size of future issuances of our common stock or the effect, if any, that future issuances and sales of our common stock will have on the market price of our common stock. Sales of substantial amounts of our common stock (including sales pursuant to Carlyle’s registration rights and shares issued in connection with an acquisition), or the perception that such sales could occur, may adversely affect prevailing market prices for our common stock. See “Certain Relationships and Related Party Transactions” and “Shares Eligible for Future Sale.”

FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. The words “believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Although forward-looking statements reflect management’s good faith beliefs, reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements speak only as of the date the statements are made. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to:

•

growth of, or changes in, the light and heavy-duty vehicle aftermarket;

•

maintaining existing sales levels with our current customers while attracting new ones;

•

operating in international markets and expanding into adjacent markets while strengthening our market share in our existing markets;

•

the impact of general economic conditions in the regions in which we do business;

•

increases in costs of fuel, transportation and utilities costs and in the costs of labor, employment and healthcare;

•

general industry conditions, including competition, consolidation, pricing pressure and product, raw material and energy prices;

•

disruptions in our supply chain;

•

initiating effective cost cutting initiatives;

•

the introduction of new and improved products or manufacturing techniques;

•

the impact of governmental laws and regulations and the outcome of legal proceedings;

•

our debt levels and restrictions in our debt agreements;

•

changes in exchange rates and currency values;

•

capital expenditure requirements;

•

access to capital markets;

•

protecting our intellectual property rights;

•

our loss of key personnel or our inability to hire additional qualified personnel;

•

the costs of operating as a public company and our ability to maintain effective internal controls; and

•

the risks and uncertainties described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations are disclosed under “Risk Factors” in this prospectus. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements as well as other cautionary statements that are made from time to time in our public communications. You should evaluate all forward-looking statements made in this prospectus in the context of these risks and uncertainties.

USE OF PROCEEDS

We estimate that the net proceeds from the sale of shares by us will be approximately $184.0 million, after deducting underwriting discounts and commissions and estimated expenses, based upon an assumed initial public offering price of $15.00 per share, the midpoint of the proposed offering price range set forth on the cover of this prospectus. A $1.00 increase (decrease) in the assumed initial offering price of $15.00 per share would increase (decrease) the net proceeds of this offering by $12.4 million, assuming the sale by us of shares of our common stock and after deducting underwriting discounts and commissions and estimated expenses. An increase (decrease) of 1.0 million in the number of shares offered by us would increase (decrease) the net proceeds to us by $14.0 million. If the underwriters’ overallotment option is exercised in full, we estimate that we will receive additional net proceeds of $27.9 million.

We intend to use the net proceeds from the sale of shares by us, together with cash on hand, to redeem all of our outstanding Senior PIK Notes. To the extent the net proceeds from the offering together with our actual cash on hand are not sufficient to redeem all of our Senior PIK Notes following the offering, we intend to temporarily draw down our revolving credit facility in an amount sufficient to cover such shortfall. The Senior PIK Notes have a floating interest rate based on three-month LIBOR plus 800 basis points, and this rate was 9.25% at September 30, 2010. The Senior PIK Notes mature on December 15, 2013. As of September 30, 2010, the Senior PIK Notes had an aggregate outstanding balance of $348.4 million, including accrued and unpaid interest of $1.3 million. See “Description of Our Indebtedness.”

DIVIDEND POLICY

Other than a special dividend paid in 2006, we have not paid dividends in the past and we do not intend to pay any cash dividends for the foreseeable future. We intend to retain earnings, if any, for the future operation and expansion of our business and the repayment of debt. Any determination to pay dividends in the future will be at the discretion of our Board of Directors and will depend upon our results of operations, cash requirements, financial condition, contractual restrictions, restrictions imposed by applicable laws and other factors that our Board of Directors may deem relevant. Our existing indebtedness effectively limits our ability to pay dividends and make distributions to our stockholders. See “Description of Our Indebtedness.”

CAPITALIZATION

The following table sets forth our consolidated cash and cash equivalents and capitalization as of September 30, 2010 on an actual basis and as adjusted basis giving effect to (i) the issuance of common stock in this offering and the application of the net proceeds therefrom and use of cash on hand as described in “Use of Proceeds,” based upon an assumed initial offering price of $15.00 per share, the midpoint of the offering price range set forth on the cover of this prospectus and (ii) our amended and restated certificate of incorporation that will, prior to the effectiveness of this registration statement, provide that our authorized capital stock consist of (1) 100,000,000 shares of common stock, $0.01 par value per share and (2) 10,000,000 shares of preferred stock, $0.01 par value per share.

The information in this table should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes thereto included elsewhere in this prospectus.


	September 30, 2010
	Actual			As Adjusted (1)
	(in millions, except share data)
Cash and cash equivalents (2)	$	170.9		$	1.6

Total debt (including current portion):
UCI short-term borrowings	$	3.3		$	3.3
UCI capital lease obligations		0.7			0.7
UCI Credit Agreement term loan (net of unamortized debt discount of $5.4 million)		419.6			419.6
UCI Credit Agreement revolving credit facility (2)		—			—
UCI International, Inc. floating rate senior PIK notes (net of unamortized debt discount of $3.7 million)		343.4			—

Total debt		767.0			423.6

Shareholders’ equity (deficit):
Common stock, $0.01 par value, 50,000,000 shares authorized, 28,634,600 shares issued and outstanding, actual; $0.01 par value, 100,000,000 shares authorized, 41,967,934 shares issued and outstanding, as adjusted		—			0.4
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued or outstanding, as adjusted		—			—
Additional paid in capital		279.8			463.4
Retained deficit (3)		(217.9	)		(224.7	)
Accumulated other comprehensive loss		(31.7	)		(31.7	)

Total shareholders’ equity		30.2			207.4

Total capitalization	$	797.2		$	631.0

(1)

As adjusted to reflect the issuance of common stock in this offering and the application of the net proceeds therefrom and use of cash on hand as described in “Use of Proceeds,” assuming an initial offering price of $15.00 per share, the midpoint of the offering price range set forth on the cover of this prospectus. A $1.00 increase (decrease) in the assumed initial public offering price of $15.00 per share, the midpoint of the offering price range set forth on the cover page of this prospectus, would increase (decrease) each of cash and cash equivalents, additional paid in capital, total shareholders’ equity and total capitalization by $12.4 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. An increase (decrease) of 1.0 million in the number of shares offered by us would increase (decrease) each of cash and cash equivalents, additional paid in capital, total shareholders’ equity and total capitalization by $14.0 million. The as adjusted information discussed above is illustrative only and will be adjusted based on the actual public offering price and terms of this offering determined at pricing.

The table set forth above is based on the number of shares of our common stock outstanding as of September 30, 2010. The table does not reflect:

•

1,277,150 shares of common stock issuable upon the exercise of options outstanding as of September 30, 2010 at a weighted average exercise price of $0.94 per share;

•

2,695,600 of common stock reserved for issuance under our 2010 Equity Incentive Award Plan, which was plan to adopt in connection with this offering.

(2)

The foregoing is based upon numbers as of September 30, 2010. To the extent the net proceeds from the offering together with our actual cash on hand are not sufficient to redeem all of our Senior PIK Notes following the offering, we intend to temporarily draw down our revolving credit facility in an amount sufficient to cover such shortfall.

(3)

As adjusted retained deficit reflects the impact of the loss on early extinguishment of our Senior PIK Notes, net of income taxes, related to the use of net proceeds from the sale of our common stock in this offering, assuming an initial offering price of $15.00, the midpoint of the offering price range set forth on the cover page of this prospectus, plus cash on hand to redeem the Senior PIK Notes. The loss on early extinguishment of debt includes charges for acceleration of original issue discount ($3.7 million), the write-off of certain deferred financing costs ($1.0 million), the call premium ($3.5 million) and redemption period interest ($2.7 million).

DILUTION

If you invest in our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share and the net tangible book value per share after this offering.

As of September 30, 2010, we had negative net tangible book value of approximately $276.0 million, or $(9.64) per share. Net tangible book value per share represents total tangible assets less total liabilities and noncontrolling interests divided by the number of shares of common stock outstanding. After giving effect to the issuance and sale of 13,333,334 shares of common stock in this offering at an assumed initial public offering price of $15.00 per share, the midpoint of the offering price range on the cover page of this prospectus, deducting the underwriting discounts and estimated offering expenses that we will pay and the application of the proceeds therefrom and use of cash on hand as described under “Use of Proceeds,” our net tangible book value as of September 30, 2010 would have been approximately $(98.8) million, or $(2.35) per share. This represents an immediate increase in net tangible book value of $7.29 per share to existing shareholders and an immediate dilution of $17.35 per share to new investors purchasing common stock in this offering. The following table illustrates this dilution on a per share basis:


	Per Share
Assumed initial public offering price per share				$	15.00
Net tangible book value per share as of September 30, 2010	$	(9.64	)
Increase in net tangible book value per share attributable to this offering		7.29

Net tangible book value per share after this offering					(2.35	)

Dilution per share to new investors				$	17.35

A $1.00 increase (decrease) in the assumed initial offering price of $15.00 per share, the midpoint of the offering price range set forth on the cover of this prospectus, would affect our as net tangible book value after this offering by $12.4 million, the net tangible book value per share after this offering by $0.30 per share, and the dilution per common share to new investors by $0.80 per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the commissions and discounts and estimated offering expenses payable by us. An increase (decrease) of 1.0 million in the number of shares offered by us would affect our net tangible book value after this offering by $14.0 million, the net tangible book value per share after this offering by $0.38 per share, and the dilution per common share to new investors by $(0.38) per share.

The following table sets forth, as of September 30, 2010, the total number of shares of common stock owned by existing stockholders and to be owned by new investors, the total consideration paid, and the average price per share paid by our existing stockholders and to be paid by new investors purchasing shares of common stock in this offering. The calculation below is based on an assumed initial public offering price of $15.00 per share before deducting the underwriting discounts and estimated offering expenses that we will pay.


	Shares Purchased					Total Consideration					Average Price Per Share
	Number		Percent			Amount		Percent			Average Price Per Share
	(In thousands, other than shares and percentages)
Existing stockholders		28,634,600		68.2	%	$	279,854		58.3	%	$	9.77
New investors		13,333,334		31.8			200,000		41.7			15.00

Total		41,967,934		100	%	$	479,854		100	%	$	11.43

A $1.00 increase (decrease) in the assumed initial offering price of $15.00 per share would increase (decrease) total consideration paid by new investors, total consideration paid by all stockholders and average price per share paid by all stockholders by $13.3 million, $13.3 million and $0.32 per share. An increase (decrease) of 1.0 million in the number of shares offered by us would increase (decrease) total consideration paid by new investors, total consideration paid by all stockholders and average price per share paid by all stockholders by $15.0 million, $15.0 million and $0.08 per share.

If the underwriters exercise in full their option to purchase additional shares of our common stock in the offering, the as adjusted net tangible book value per share would be $(1.46) per share and the dilution to new investors in this offering would be $16.46 per share.

The tables and calculations above assume no exercise of outstanding options. As of September 30, 2010, there were 1,277,150 shares of common stock issuable upon exercise of outstanding options at a weighted average exercise price of approximately $0.96 per share. To the extent that the 1,277,150 outstanding options are exercised, there will be further dilution to new investors purchasing common stock in the offering. See “Description of Capital Stock.”

SELECTED CONSOLIDATED FINANCIAL DATA

The selected income statement and other data for each of the years ended December 31, 2009, 2008 and 2007 and the selected balance sheet data as of December 31, 2009 and 2008 have been derived from our audited consolidated financial statements that are included in this prospectus. The selected income statement and other data for the years ended December 31, 2006 and 2005 and the selected balance sheet data as of December 31, 2007, 2006 and 2005 have been derived from audited consolidated financial statements that are not included in this prospectus. Our selected historical income statement data for the nine months ended September 30, 2010 and September 30, 2009 and our selected historical balance sheet data as of September 30, 2010 have been derived from our unaudited financial statements included elsewhere in this prospectus which, in the opinion of management, include all adjustments consisting only of normal, recurring adjustments necessary for a fair presentation of the results for the unaudited interim period. The selected historical balance sheet data as of September 30, 2009 have been derived from our unaudited financial statements not included in this prospectus. Results for the nine months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010 or for any other period.

The financial data set forth below are not necessarily indicative of future results of operations. This data should be read in conjunction with, and is qualified in its entirety by reference to, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Capitalization” sections and our financial statements and notes thereto included elsewhere in this prospectus.


	Year Ended December 31,															Nine Months Ended September 30,
	2009			2008			2007			2006			2005			2010			2009
(Dollars in millions)																(unaudited)
Income Statement Data:
Net sales (1)	$	885.0		$	880.4		$	969.8		$	906.0		$	812.7		$	708.0		$	666.2
Cost of sales (2) (3)		685.4			702.5			748.8			728.5			657.9			528.8			523.8

Gross profit		199.6			177.9			221.0			177.5			154.8			179.2			142.4
Operating (expenses) income
Selling and warehousing		(56.6	)		(62.9	)		(61.1	)		(60.0	)		(57.3	)		(44.6	)		(42.4	)
General and administrative		(47.8	)		(51.6	)		(50.0	)		(42.9	)		(37.9	)		(36.7	)		(34.3	)
Amortization of acquired intangible assets		(5.7	)		(6.3	)		(7.0	)		(6.7	)		(5.9	)		(4.0	)		(4.4	)
Restructuring gains (costs), net (3)(4)		(0.9	)		(2.4	)		0.8			(13.3	)		—			(2.1	)		—
Impairment losses (5)		—			(0.5	)		(3.6	)		—			(21.5	)		—			—
Patent litigation costs (6)		(7.0	)		—			—			—			—			(1.0	)		—

Operating income		81.6			54.2			100.1			54.6			32.2			90.8			61.3
Other expense
Interest expense, net		(60.5	)		(65.4	)		(72.9	)		(44.2	)		(36.1	)		(44.8	)		(45.7	)
Loss on early extinguishment of debt (7)		—			—			—			(2.6	)		—			(8.7	)		—
Management fee expense		(2.0	)		(2.0	)		(2.0	)		(2.0	)		(2.0	)		(1.5	)		(1.5	)
Miscellaneous, net		(5.5	)		(3.5	)		(2.9	)		(1.0	)		(1.2	)		(3.0	)		(4.2	)

Income (loss) before income taxes		13.6			(16.7	)		22.3			4.8			(7.1	)		32.8			9.9
Income tax (expense) benefit		(5.1	)		4.3			(8.3	)		(0.2	)		(0.5	)		(12.9	)		(4.1	)

Net income (loss) from continuing operations		8.5			(12.4	)		14.0			4.6			(7.6	)		19.9			5.8
Net income of discontinued operations, net of tax		—			—			—			2.0			3.1			—			—
Gain (loss) on sale of discontinued operations, net of tax		—			—			2.7			(16.9	)		—			—			—

Net income (loss)		8.5			(12.4	)		16.7			(10.3	)		(4.5	)		19.9			5.8
Less: Loss attributable to noncontrolling interest		(0.7	)		(0.8	)		(0.1	)		(0.8	)		—			—			(0.5	)

Net income (loss) attributable to UCI International, Inc.	$	9.2		$	(11.6	)	$	16.8		$	(9.5	)	$	(4.5	)	$	19.9		$	6.3


	Year Ended December 31,															Nine Months Ended September 30,
	2009			2008			2007			2006			2005			2010			2009
(Dollars in millions, except per share data)																(unaudited)
Earnings Per Share Data:
Basic earnings per share attributable to common stockholders:
Income (loss) from continuing operations	$	0.32		$	(0.41	)	$	0.50		$	0.20		$	(0.29	)	$	0.69		$	0.22
Net income from discontinued operations, net of tax		—			—			—			0.08			0.12			—			—
Gain (loss) on sale of discontinued operations, net of tax		—			—			0.10			(0.63	)		—			—			—

Net income (loss) attributable to UCI International, Inc.	$	0.32		$	(0.41	)	$	0.60		$	(0.35	)	$	(0.17	)	$	0.69		$	0.22

Weighted average shares outstanding (in thousands)		28,619			28,526			28,126			26,892			26,369			28,637			28,613

Diluted earnings per share attributable to common stockholders:
Income (loss) from continuing operations	$	0.32		$	(0.41	)	$	0.49		$	0.20		$	(0.29	)	$	0.68		$	0.22
Net income from discontinued operations, net of tax		—			—			—			0.08			0.12			—			—
Gain (loss) on sale of discontinued operations, net of tax		—			—			0.10			(0.63	)		—			—			—

Net income (loss) attributable to UCI International, Inc.	$	0.32		$	(0.41	)	$	0.59		$	(0.35	)	$	(0.17	)	$	0.68		$	0.22

Weighted average shares outstanding (in thousands)		29,135			28,526			28,610			26,892			26,369			29,364			29,010

Other Financial Data:
Net cash provided by operating activities of continuing operations	$	129.3		$	31.7		$	93.1		$	74.1		$	57.1		$	79.0		$	105.6
Cash used in investing activities of continuing operations		(22.1	)		(31.5	)		(19.0	)		(79.7	)		(26.5	)		(23.7	)		(17.8	)
Cash provided by (used in) financing activities of continuing operations		(22.0	)		4.7			(63.5	)		15.5			(15.7	)		(16.2	)		(19.4	)

	December 31,															September 30,
	2009			2008			2007			2006			2005			2010			2009
(Dollars in millions)																(unaudited)
Balance Sheet Data:
Cash and cash equivalents	$	131.9		$	46.7		$	42.0		$	31.5		$	23.7		$	170.9		$	115.1
Total assets		1,058.9			1,007.7			1,002.0			1,005.1			984.8			1,141.1			1,047.7
Total debt (including current portion)		741.6			732.9			696.6			727.4			442.5			767.0			736.4
Total shareholders’ equity (deficit)		11.0			(5.0	)		53.0			23.0			280.3			30.2			4.2

(1)	Net sales in 2008 includes a special $6.7 million warranty provision related to unusually high warranty returns related to one category of parts. Net sales in 2005 includes a $14.0 million change in estimated warranty reserve requirements.

(2)	Includes $9.8 million in 2006 for the sale of inventory written up to market from historical cost per GAAP rules for accounting for the acquisition of ASC.

(3)

Cost of sales in 2007 and 2006 include $4.7 million and $3.9 million, respectively, of costs incurred in connection with the integration of our pre-ASC Acquisition water pump operations with the operations of ASC. The remaining $0.7 million of water pump integration costs in 2007 and $7.0 million in 2006 are included in “Restructuring gains (costs), net.”

(4)

Restructuring costs in the 2010, 2009 and 2008 periods result from our capacity consolidation and realignment actions. Restructuring gain in 2007 includes a gain on the sale of land and building. Restructuring gain in 2006 includes asset write-downs and severance and other costs in connection with the closures of our Canadian fuel pump facility and Mexican filter manufacturing facility.

(5)

2008 and 2007 amounts relate to trademark impairment losses due to a customer’s decision to market a significant portion of our products under the customer’s own private label brand. This decision has not affected and is not expected to affect our sales of these products. 2005 includes impairments of property and equipment of a foreign entity, a trademark and software, and a write-down of assets related to the abandonment of a foreign subsidiary.

(6)	Includes trial costs and damages awarded in connection with an unfavorable jury verdict on a patent infringement matter. See Note 16 to our audited consolidated financial statements and Note J to our unaudited condensed consolidated financial statements included elsewhere in this prospectus.

(7)

The loss on early extinguishment of debt in 2006 related to the write-off of unamortized deferred financing costs related to previously outstanding debt, which was replaced in connection with the establishment of our previous senior credit facility. The loss on early extinguishment of debt in the nine months ended September 30, 2010 relates to the termination of UCI’s senior credit facility and the discharge of UCI’s senior subordinated notes due 2013 discussed under “Prospectus Summary—Recent Developments.” The loss consists of the call premium on the senior subordinated notes ($3.6 million), interest during the senior subordinated notes redemption period ($1.9 million) and the write-off of unamortized deferred financing costs and original issue discount ($3.2 million).

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward looking statements as a result of various factors, including, without limitation, those set for in “Risk Factors,” “Forward-Looking Statements” and other matters included elsewhere in this prospectus. The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the notes thereto included elsewhere in this prospectus, as well as the information presented under “Selected Consolidated Financial Data.”

Overview

Aftermarket sales generally are tied to the regular replacement cycle or the natural wearing cycle of a vehicle part; accordingly, we expect industry growth will be heavily influenced by the following key factors: increasing global vehicle population, aging of vehicle population, increasing vehicle miles driven and growing heavy-duty aftermarket.

The following is a discussion of the key line items included in our financial statements for the periods presented below under the heading “Results of Operations.” These are the measures that management utilizes most to assess our results of operations and anticipate future trends and risks in our business.

Net Sales

Net sales includes the selling price of our products sold to our customers, less provisions for warranty costs, estimated sales returns, customer allowances and cash discounts. In addition, up-front costs to obtain exclusive contracts and other new business changeover costs are recorded as a reduction to sales in arriving at net sales. Recording such provisions as a reduction to sales is customary in our industry. Provisions for sales returns, customer allowances and warranty costs are recorded at the time of sale based upon historical experience, current trends and our expectations regarding future experience. Adjustments to such sales returns, allowances and warranty costs are made as new information becomes available.

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. These factors, together with lower heavy-duty aftermarket sales due to weakness in the transportation segment in 2008 and 2009, and lower OEM sales due to the significant decline in new vehicle production, resulted in the downward trend in sales starting in the third quarter of 2008 through the first half of 2009. More recently, our retail channel sales have increased 5.8% over the nine months ended September 30, 2010, reflecting the growth of our retail customer base. Additionally, heavy-duty channel sales and OEM channel sales in the nine months ended September 30, 2010 increased 11.1% and 29.7%, respectively, over the nine months ended September 30, 2009 suggesting signs of recovery in the transportation sector.

Sales in the North American light vehicle aftermarket have grown at a compounded average annual growth rate of approximately 3.3% from 1999 through 2009. However, aftermarket sales grew by only 0.1% in 2008 and have declined by 1.7% in 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 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, the negative trend in miles driven continued in the first quarter of 2009 (a 2.7% decrease over the comparable quarter in 2008) due to the ongoing weak economic conditions. The negative trend reversed in the last three quarters of 2009 as miles driven exceeded the comparable 2008 quarters. For the full year of 2009, miles driven increased 0.2% from 2008, and for the first nine months of 2010, miles driven increased 0.25% from the first nine months of 2009.

While the conditions described above in general have adversely affected our sales in 2008 and early 2009, 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 low levels, consumers are keeping their cars longer, resulting in an increased demand for replacement parts as consumers repair their increasingly older cars.

We believe that we have leading market positions in our primary product lines, based on management estimates, and we 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 have one of the most comprehensive product offerings in the vehicle replacement parts market, consisting of approximately 47,000 parts. This product breadth, along with 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 2009, 2008 and 2007, approximately 30%, 29% and 28%, respectively, of our total net sales were derived from our business with AutoZone. AutoZone is considered to be a leader in the North American aftermarket and, like all of our customers, we make efforts to maintain and strengthen our relationship with AutoZone. 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 impact to our business that could result from any changes in the economic terms of this relationship. Historically, we sold a small number of products under an AutoZone program called Pay-on-Scan. Under this program, we retained title to the product at AutoZone locations, and we recorded sales for the product when an AutoZone customer purchased it. In the second quarter of 2007, we and AutoZone terminated the Pay-on-Scan program for these products. Accordingly, sales of these products are now recorded when received by AutoZone. This change has not had a material effect on our on-going financial results. As part of the termination of the Pay-on-Scan program, AutoZone purchased all of the products at its locations that were previously under the Pay-on-Scan program. In the second quarter of 2007, we recorded $12.1 million of sales for these products.

Cost of Sales

Cost of sales includes all costs of manufacturing required to bring a product to a ready-for-sale condition. Such costs include direct and indirect materials, direct and indirect labor and benefit costs, supplies,

utilities, freight, depreciation, insurance 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. Due to our inventory being accounted for on the first-in, first-out 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 moderated 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 nine months ended September 30, 2009. We have been experiencing increases in certain commodity costs as the result of suppliers reducing capacity and a slight recovery in the general economy. More recently, we have experienced longer lead times and expedited freight costs due to logistics constraints shipping product from China. A further economic recovery 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 further cost increases and may make procurement more difficult in the future.

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 and the recent changes in currency policy by the Chinese government. 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 September 30, 2010, the U.S. dollar weakened against the Mexican peso by approximately 15%, 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. In addition to the negative impacts of the Mexican peso, the value of the Chinese yuan has recently increased as a result of the Chinese government changing its policy on “pegging” the yuan against the U.S. dollar during the third quarter of 2010. The result of this action is that the costs of goods imported from China will increase as the Chinese yuan strengthens against the U.S. dollar.

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 and even if we are successful our gross margin percentages will decline. 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.

We implemented a number of cost savings initiatives in late 2008 and throughout 2009 to align our cost structure with current business levels. Cost savings initiatives included workforce reductions in both direct and indirect manufacturing headcounts. Also, we implemented wages freezes and suspended certain matching contributions to defined contribution and profit sharing plans, as well as instituted tight controls over

discretionary spending. As of September 30, 2010, the wage freeze and suspension of certain matching contributions were still in effect. Additionally, the same tight control over discretionary spending has continued into 2010 and is expected to continue. These cost savings actions helped offset the adverse impact of higher material costs and lower sales volumes.

More recently, we have launched our new Product Source Optimization (PSO) initiative. PSO utilizes our existing global footprint and innovative category management insights to optimize the mix of products manufactured versus sourced, and to determine the optimal manufacturing or vendor location. We expect that PSO will allow us to deliver a high-quality, low-cost product by assembling certain products in the markets where they are sold, assembling certain products specifically in low-cost countries, and procuring certain products from selected low-cost country suppliers.

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.

Revenue Recognition

We record sales when title and risk of loss transfers to the customer, the sale price is fixed and determinable, and the collection of the related accounts receivable is reasonably assured.

Some agreements with our customers 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.

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 to sales.

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

Our customers have the right to return parts that are covered under our standard warranty within stated warranty 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 are estimated and recorded as a reduction to sales at the time of the related sales. These estimates are based on historical experience, current trends and our expectations regarding future experience. Revisions to these estimates are recorded in the period in which the facts and circumstances 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. Our product returns accrual was $50.8 million at September 30, 2010. A hypothetical 10% increase in the product returns accrual would decrease our pre-tax earnings by $5.1 million.

The table below provides a summary reconciliation of reductions from sales to net sales as reported in our consolidated income statement (in millions):


										Nine Months Ended
	Year Ended December 31,									September 30, 2010			September 30, 2009
	2009			2008			2007			September 30, 2010			September 30, 2009
Sales	$	1,004.6		$	996.7		$	1,082.3		$	805.5		$	757.2
Provision for warranty costs and sales returns		(62.0	)		(61.6	)		(52.0	)		(53.8	)		(48.4	)
Provision for customer contracted sales deductions		(44.8	)		(37.3	)		(43.0	)		(37.2	)		(33.7	)
New business costs and other		(12.8	)		(17.4	)		(17.5	)		(6.5	)		(8.9	)

Net sales	$	885.0		$	880.4		$	969.8		$	708.0		$	666.2

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.

We 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. Based upon the results of the annual impairment review in the fourth quarter of 2009, it was determined that the fair value of the Company significantly exceeded the carrying value of the assets. A hypothetical 10% decrease to the fair value of the Company would not have triggered an impairment of goodwill.

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. In 2008, we recorded a trademark impairment loss of $0.5 million. In 2007, we recorded a trademark impairment loss of $3.6 million. A further discussion of such trademark impairment losses is included elsewhere in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Each year, we evaluate 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. See Note 15 to the audited consolidated financial statements included elsewhere in this prospectus for the detailed assumptions used in determining the present value of benefit obligations and net periodic pension expense for our pension plans.

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. See Note 15 to the audited consolidated financial statements included elsewhere in this prospectus for the detailed assumptions used in determining the present value of benefit obligations for postretirement health care and life insurance plan and the sensitivity analysis of a one percentage point change in the discount rate and health care cost trend rate.

Insurance Reserves

Our insurance policies for workers’ compensation, automobile, product and general liability include high deductibles (up to $0.5 million) for which we are responsible. 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. Our self-insured insurance reserves were $10.6 million at September 30, 2010. A hypothetical 10% increase in the insurance reserve would decrease our pre-tax earnings by $1.1 million.

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 September 30, 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 $1.5 million accrued at September 30, 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 any related litigation, there can be no assurance that the ultimate outcome of these matters will not be significantly different than our estimates.

Stock-Based Compensation

We recognize compensation expense for employee stock option grants using the non-substantive vesting period approach, in which the expense (net of estimated forfeitures) is recognized ratably over the requisite service period based on the grant date fair value. The fair value of new stock options is estimated on the date of grant using the Black-Scholes option pricing model. Determining the fair value of stock options at the grant date requires judgment, including estimates for the average risk-free interest rate, dividend yield and volatility. These assumptions may differ significantly between grant dates because of changes in the actual results of these inputs that occur over time. See Note 19 to the audited consolidated financial statements included elsewhere in this prospectus for the principal assumptions used in applying the Black-Scholes option pricing model to determine the estimated fair value of stock options at the date of grant.

The current terms of our restricted stock agreement provide that the shares of restricted stock vest only upon a change of control of UCI International, Inc., as defined in our equity incentive plan. Due to the uncertainty surrounding the ultimate vesting of the restricted stock, no stock-based compensation expense has been recorded. When a change in control becomes probable, expense equal to the fair value of the stock at that time will be recorded.

In connection with this offering, the Compensation Committee has determined to alter the vesting provisions of the shares of restricted stock we have previously granted to employees following the completion of this offering. To this end, upon the completion of the offering, the shares of restricted stock that have been previously granted to employees, which shares are currently scheduled to vest only upon a change in control, will generally vest with respect to 25% of the total number of such shares on the first day following this offering that our employees are permitted to trade in shares of our common stock following the expiration of the 180-day lock-up period pursuant to the lock-up agreements that we, our executive officers and directors and substantially all of our stockholders will enter into in connection with this offering and with respect to 25% of the total number of such shares on each anniversary of the completion of this offering such that all such shares will be fully vested on the third anniversary of the completion of this offering, subject to accelerated vesting upon a change in control. As a result of this modification of the restricted stock awards upon completion of this offering, we will begin to record stock-based compensation expense in our consolidated financial statements.

For a further discussion of the effect of our initial public offering on stock-based compensation, see “Compensation Discussion and Analysis” included elsewhere in this prospectus.

Results of Operations

Nine Months Ended September 30, 2010 compared with the Nine Months Ended September 30, 2009

The following table was derived from our unaudited condensed consolidated income statements for the nine months ended September 30, 2010 and 2009 included elsewhere in this prospectus.


	Nine Months Ended September 30,
	2010			2009
	(amounts in millions)
Net sales	$	708.0		$	666.2
Cost of sales		528.8			523.8

Gross profit		179.2			142.4
Operating (expense) income
Selling and warehousing		(44.6	)		(42.4	)
General and administrative		(36.7	)		(34.3	)
Amortization of acquired intangible assets		(4.0	)		(4.4	)
Restructuring gains (costs), net		(2.1	)		—
Patent litigation costs		(1.0	)		—

Operating income		90.8			61.3
Other expense
Interest expense, net		(44.8	)		(45.7	)
Management fee expense		(1.5	)		(1.5	)
Loss on early extinguishment of debt		(8.7	)		—
Miscellaneous, net		(3.0	)		(4.2	)

Income before income taxes		32.8			9.9
Income tax expense		(12.9	)		(4.1	)

Net income		19.9			5.8
Less: Loss attributable to noncontrolling interest		—			(0.5	)

Net income attributable to UCI International, Inc.	$	19.9		$	6.3

Nine Months Ended September 30, 2010 compared with the Nine Months Ended September 30, 2009

Net Sales

Net sales of $708.0 million for the nine months ended September 30, 2010 increased $41.8 million, or 6.3%, compared to net sales for the nine months ended September 30, 2009. In connection with obtaining new business, net sales included reductions of $1.4 million and $3.7 million in the nine months ended September 30, 2010 and 2009, respectively. Excluding the effects of obtaining new business from both nine month periods, net sales were 5.9% higher in the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009.

Automotive aftermarket net sales, which comprised approximately 87% of our net sales in the nine months ended September 30, 2010, increased approximately 4.8% compared to the nine months ended September 30, 2009. Within the automotive aftermarket channel, our retail channel net sales increased approximately 5.8%, our traditional channel net sales increased approximately 2.3%, our OES channel net sales increased approximately 1.0% and our heavy duty channel net sales increased approximately 11.1%. The increased net sales in our retail, traditional and OES channels primarily reflected the sales growth experienced by our customer base. The increased net sales in our heavy duty channel resulted from a general improved market

trend in the transportation sector. Our OEM channel sales in the nine months ended September 30, 2010 increased approximately 29.7% over the nine months ended September 30, 2009 due to the recovery of new car sales from the difficult economic environment in 2008 and early 2009 and recent new business wins.

Net sales for the nine months ended September 30, 2010 and 2009 for our four product lines were as follows:


	Nine Months Ended September 30,
	2010		%			2009		%
	(in millions, except percentages)
Filtration	$	267.5		38	%	$	262.3		39	%
Fuel delivery systems		196.8		28	%		165.4		25	%
Vehicle electronics		133.9		19	%		120.7		18	%
Cooling systems		109.8		15	%		117.8		18	%

	$	708.0		100	%	$	666.2		100	%

Each of our product lines, except cooling systems, experienced increased net sales in the nine months ended September 30, 2010, reflecting the sales growth of our customer base. Our fuel delivery systems sales have also been positively impacted by market share gains. Our cooling systems product line experienced sales growth with existing customers; however the increase was more than offset by market share losses.

Gross Profit

Gross profit, as reported, was $179.2 million for the nine months ended September 30, 2010 and $142.4 million for the nine months ended September 30, 2009. Both periods included special items which are presented in the following table along with a comparison of adjusted gross profit after excluding these special items. Adjusted gross profit is a non-GAAP financial measurement of our performance which is not in accordance with, or a substitute for, GAAP measures. It is intended to supplement the presentation of our financial results that are prepared in accordance with GAAP. We use adjusted gross profit as presented to evaluate and manage our operations internally.


	Nine Months Ended September 30,
	2010		2009
	(amounts in millions)
Gross profit, as reported	$	179.2	$	142.4
Add back special items:
New business changeover and sales commitment costs		1.4		3.7
Allowance for disputed non-trade receivable		1.4		—
Severance costs		—		0.6
Costs to establish additional manufacturing in China		—		0.5

Adjusted gross profit	$	182.0	$	147.2

The $1.4 million and the $3.7 million of “new business changeover and sales commitment costs” in the nine months ended September 30, 2010 and 2009, respectively, were up-front costs incurred to obtain new business and to extend existing long-term sales commitments.

During the nine months ended September 30, 2010, we recorded a $1.4 million provision due to uncertainties of collection of refunds of Mexican value-added tax from the Mexican Department of Finance and Public Credit. See further discussion under “Business—Litigation—Valued-Added Tax Receivable.”

The $0.6 million of “severance costs” in the nine months ended September 30, 2009 related to actions taken to further align our cost structure with customers’ spending and current market conditions. The actions included, among other things, workforce reductions with related severance costs.

The $0.5 million of “costs to establish additional manufacturing in China” in the nine months ended September 30, 2009 related to start-up costs to establish two new factories in China.

Excluding the adverse effects of these special items, adjusted gross profit increased to $182.0 million in the nine months ended September 30, 2010 from $147.2 million in the nine months ended September 30, 2009, and the related gross margin percentage increased to 25.7% in the nine months ended September 30, 2010 from 22.0% in the nine months ended September 30, 2009. The adjusted gross margin percentage is based on sales before the effects of obtaining new business, which are discussed in the net sales comparison above.

Higher net sales volume in the nine months ended September 30, 2010 was a significant factor in our gross profit increase year over year, accounting for $18.0 million of the increase. 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 of approximately $19.0 million and favorable trends in our insurance costs of approximately $3.0 million. 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 effects of higher estimated product returns, customer price concession and product mix of approximately $5.2 million.

Selling and Warehousing Expenses

Selling and warehousing expenses were $44.6 million in the nine months ended September 30, 2010, $2.2 million higher than the nine months ended September 30, 2009. Selling and marketing expenses increased $1.6 million related to higher variable selling costs associated with our higher sales volume and investments in our growth initiatives including staffing and other costs. Shipping and warehousing expenses increased $0.6 million to support the increased sales volume. Selling and warehousing expenses were 6.3% of net sales in the nine months ended September 30, 2010 and 6.4% in the nine months ended September 30, 2009. The improvement in selling and warehousing expenses as a percentage of net sales despite the increased spending levels related to investments in growth initiatives was the result of the cost reduction actions taken during 2009.

General and Administrative Expenses

General and administrative expenses were $36.7 million in the nine months ended September 30, 2010; $2.3 million higher than the nine months ended September 30, 2009. This increase was the result of $4.5 million of higher costs incurred in connection with our antitrust litigation (discussed in Note J to our unaudited condensed consolidated financial statements included elsewhere in this prospectus) and higher incentive compensation. Partially offsetting these items were reductions in overhead spending including the favorable effect of lower employee expenses in the nine months ended September 30, 2010 due to headcount reductions in 2009, inclusive of severance in 2009 related to the headcount reductions, and cost control initiatives.

Restructuring Gains (Costs), Net

In the nine months ended September 30, 2010, we completed the sale of a previously idled manufacturing facility and recognized a gain of $0.3 million on the sale of the facility. In the nine months ended September 30, 2010 and 2009, we incurred costs of $0.2 million and $0.3 million, respectively, to maintain the land and building.

In the nine months ended September 30, 2010, we recorded pension curtailment and settlement losses and other severance costs related to headcount reductions at our Mexican subsidiaries totaling $0.6 million.

Additionally, we recorded a non-cash charge of $1.6 million related to the sale of our interest in a 51% owned joint venture in the nine months ended September 30, 2010.

We implemented restructuring plans in 2009 to further align our cost structure with customers’ spending and current market conditions. The restructuring plans targeted excess assembly and aluminum casting capacity and restructuring costs of the plan included workforce reductions, facility closures, consolidations and realignments.

We idled a Mexican aluminum casting operation in the nine months ended September 30, 2009 and consolidated the capacity into our Chinese casting operation. During that period, we also relocated a small amount of filter manufacturing capacity which resulted in the idling of certain equipment with no alternative use. In connection with these capacity consolidations, we recorded asset impairments of $1.0 million in the nine months ended September 30, 2009 and incurred post employment benefit plans curtailment costs of $0.1 million in the three months ended September 30, 2009.

In order to accommodate expected growth in Europe, our Spanish distribution operation was relocated to a new leased facility resulting in the idling and subsequent sale of an owned facility. We recognized a gain of $1.5 million on the sale of this facility in the nine months ended September 30, 2009.

Interest Expense, Net

Net interest expense was $0.9 million lower in the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009. This decrease was due to lower interest rates on our variable debt in the nine months ended September 30, 2010 as compared to the nine months ended September 30, 2009 which resulted in a reduction of interest expense of approximately $2.0 million, partially offset by interest on higher average borrowings of $6.8 million during the nine months ended September 30, 2010. The increased outstanding balance of the Senior PIK Notes due to the quarterly payment of interest through the issuance of new notes more than offset the lower level of borrowings under UCI’s previous term loan resulting from both the $17.7 million mandatory prepayment on our term loan made in April 2010 and the repayment of revolver credit facility borrowings of $20.0 million in June 2009.

Loss on Early Extinguishment of Debt

We recorded a loss of $8.7 million in the nine months ended September 30, 2010 on the early extinguishment of the term loan under UCI’s previous senior credit facility and UCI’s senior subordinated notes due 2013. See further discussion in Note I to the audited consolidated financial statements included elsewhere in this prospectus. The components of the loss on early extinguishment were as follows (in millions):


UCI senior subordinated notes call premium	$	3.6
Write-off unamortized debt discount		1.8
UCI senior subordinated notes redemption period interest		1.9
Write-off unamortized deferred financing costs		1.4

	$	8.7

Miscellaneous, Net

Miscellaneous expense which consists primarily of costs associated with the sale of receivables was $1.1 million lower in the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009. The lower expense was due to lower selling discount costs, partially offset by higher sales of receivables in 2010 versus 2009. Miscellaneous expense for the nine months ended September 30, 2010 also included $0.1 million related to changes in market value of our swaption agreement.

Income Tax Expense

Income tax expense in the nine months ended September 30, 2010 was $8.8 million higher than in the nine months ended September 30, 2009 due to higher pre-tax income in the 2010 quarter. The effective tax rate for the nine months ended September 30, 2010 was 39.4% compared to 41.3% for the nine months ended September 30, 2009. The lower effective rate relates primarily to foreign income taxes.

Net Income

Due to the factors described above, we reported a net income of $19.9 million in the nine months ended September 30, 2010 compared to net income of $5.8 million in the nine months ended September 30, 2009.

Net Income Attributable to UCI International, Inc.

After deducting losses attributable to a noncontrolling interest, net income attributable to UCI International, Inc. was $19.9 million in the nine months ended September 30, 2010 compared to net income attributable to UCI International, Inc. of $6.3 million in the nine months ended September 30, 2009.

Year Ended December 31, 2009 Compared with Year Ended December 31, 2008

The following table was derived from our consolidated income statements for the years ended December 31, 2009 and 2008 included elsewhere in this prospectus.


	Year Ended December 31,
	2009			2008
	(amounts in millions)
Net sales	$	885.0		$	880.4
Cost of sales		685.4			702.5

Gross profit		199.6			177.9
Operating (expenses) income
Selling and warehousing		(56.6	)		(62.9	)
General and administrative		(47.8	)		(51.6	)
Amortization of acquired intangible assets		(5.7	)		(6.3	)
Restructuring costs, net		(0.9	)		(2.4	)
Trademark impairment loss		—			(0.5	)
Patent litigation costs		(7.0	)		—

Operating income		81.6			54.2
Other expense
Interest expense, net		(60.5	)		(65.4	)
Management fee expense		(2.0	)		(2.0	)
Miscellaneous, net		(5.5	)		(3.5	)

Income (loss) before income taxes		13.6			(16.7	)
Income tax (expense) benefit		(5.1	)		4.3

Net income (loss)		8.5			(12.4	)
Less: Loss attributable to noncontrolling interest		(0.7	)		(0.8	)

Net income (loss) attributable to UCI International, Inc.	$	9.2		$	(11.6	)

Net Sales

Net sales of $885.0 million in 2009 increased $4.6 million, or 0.5%, compared to net sales of $880.4 million in 2008. Sales in 2008 were reduced by a $6.7 million loss provision resulting from the unusually high level of warranty returns related to a specific category of parts discussed below. In connection with obtaining new business, sales were reduced by $5.0 million in 2009 and $7.8 million in 2008. These reductions were the result of accepting returns of the inventory of our customers’ previous suppliers in connection with securing new business with our customers.

Excluding the 2008 $6.7 million warranty loss provision, and the effects of obtaining new business from both periods, sales were 0.5% lower in 2009 compared to 2008. Within the aftermarket channel, our retail and traditional channel sales increased approximately 5.7% and approximately 6.5%, respectively, compared to 2008, while sales to dealerships in the OES channel decreased approximately 6.6%. The increased sales in the retail and traditional channels reflect 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 vehicle aftermarket sales also decreased approximately 23.3% due to weakness in the transportation segment. OEM sales, which comprised only 6% of our sales in 2009, decreased approximately 17.7% compared to 2008 due to general economic conditions in the United States and the significant downturn in the automotive industry, which resulted in a reduction in vehicles manufactured.

Net sales for 2009 and 2008 for our four product lines were as follows:


	Year Ended December 31,
	2009		%			2008		%
	(in millions, except percentages)
Filtration	$	346.6		39	%	$	366.2		42	%
Fuel delivery systems		221.9		25	%		218.2		25	%
Vehicle electronics		163.2		19	%		142.3		16	%
Cooling systems		153.3		17	%		153.7		17	%

	$	885.0		100	%	$	880.4		100	%

Our filtration product line has a higher level of net sales than our other product lines to the heavy-duty aftermarket sales channels which was negatively impacted by the weakness in the transportation sector in 2008 and 2009. Additionally, our filtration products are recurring maintenance type products. The reduction in miles driven in 2009 as compared to 2008 resulted in increased time intervals for routine maintenance which also impacted our filtration product line net sales. The higher vehicle electronics product line net sales were the result of market share gains and sales growth resulting from new vehicle electronics applications in the light vehicle aftermarket.

Gross Profit

Gross profit, as reported, was $199.6 million for 2009 and $177.9 million for 2008. Both periods included special items which are presented in the following table along with a comparison of adjusted gross profit after excluding such special items. Adjusted gross profit is a non-GAAP financial measurement of our performance which is not in accordance with, or a substitute for, GAAP measures. It is intended to supplement the presentation of our financial results that are prepared in accordance with GAAP. We use adjusted gross profit as presented to evaluate and manage our operations internally. You are encouraged to evaluate each adjustment and whether you consider it to be appropriate.


	Year Ended December 31,
	2009		2008
	(amounts in millions)
Gross profit, as reported	$	199.6	$	177.9
Add back special items:
Special provision for warranty costs		—		6.7
New business changeover and sales commitment costs		5.0		7.8
Severance costs		0.8		0.1
Costs to establish additional manufacturing in China		0.5		3.1

Adjusted gross profit	$	205.9	$	195.6

The “Special provision for warranty costs” in 2008 related to an unusually high level of warranty returns of a specific category of parts. When those parts were subjected to certain conditions, they experienced a higher than normal failure rate. As a result of the higher than normal failure rate, a $6.7 million warranty loss provision was recorded in 2008. We modified the design of these parts in 2008 to eliminate this issue.

The 2009 $5.0 million and the 2008 $7.8 million of “new business changeover and sales commitment costs” were up-front costs incurred to obtain new business and to extend existing long-term sales commitments.

The 2009 $0.5 million and the 2008 $3.1 million of “costs to establish additional manufacturing in China” related to start-up costs establishing two new factories in China.

Excluding the special items, adjusted gross profit increased to $205.9 million in 2009 from $195.6 million in 2008, and the related gross margin percentage increased to 23.1% in 2009 from 21.9% in 2008. The gross margin percentage is based on sales before the effects of obtaining new business and deducting the $6.7 million warranty loss provision in 2008, which are discussed in the net sales comparison above.

The higher gross profit in 2009 as compared to 2008 was primarily due to the favorable effects of cost reduction initiatives in an amount of approximately $8.3 million to align our cost structure with our customers’ spending and current market conditions, lower commodity and energy costs, favorable exchange rates and price increases of approximately $9.3 million. 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 higher product returns expense of $6.4 million (excluding the aforementioned special $6.7 million charge in 2008) and a higher percentage of third-party sourced products which have lower margins than manufactured product.

Selling and Warehousing Expenses

Selling and warehousing expenses were $56.6 million in 2009; $6.3 million lower than 2008. The reduction was driven by cost saving initiatives to reduce headcount of approximately $3.1 million and tight controls over discretionary spending. Selling and warehousing expenses were 6.4% of sales in 2009 and 7.1% in 2008.

General and Administrative Expenses

General and administrative expenses were $47.8 million in 2009 and $51.6 million in 2008, a decrease of $3.8 million. Costs incurred in connection with our antitrust litigation were $1.5 million in 2009 as compared to $4.0 million in 2008 accounting for $2.5 million of the decrease in general and administrative expenses. The 2009 reduction also included the favorable effects of lower salary expense due to headcount reductions of approximately $1.7 million and lower bad debt expense of approximately $1.5 million. 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 $1.8 million of higher severance expense in 2009 and higher other employee costs related to matters other than headcount.

Restructuring Costs, Net

To further align our cost structure with customers’ spending and current market conditions, we 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 2009, we recorded asset write-offs of $1.8 million associated with the capacity consolidation, recognized a gain of $1.5 million on the sale of a facility and incurred other costs of $0.2 million.

In 2006, we completed the acquisition of ASC Industries, Inc. and its subsidiaries (the “ASC Acquisition”). Before the ASC Acquisition, we manufactured and distributed water pumps for all market channels. In June 2006, we began the process of integrating our pre ASC-acquisition water pump operations with the water pump operations of ASC Industries. In 2007, we completed the integration. By mid-2007, all domestic water pump manufacturing had been combined at ASC Industries’ manufacturing facilities. Our pre ASC-acquisition water pump facility was closed as of July 2007. In 2008 and 2009, we recorded additional pre-tax expense related to the water pump integration. These costs were reported in the income statement in “Restructuring gains (costs), net.” These costs were as follows (in millions):


	Year Ended December 31,
	2009		2008
Severance	$	—	$	0.2
Costs of maintaining the pre-acquisition water pump system facility		0.4		0.6
Additional asset impairments		—		1.6

	$	0.4	$	2.4

In the fourth quarter of 2008, in light of current market and economic conditions, we wrote down the carrying value of the pre-ASC Acquisition water pump manufacturing facility from $1.3 million to zero. Also in the fourth quarter of 2008, we recorded a $0.3 million impairment loss on pre-ASC Acquisition water pump equipment that was no longer useable.

Trademark Impairment Loss

In 2008, we recognized a trademark impairment loss of $0.5 million. This non-cash loss was due to a customer’s decision to market a significant portion of UCI-supplied products under the customer’s own private label brand, instead of UCI’s brand. This decision has not affected and is not expected to affect UCI’s sales of these products. In 2007, we recognized impairment loss of $3.6 million on the same trademark.

Patent Litigation Costs

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. On December 11, 2009, following trial, a jury verdict was reached, finding in favor of Parker-Hannifin with damages of approximately $6.5 million. A judgment was not entered by the court in this matter during the year ended December 31, 2009. Champion continues to vigorously defend this matter; however, there can be no assurance with respect to the outcome of litigation. We recorded a $6.5 million liability and incurred trial costs of $0.5 million in 2009 for this matter. See “Business—Litigation—Patent Litigation” for updates related to this matter subsequent to this period.

Interest Expense, Net

Net interest expense was $4.9 million lower in 2009 compared to 2008. This reduction was primarily due to lower interest rates in 2009.

Miscellaneous, Net

Miscellaneous expense which consists of costs associated with the sale of receivables was $2.0 million higher in 2009 compared to 2008. This increase was due to a higher level of receivables we sold in 2009 in relation to 2008.

Income Tax (Expense) Benefit

Income tax expense was $9.4 million higher in 2009 as compared to 2008 due to higher pre-tax income in 2009. For reasons why the effective tax rates in both years differ from statutory rates, see Note 14 to our audited consolidated financial statements included elsewhere in this prospectus, which reconciles income taxes computed at the U.S. federal statutory rate to income tax expense.

Net Income (Loss)

Due to the factors described above, we reported a net income of $8.5 million in 2009 compared to a net loss of $12.4 million in 2008.

Net Income (Loss) Attributable To UCI International, Inc.

After deducting losses attributable to a noncontrolling interest, net income attributable to UCI International, Inc. was $9.2 million in 2009, compared to a net loss of $11.6 million in 2008.

Year Ended December 31, 2008 compared with Year Ended December 31, 2007

The following table was derived from our consolidated income statements for the years ended December 31, 2008 and 2007 included elsewhere in this prospectus.


	Year Ended December 31,
	2008			2007
	(amounts in millions)
Net sales	$	880.4		$	969.8
Cost of sales		702.5			748.8

Gross profit		177.9			221.0
Operating (expenses) income
Selling and warehousing		(62.9	)		(61.1	)
General and administrative		(51.6	)		(50.0	)
Amortization of acquired intangible assets		(6.3	)		(7.0	)
Restructuring gains (costs), net		(2.4	)		0.8
Trademark impairment loss		(0.5	)		(3.6	)

Operating income		54.2			100.1
Other expense
Interest expense, net		(65.4	)		(72.9	)
Management fee expense		(2.0	)		(2.0	)
Miscellaneous, net		(3.5	)		(2.9	)

Income (loss) before income taxes		(16.7	)		22.3
Income tax (expense) benefit		4.3			(8.3	)

Net income (loss) from continuing operations		(12.4	)		14.0
Gain on sale of discontinued operations, net of tax		—			2.7

Net income (loss)		(12.4	)		16.7
Less: Loss attributable to noncontrolling interest		(0.8	)		(0.1	)

Net income (loss) attributable to UCI International, Inc.	$	(11.6	)	$	16.8

Net Sales

Net sales of $880.4 million in 2008 declined $89.4 million, or 9.2%, compared to net sales of $969.8 million in 2007. The 2007 sales included $12.1 million of sales to AutoZone in connection with the termination of the Pay-on-Scan program for certain of our products. Sales in 2008 were reduced by a $6.7 million loss provision resulting from the unusually high level of warranty returns related to a category of parts. In connection with obtaining new business, sales were reduced by $7.8 million in 2008 and $7.5 million in 2007. These reductions were the result of accepting returns of the inventory of our customers’ previous suppliers in connection with securing new business with our customers.

Excluding the $12.1 million of 2007 sales associated with the termination of the Pay-on-Scan program, the 2008 $6.7 million warranty loss provision, and the effects of obtaining new business from both periods, sales were 7.3% lower in 2008 compared to 2007. This 7.3% decrease includes lower sales to all of our market channels. Automotive aftermarket sales that comprised approximately 87% of our sales in 2008 were down approximately 7.0% compared to 2007. Within the automotive aftermarket channel, our traditional channel sales were down approximately 9.5% while retail channel sales were down approximately 2.6%. We believe the larger decline in the traditional sales channel is reflective of a shift to the retail channel as (i) consumers shift away from do-it-for-me to do-it-yourself and (ii) retail outlets expand their sales to commercial accounts. OEM sales, which comprised only 8% of our sales in 2008, decreased approximately 22.9% compared to 2007 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, including the impact of record gasoline prices on miles driven and consumers’ spending habits.

Net sales for 2008 and 2007 for our four product lines were as follows:


	Year Ended December 31,
	2008		%			2007		%
	(in millions, except percentages)
Filtration	$	366.2		42	%	$	388.7		40	%
Fuel delivery systems		218.2		25	%		229.8		24	%
Vehicle electronics		142.3		16	%		149.3		15	%
Cooling systems		153.7		17	%		202.0		21	%

	$	880.4		100	%	$	969.8		100	%

Each of our product lines experienced net sales declines in 2008 compared to 2007 due to the general economic conditions in the United States. Our cooling system net sales were also adversely impacted by the $12.1 million of 2007 net sales associated with the termination of the Pay-on-Scan program discussed above, which did not recur in 2008.

Gross Profit

Gross profit, as reported, was $177.9 million for 2008 and $221.0 million for 2007. Both periods included special items which are presented in the following table along with a comparison of adjusted gross profit after excluding such special items. Adjusted gross profit is a non-GAAP financial measurement of our performance. This non-GAAP measure is not in accordance with, nor is it a substitute for, GAAP measures. It is intended to supplement our presentation of our financial results that are prepared in accordance with GAAP. We use adjusted gross profit as presented to evaluate and manage our operations internally. You are encouraged to evaluate each adjustment and whether you consider each to be appropriate.


	Year Ended December 31,
	2008		2007
	(amounts in millions)
Gross profit, as reported	$	177.9	$	221.0
Add back special items:
Special provision for warranty costs		6.7		—
Water pump integration costs		—		5.5
New business changeover and sales commitment costs		7.8		5.2
Facilities consolidation and severance costs		0.1		0.3
Costs to establish additional manufacturing in China		3.1		0.7
Resolution of pre-acquisition matters		—		(0.9	)
Reserve for resolution of disputed non-trade receivables		—		0.8

Adjusted gross profit	$	195.6	$	232.6

The “special provision for warranty costs” in 2008 related to an unusually high level of warranty returns related to a specific category of parts. When these parts are subjected to certain conditions, they experience a higher than normal failure rate. As a result of the higher than normal failure rate, a $6.7 million warranty loss provision was recorded in 2008. We have modified the design of these parts to eliminate this issue.

The 2007 $5.5 million of “water pump integration costs” relate to the integration of the ASC water pump operation and the water pump operation that we owned before we acquired ASC. In 2007, we completed the integration, closed our previously owned factory, and transferred production to ASC. These costs include (i) costs and operating inefficiencies caused by the wind-down of our previously owned factory, (ii) transportation and other costs directly related to completing the integration, and (iii) a write-off of component parts that could not be used after production was transitioned to the ASC product design. The 2007 amount also included $0.8 million of costs incurred to minimize the write-off of component parts that would not be usable when production was transitioned to the ASC product design.

The 2008 $7.8 million and the 2007 $5.2 million of “new business changeover and sales commitment costs” were up-front costs incurred to obtain new business and to extend existing long-term sales commitments.

The 2008 $3.1 million and 2007 $0.7 million of “costs to establish additional manufacturing in China” related to start-up costs establishing two new factories in China.

Excluding the special items, adjusted gross profit decreased to $195.6 million in 2008 from $232.6 million in 2007, and the related gross margin percentage decreased to 21.9% in 2008 from 23.8% in 2007. The gross margin percentage is based on sales before the effects of obtaining new business and deducting the $6.7 million warranty loss provision in 2008, which are discussed in the net sales comparison above.

When comparing 2008 and 2007 gross profit excluding the special items, lower sales volume in 2008 was the largest factor in our gross profit decline, accounting for $18.6 million of the decline. The 2008 results

were also adversely affected by the impact of significantly higher energy and commodity costs and currency fluctuations of approximately $20.1 million. Inflation-driven wage increases and higher warranty expense ($2.7 million) also contributed to the lower profits in the 2008 period compared to 2007. Partially offsetting these adverse effects were the benefits of our ongoing manufacturing cost reduction initiatives.

Selling and Warehousing Expenses

Selling and warehousing expenses were $62.9 million in 2008, $1.8 million higher than 2007. The increase included additional upfront costs associated with new business with an existing customer and the addition of sales and marketing personnel in targeted areas. The increase also included the effects of inflation on employee related and other costs. The effect of lower sales volume partially offset these increases. Selling and warehousing expenses were 7.1% of sales in 2008 and 6.3% in 2007.

General and Administrative Expenses

General and administrative expenses were $51.6 million in 2008 and $50.0 million in 2007. 2008 included $4.0 million of costs incurred in connection with our antitrust litigation, inflation driven cost increases, $1.3 million higher expense for the cost of litigation and settlement of disputed matters, $2.2 million higher bad debt expense and $0.4 million of severance costs resulting from employee lay-offs. These cost increases were offset by lower employee bonus expense and $2.6 million lower stock option related costs.

Restructuring Gains (Costs), Net

In addition to costs recorded as a component of cost of goods sold, we recorded severance costs of $1.6 million and a pension curtailment gain of $0.9 million related to the integration of the ASC cooling system operation and the cooling system operation that we owned before we acquired ASC in 2007. These net costs of $0.7 million were included in the income statement in “Restructuring gains (costs), net.”

In 2006, we closed our Mexican filter manufacturing operation. In 2007, we sold the land and building and certain building improvements formerly used at our Mexican filter manufacturing operation. The sale proceeds were $6.6 million, net of fees and expenses. In 2007, we recorded a $1.7 million pre-tax gain on the sale. Also, in 2007, we incurred $0.2 million of costs associated with the closure of the Mexican facility.

Trademark Impairment Loss

In 2007, we recognized a trademark impairment loss of $3.6 million. This non-cash loss was due to a customer’s decision to market a significant portion of UCI-supplied products under the customer’s own private label brand, instead of UCI’s brand. This decision has not affected and is not expected to affect UCI’s sales of these products. In 2008, we recognized an additional impairment loss of $0.5 million on the same trademark that was written down in 2007.

Interest Expense, Net

Net interest expense was $7.5 million lower in 2008 compared to 2007. This reduction was due to lower debt levels and lower interest rates in 2008. Also, accelerated amortization of deferred financing costs associated with the voluntary prepayments of debt was $0.5 million higher in 2007.

Miscellaneous, Net

Miscellaneous expense which consists of costs associated with the sale of receivables was $0.6 million higher in 2008 compared to 2007. This increase was due to a higher level of receivables we sold in 2008 in relation to 2007, partially offset by lower discount percentages charged by the factoring companies in 2008 in relation to 2007.

Income Tax (Expense) Benefit

Income tax expense was $12.6 million lower in 2008 as compared to 2007 due to lower pre-tax income in 2008. For reasons why the effective tax rates in both years differ from statutory rates, see Note 14 to our audited consolidated financial statements included elsewhere in this prospectus, which reconciles income taxes computed at the U.S. federal statutory rate to income tax expense.

Gain On Sale of Discontinued Operations, Net of Tax

In November 2006, we sold our lighting systems operation. The final sale price was subject to post-closing adjustments related to working capital and possible additional proceeds if a lighting systems building were sold. In the third quarter of 2007, the final working capital amounts were settled favorably and the building was sold. Accordingly, we recorded a $2.7 million after-tax gain in 2007.

Net Income (Loss)

Due to the factors described above, we reported a net loss of $12.4 million in 2008 compared to a net income of $14.0 million in 2007.

Net Income (Loss) Attributable To UCI International, Inc.

After deducting losses attributable to a noncontrolling interest, net loss attributable to UCI International, Inc. was $11.6 million in 2008, compared to net income of $16.8 million in 2007.

Geographic Results of Operations

Net sales made by our U.S. and foreign subsidiaries, excluding intercompany sales which are eliminated in consolidation, were as follows:


	Year Ended December 31,
	2009		%			2008		%			2007		%
	(in millions, except percentages)
United States subsidiaries	$	818.3		92	%	$	812.1		92	%	$	892.5		92	%
Foreign subsidiaries		66.7		8	%		68.3		8	%		77.3		8	%

	$	885.0		100	%	$	880.4		100	%	$	969.8		100	%

The U.S. and foreign components of income (loss) before income taxes were as follows (in millions):


	Year Ended December 31,
	2009		2008			2007
Income (loss) before income taxes
United States	$	8.1	$	(17.7	)	$	26.9
Foreign		5.5		1.0			(4.6	)

	$	13.6	$	(16.7	)	$	22.3

Income (loss) before income taxes for the year ended December 31, 2008 was impacted by the forgiveness of a $10.2 million intercompany debt by a U.S. subsidiary with a foreign subsidiary. This debt forgiveness resulted in nonrecurring foreign sourced income of $10.2 million and a corresponding nonrecurring U.S. sourced loss. Excluding the effect of this forgiveness of debt, the U.S. and foreign components of income (loss) before income taxes in 2008 were losses of $7.5 million and $9.2 million, respectively.

The decrease in both U.S. and foreign operating results from 2007 to 2008 (excluding the debt forgiveness) was the result of the reduction in net sales as shown in the table above and significantly higher energy and commodity costs. Additionally, foreign operating results included start-up costs and production inefficiencies of $1.1 million and $3.6 million in 2007 and 2008, respectively, related to the establishment of new manufacturing facilities in China.

The improvement in both U.S. and foreign operating results for the year ended December 31, 2009 as compared to the year ended December 31, 2008 was largely due to the favorable effects of cost reduction activities both in the U.S. and our foreign operations and lower commodity and energy costs in 2009. Additionally, the new manufacturing facilities in China achieved operating income in relation to operating losses in 2008 which included start-up costs and production inefficiencies.

Quarterly Results of Operations

The following table sets forth our unaudited quarterly consolidated statements of operations data for each of the past ten quarters. We have prepared the income statement data for each of these quarters on the same basis as our audited consolidated financial statements included elsewhere in this prospectus and, in the opinion of the management, this data includes all adjustments, consisting solely of normal recurring adjustments, necessary for the fair statement of the results of operations for these periods. This information should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this prospectus. These quarterly operating results are not necessarily indicative of operating results to be expected for any future period.


	Three Months Ended
	September 30, 2010			June 30, 2010			March 31, 2010			December 31, 2009			September 30, 2009			June 30, 2009			March 31, 2009			December 31, 2008			September 30, 2008			June 30, 2008
(Dollars in millions)	(unaudited)
Income Statement Data:
Net sales	$	241.5		$	236.2		$	230.3		$	218.8		$	228.9		$	217.4		$	219.9		$	203.7		$	218.1		$	229.3
Cost of sales		179.5			176.2			173.1			163.5			173.6			169.7			180.5			171.1			170.6			182.6

Gross profit		62.0			60.0			57.2			55.3			55.3			47.7			39.4			32.6			47.5			46.7
Operating (expenses) income
Selling and warehousing		(15.2	)		(15.1	)		(14.3	)		(14.2	)		(14.0	)		(14.1	)		(14.3	)		(15.7	)		(15.7	)		(16.0	)
General and administrative		(14.0	)		(11.1	)		(11.6	)		(11.5	)		(10.5	)		(11.2	)		(12.5	)		(12.2	)		(13.0	)		(13.2	)
Amortization of acquired intangible assets		(1.3	)		(1.3	)		(1.3	)		(1.4	)		(1.4	)		(1.5	)		(1.5	)		(1.5	)		(1.5	)		(1.7	)
Restructuring gains (costs), net		0.3			(0.4	)		(2.0	)		(0.9	)		(0.4	)		0.6			(0.2	)		(1.7	)		(0.2	)		(0.1	)
Trademark impairment loss		—			—			—			—			—			—			—			(0.5	)		—			—
Patent litigation costs		—			(0.1	)		(1.0	)		(7.0	)		—			—			—			—			—			—

Operating income		31.8			32.0			27.0			20.3			29.0			21.5			10.9			1.0			17.1			15.7
Other expense
Interest expense, net		(15.1	)		(14.9	)		(14.8	)		(14.8	)		(14.7	)		(15.2	)		(15.7	)		(16.4	)		(15.9	)		(15.8	)
Management fee expense		(0.5	)		(0.5	)		(0.5	)		(0.5	)		(0.5	)		(0.5	)		(0.5	)		(0.5	)		(0.5	)		(0.5	)
Loss on early extinguishment of debt		(8.7	)		—			—			—			—			—			—			—			—			—
Miscellaneous, net		(0.7	)		(1.4	)		(0.9	)		(1.3	)		(1.1	)		(1.7	)		(1.5	)		(1.1	)		(0.9	)		(1.0	)

Income (loss) before income taxes		6.8			15.2			10.8			3.7			12.7			4.1			(6.8	)		(17.0	)		(0.2	)		(1.6	)
Income tax (expense) benefit		(2.4	)		(6.3	)		(4.2	)		(1.0	)		(4.6	)		(1.7	)		2.1			5.4			(0.5	)		0.2

Net income (loss)		4.4			8.9			6.6			2.7			8.1			2.4			(4.7	)		(11.6	)		(0.7	)		(1.4	)
Less: Loss attributable to noncontrolling interest		—			—			—			(0.2	)		(0.1	)		(0.1	)		(0.3	)		(0.3	)		(0.2	)		(0.3	)

Net income (loss) attributable to UCI International, Inc.	$	4.4		$	8.9		$	6.6		$	2.9		$	8.2		$	2.5		$	(4.4	)	$	(11.3	)	$	(0.5	)	$	(1.1	)

Other Financial Data:


	Three Months Ended
	September 30, 2010			June 30, 2010			March 31, 2010			December 31, 2009			September 30, 2009			June 30, 2009			March 31, 2009			December 31, 2008			September 30, 2008			June 30, 2008
(Dollars in millions)	(unaudited)
Capital expenditures	$	5.8		$	5.9		$	5.8		$	4.4		$	3.4		$	3.5		$	4.0		$	5.9		$	8.7		$	9.4
Depreciation and amortization		8.8			8.7			9.0			9.1			9.2			9.4			9.4			9.6			8.9			9.4
Adjusted EBITDA (1)		43.9			44.3			40.6			38.8			38.4			31.5			25.2			16.9			30.1			34.1
Adjusted EBITDA margin (1)		18.2	%		18.8	%		17.6	%		17.7	%		16.8	%		14.5	%		11.5	%		8.3	%		13.8	%		14.9	%

(1)	See Note 9 in “Prospectus Summary—Summary Historical Financial Data” for an explanation of why we use Adjusted EBITDA.

The following is a reconciliation of net income (loss) applicable to UCI International, Inc. to Adjusted EBITDA and a calculation of Adjusted EBITDA margin:


	September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,
	2010			2010			2010			2009			2009			2009			2009			2008			2008			2008
(Dollars in millions)	(unaudited)
Net income (loss) attributable to UCI International, Inc.	$	4.4		$	8.9		$	6.6		$	2.9		$	8.1		$	2.5		$	(4.4	)	$	(10.9	)	$	(0.5	)	$	(1.1	)
Interest expense, net of noncontrolling interest		15.1			14.9			14.8			14.8			14.8			15.2			15.7			16.2			15.9			15.8
Income tax expense (benefit), net of noncontrolling interest		2.4			6.3			4.3			1.0			4.6			1.7			(2.1	)		(5.4	)		0.6			(0.3	)
Depreciation expense, net of noncontrolling interest		6.8			6.7			6.8			6.8			6.9			7.1			7.1			7.2			6.6			6.8
Amortization expense		2.0			2.1			2.0			2.1			2.1			2.2			2.2			2.2			2.3			2.3

EBITDA		30.7			38.9			34.5			27.6			36.5			28.7			18.5			9.3			24.9			23.5
Restructuring costs and severance (a)		(0.3	)		0.3			2.1			1.4			0.8			0.6			1.2			1.8			0.5			0.1
Trademark impairment loss (b)		—			—			—			—			—			—			—			0.5			—			—
Patent litigation costs (c)		—			0.1			1.0			7.0			—			—			—			—			—			—
Cost of defending class action litigation (d)		2.1			2.4			0.9			0.4			0.3			0.3			0.5			0.8			1.7			1.5
Special warranty expense (e)		—			—			—			—			—			—			—			0.9			—			5.8
New business changeover and sales commitment costs (f)		0.5			0.3			0.6			1.3			0.2			1.1			2.4			1.1			2.0			0.8
Establishment of new facilities in China (g)		—			—			—			—			—			0.1			0.4			0.6			0.3			1.3
UCI International, Inc. non-operating expenses (h)		1.6			0.3			0.9			0.4			0.1			0.2			1.5			1.2			—			0.4
Non-cash stock options expense		0.1			0.1			0.1			0.2			—			—			0.2			0.2			0.2			0.2
Management fee (i)		0.5			0.5			0.5			0.5			0.5			0.5			0.5			0.5			0.5			0.5
Valuation allowance for non-trade receivables (j)		—			1.4			—			—			—			—			—			—			—			—
Loss on early extinguishment of debt (k)		8.7			—			—			—			—			—			—			—			—			—

Adjusted EBITDA	$	43.9		$	44.3		$	40.6		$	38.8		$	38.4		$	31.5		$	25.2		$	16.9		$	30.1		$	34.1

Net Sales	$	241.5			236.2		$	230.3		$	218.8		$	228.9		$	217.4		$	219.9		$	203.7		$	218.1		$	229.3
Adjusted EBITDA Margin		18.2	%		18.8	%		17.6	%		17.7	%		16.8	%		14.5	%		11.5	%		8.3	%		13.8	%		14.9	%

(a)

We have taken various restructuring actions since 2007 to align our cost structure with customers’ spending and current market conditions. These actions have included the integration of our pre-ASC acquisition water pump product line into the water pump operations of ASC, as well as other targeted actions to reduce excess capacity and reduce our operating expenses. See Note 2 to our audited consolidated financial statements and Note B to our unaudited condensed consolidated financial statements included elsewhere in this prospectus for further information regarding our restructuring actions.

(b)

(c)

Our wholly-owned subsidiary, Champion Laboratories, Inc., 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. On December 11, 2009, following trial, a jury verdict was reached, finding in favor of Parker-Hannifin with damages of approximately $6.5 million. We recorded a provision of $6.5 million in the fourth quarter of 2009 and incurred trial costs of $0.5 million in the fourth quarter of 2009 related to this matter. During the first and second quarters of 2010, we incurred post-trial costs of $1.0 million and $0.1 million, respectively. On May 3, 2010, the court entered a partial judgment in this matter, awarding Parker-Hannifin $6.5 million in damages and a permanent injunction. Both parties have filed post-trial motions. Parker-Hannifin is seeking treble damages and attorneys’ fees. See “Business—Litigation—Patent Litigation.”

(d)	We incurred costs to defend ourselves in litigation, including class action litigation, alleging violations of antitrust and consumer protection laws by us and other parties in the North American automotive filter aftermarket.

(e)	The special warranty expense of $0.9 million in the fourth quarter of 2008 and $5.8 million in the second quarter of 2008 for a total of $6.7 million in 2008 related to a higher than normal failure rate of a specific category of parts resulting in an unusually high level of warranty returns.

(f)	New business changeover and sales commitment costs were up-front costs incurred to obtain new business and to extend existing long-term sales commitments.

(g)	In 2009 and 2008, we incurred nonrecurring start-up costs to establish two new factories in China.

(h)	From time to time, we have incurred costs related to evaluating strategic opportunities including potential merger and acquisition and capital structure activities that are non-operating in nature.

(i)

(j)	During the second quarter of 2010, we recorded a $1.4 million valuation allowance due to uncertainties of collection of Mexican value-added tax refund receivables.

(k)

Liquidity and Capital Resources

Debt Refinancing

On September 23, 2010, we, along with UCI Acquisition and UCI entered into the Credit Agreement, with UCI, as borrower, and with us, along with UCI Acquisition and UCI’s domestic subsidiaries, as guarantors. The Credit Agreement provides for borrowings of up to $500.0 million, which consists of a term loan facility in an aggregate principal amount of $425.0 million, which was fully funded on the closing date of the Credit Agreement, and a revolving credit facility in an aggregate principal amount of $75.0 million, none of which was drawn as of September 30, 2010. Approximately $23.7 million was available under the revolving credit facility at September 30, 2010 due to certain debt and lien covenant restrictions in the indenture governing the Senior PIK Notes which limit our ability to incur secured indebtedness. See “Description of our Indebtedness—Floating Rate Senior PIK Notes.”

The proceeds of the term loan were used to (i) repay existing borrowings under UCI’s term loan, (ii) discharge UCI’s senior subordinated notes due 2013 and (iii) pay transaction costs. The following table summarizes the sources and uses of the proceeds at closing (in millions):


Sources			Uses
Revolving credit facility	$	-	Accrued interest payment	$	6.4
Term loan		425.0	Repay UCI term loan		172.3
Cash on Balance Sheet		4.0	Redeem UCI senior subordinated notes		230.0
			Transaction costs and original issue discount		20.3
Total Sources	$	429.0	Total Uses	$	429.0

In connection with the entry by UCI into the Credit Agreement, UCI’s senior credit facility was terminated and all obligations existing under the senior credit facility were repaid in full using a portion of the proceeds of the term loan borrowings under the Credit Agreement. The senior credit facility was scheduled to expire on June 30, 2012; there were no penalties for early termination.

The senior credit facility included a term loan pursuant to which, as a result of previous prepayments, no scheduled repayments were due before December 2011. Mandatory prepayments of the term loan were required, however, when UCI generated 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 which was made on April 1, 2010 reducing the amount outstanding under the term loan to $172.3 million. The remaining $172.3 million was paid in full with the proceeds of the term loan borrowings under the Credit Agreement.

On September 23, 2010, UCI discharged its senior subordinated notes due 2013 in accordance with the terms of the indenture governing the notes by depositing with the trustee all outstanding amounts due under the notes and instructing the trustee to provide holders of all the notes with an irrevocable notice of redemption. The redemption date was October 25, 2010. As of September 23, 2010, the aggregate outstanding principal amount of the notes was approximately $228.2 million, net of unamortized original issue discount of $1.8 million. Pursuant to the terms of the indenture, all of the senior subordinated notes outstanding on the redemption date were redeemed at 101.563% of their principal amount plus accrued and unpaid interest thereon to, but not including, the redemption date.

Net Cash Provided by Operating Activities

Nine Months Ended September 30, 2010

Net cash provided by operating activities for the nine months ended September 30, 2010 was $79.0 million compared to $105.6 million for the nine months ended September 30, 2009. The decrease in cash provided by operating activities in relation to the prior year was the result of increased use of cash for working capital purposes during the nine months ended September 30, 2010, partially offset by higher net income, excluding non-cash income and expense items, during the nine months ended September 30, 2010. Net income, excluding non-cash income and expense items, was $80.4 million for the nine months ended September 30, 2010 compared to $61.0 million for the nine months ended September 30, 2009. A more detailed discussion of the other components of cash provided by operating activities the nine months ended September 30, 2010 and the significant factors behind the impact on cash follows.

Increases in accounts receivable and inventories resulted in uses of cash of $29.9 million and $17.8 million, respectively. The increase in accounts receivable was primarily due to higher sales of $477.7 million in the second and third quarters of 2010 compared to $447.7 million in the third and fourth quarters of 2009, a $30.0 million increase, and timing of factoring of accounts receivable. Factored accounts receivable totaled $128.3 million and $121.5 million at September 30, 2010 and December 31, 2009, respectively. The increase in inventory was due to (i) inventory builds to support the higher sales levels, as well as to support customers’ periodic restocking program orders, (ii) temporary buffer stock while manufacturing is transferred between manufacturing locations as part of our PSO initiatives, (iii) longer lead times on some inventories resourced to our low cost country manufacturing locations, (iv) material cost increases and (v) foreign exchange rates. An increase in accounts payable resulted in a generation of cash of $17.7 million due primarily to the higher inventory levels.

Changes in all other assets and liabilities netted to a $28.6 million increase in cash. This change primarily related to increases in product returns and other amounts due customers ($12.5 million), timing of tax payments ($6.3 million), changes in accrued salaries and incentive compensation ($2.4 million), decreases in prepaid insurance ($1.1 million) and changes in other assets and accrued expenses.

Nine Months Ended September 30, 2009

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 $61.0 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 $24.5 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.

Changes in all other assets and liabilities netted to a $21.1 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 debt.

Year Ended December 31, 2009

Net cash provided by operating activities in 2009 was $129.3 million compared to $31.7 million in 2008. The increase in 2009 over 2008 was due in part to the increased operating results over 2008. Additionally, as a result of the termination of the revolving credit facility in June 2009, we focused significant efforts on improving our cash generation from operating activities. A more detailed discussion of the components of cash provided by operating activities in 2009 and the significant factors behind the impact on cash follows. Net income from continuing operations, excluding non-cash income and expense items, was $78.9 million. A decrease in inventory resulted in a generation of cash of $27.0 million. The decrease in inventory was due to (i) focused efforts to reduce inventory investments through improved inventory turns, (ii) higher sales in the fourth quarter of 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 $7.2 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 December 31, 2009 compared to December 31, 2008. A decrease in accounts receivable resulted in a generation of cash of $1.0 million. The decrease in accounts receivable was due to an increase in factored accounts receivable during 2009. This decrease was largely offset by an increase in sales of $25.6 million in the third and fourth 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 changes in channel mix was partially offset by an increase in factored accounts receivable during 2009. Factored accounts receivable totaled $121.5 million and $80.1 million at December 31, 2009 and December 31, 2008, respectively.

Changes in all other assets and liabilities netted to a $15.2 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 accrual for the adverse patent litigation verdict.

Year Ended December 31, 2008

Net cash provided by operating activities in 2008 was $31.7 million compared to $93.1 million in 2007. The decrease in 2008 as compared to 2007 was largely due to lower operating results in relation to 2007. Although we always emphasize strong working capital management, certain economic and other factors had a negative impact on our working capital investment in 2008. A more detailed discussion of the components of cash provided by operating activities in 2008 and the significant factors behind the impact on cash follows. Net income from continuing operations, excluding non-cash income and expense items, was $56.5 million. An increase in accounts receivable and inventory resulted in the use of cash of $9.5 million and $19.1 million, respectively. The increase in accounts receivable was primarily due to increased days sales outstanding as a result of increased accounts receivable dating terms with certain customers, partially offset by lower sales in the latter half of 2008. Factored accounts receivable totaled $80.1 million and $81.1 million at December 31, 2008 and 2007, respectively. The increase in inventory was due to (i) lower than expected sales in the fourth quarter of 2008, (ii) higher inventory levels to support new business wins that began to ship in the first quarter of 2009, (iii) higher raw material costs resulting from the significant increases experienced in commodity costs in 2008 and (iv) increased production related to the ramp up of our Chinese operations. An increase in accounts payable resulted in a generation of cash of $3.0 million. Changes in all other assets and liabilities netted to a $0.8 million

generation of cash. This amount included income tax refunds resulting from the carryback of 2006 operating losses to 2004, partially offset by employee-related accrued liabilities, including annual employee bonus and profit sharing payments, due to headcount reductions and the lower operating performance in 2008 as compared to 2007.

Year Ended December 31, 2007

Net cash provided by operating activities in 2007 was $93.1 million. Net income from continuing operations, excluding non-cash income and expense items, was $102.5 million. An increase in accounts receivable resulted in the use of $24.9 million of cash. This increase was the result of higher sales and, in certain cases, extended payment terms. Net inventory reductions generated $15.4 million of cash. An increase in accounts payable, due to normal fluctuations in the timing of purchases and payments, generated $9.5 million of cash. Changes in all other assets and liabilities netted to a $9.4 million negative effect on cash.

Net Cash Used in Investing Activities

Historically, net cash used in investing activities has been for capital expenditures, including routine expenditures for equipment replacement and efficiency improvements, offset by proceeds from the disposition of property, plant and equipment. Capital expenditures for the nine months ended September 30, 2010 and September 30, 2009 were $17.5 million and $10.9 million, respectively, and were used primarily for cost reduction and maintenance activities. The higher capital expenditures in the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009 are primarily the results of funding specific targeted cost reduction opportunities as part of our PSO initiative. Capital expenditures for the years ended December 31, 2009, 2008 and 2007 were $15.3 million, $31.9 million and $29.7 million, respectively. The lower capital expenditures in 2009 were the result of capital spending being limited to expenditures necessary to maintain current operations and projects that have short payback periods. The 2008 and 2007 amounts included $3.6 million and $1.7 million, respectively, for our two new factories in China.

Proceeds from the sale of property, plant and equipment for the nine months ended September 30, 2010 were $0.4 million. Proceeds from the sale of our joint venture interest in China, net of transaction costs and cash sold totaled approximately $0.3 million for the nine months ended September 30, 2010. Proceeds from the sale of property, plant and equipment for the years ended December 31, 2009, 2008 and 2007 were $2.6 million, $0.4 million and $10.7 million, respectively. In 2009, in order to accommodate expected growth in the European market, our Spanish operation was relocated to a new leased facility resulting in the idling of an owned facility. Proceeds for 2009 primarily related to the sale of that facility. In 2007, we received $6.6 million, net of fees and expenses, from the sale of the land and building of the Mexican filtration operation that was closed in 2006. Also in 2007, we received $2.2 million, net of fees and expenses, of additional proceeds from the 2006 sale of our lighting systems operations.

During the nine months ended September 30, 2010, we posted $7.4 million of cash to collateralize a letter of credit required to appeal the judgment in a patent litigation case. See “—Commitments and Contingencies.” During the nine months ended September 30, 2009, we posted $9.4 million of cash to collateralize a letter of credit required by our workers’ compensation insurance carrier. During the three months ended September 30, 2010, the letter of credit requirement with the workers compensation insurance carrier was reduced by $0.5 million and the cash collateral was returned. Historically, assets pledged pursuant to the terms of our senior credit facility provided the collateral for the letters of credit. This cash, totaling $16.3 million, is recorded as “Restricted cash” as a component of long-term assets on our balance sheet at September 30, 2010. This cash is invested in highly liquid, high quality government securities and not available for general operating purposes as long as the letter of credit remains outstanding or until alternative collateral is posted.

Net Cash Provided By (Used In) Financing Activities

Net cash used in financing activities in the nine months ended September 30, 2010 was $16.2 million compared to net cash used in financing activities in the nine months ended September 30, 2009 of $19.4 million. Net cash used in financing activities in 2009 was $22.0 million. Net cash provided by financing activities in 2008 was $4.7 million, while net cash used in financing activities in 2007 was $63.5 million.

Borrowings during the nine months ended September 30, 2010 included the $419.6 million proceeds of the term loan borrowings under the Credit Agreement, net of original issue discount of $5.4 million, and $10.2 million of short-term borrowings payable to foreign credit institutions. Borrowings of $9.7 million during the nine months ended September 30, 2009 consisted solely of short-term borrowings payable to foreign credit institutions.

Borrowings of $13.2 million during 2009 consisted solely of short-term borrowings payable to foreign credit institutions. In 2008, we borrowed $20.0 million under UCI’s revolving credit line to increase our short-term liquidity in light of the current challenging capital markets. The $8.0 million remainder of our borrowings during 2008 consisted of short-term borrowings payable to foreign credit institutions. Borrowings of $20.8 million during 2007 consisted solely of short-term borrowings payable to foreign credit institutions.

During the nine months ended September 30, 2010, we made the $17.7 million mandatory prepayment on the term loan of UCI’s previous senior credit facility reducing the amount outstanding under the term loan to $172.3 million. The remaining $172.3 million was paid in full with the proceeds of the Credit Agreement. Also during the nine months ended September 30, 2010, we used cash of $235.5 million, representing the $230.0 million principal, the $3.6 million call premium and $1.9 million of interest during the redemption period, to redeem UCI’s senior subordinated notes. Additionally, during the nine months ended September 30, 2010, our Spanish and Chinese subsidiaries repaid short-term notes borrowings to foreign credit institutions in the amount of $10.6 million

During the nine months ended September 30, 2009, we repaid the $20.0 million of outstanding borrowings under UCI’s revolving credit facility. Additionally, during the nine months ended September 30, 2009, our Spanish and Chinese subsidiaries repaid short-term notes borrowings to foreign credit institutions in the amount of $8.8 million.

During 2009, 2008 and 2007, our Spanish and Chinese subsidiaries repaid short-term notes borrowings to foreign credit institutions in the amount of $14.9 million, $12.9 million and $19.3 million, respectively. Additionally, in 2008 and 2007, we used cash on hand to voluntarily repay $10.0 million and $65.0 million, respectively, of our term loan.

Current Debt Capitalization and Scheduled Maturities

At September 30, 2010 and December 31, 2009, we had $170.9 million and $131.9 million of cash and cash equivalents, respectively. Outstanding debt was as follows (in millions):


	September 30, 2010			December 31, 2009
UCI International, Inc. Senior PIK Notes	$	347.1		$	324.1
UCI New Term Loan		425.0			—
UCI New Revolving Credit Facility		—			—
UCI senior credit facility term loan		—			190.0
UCI senior subordinated notes		—			230.0
UCI short-term borrowings		3.3			3.5
UCI capital lease obligations		0.7			0.9
Unamortized original issue discount		(9.1	)		(6.9	)

		767.0			741.6
Less:
UCI short-term borrowings		3.3			3.5
UCI term loan		—			17.7
UCI current maturities		4.5			0.2

Long-term debt	$	759.2		$	720.2

Below is a schedule of required future repayments of all debt outstanding on September 30, 2010. The amounts are presented in millions of dollars.


Remainder of 2010	$	2.9
2011		5.9
2012		116.5
2013		239.3
2014		4.3
Thereafter		407.2

	$	776.1

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

The Senior PIK Notes are due in 2013. Interest on the Senior PIK Notes will be paid in kind by issuing new notes until December 2011. Therefore, the Senior PIK Notes will not affect our cash flow through 2011. Thereafter, all interest will be payable in cash. On March 15, 2012, and each quarter thereafter, we are required to redeem for cash a portion of each note, to the extent required to prevent the Senior PIK Notes from being treated as an applicable high yield discount obligation. The redemption price for the portion of each Senior PIK Note so redeemed will be 100% of the principal amount of such portion plus any accrued interest at the date of the redemption. In the schedule above, the $112.1 million of Senior PIK Notes that were issued in lieu of cash interest through September 30, 2010 have been included in the 2012 debt repayment amount. Depending on the circumstances, a portion of this $112.1 million may be paid after 2012.

As of October 29, 2010, we had not repurchased any of the Senior PIK Notes, although we may, under appropriate market conditions, do so in the future through cash purchases or exchange offers, in open market, privately negotiated or other transactions. 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. In connection with this offering, we intend to apply the use of proceeds, together with cash on hand, to redeem all of the outstanding Senior PIK Notes. See “Use of Proceeds.”

Our significant debt service obligation is an important factor when assessing our liquidity and capital resources. At our September 30, 2010 debt level and borrowing rates, annual interest expense, including amortization of deferred financing costs and debt discount, was approximately $62.8 million. An increase of 0.25 percentage points (25 basis points) on our variable interest rate debt would increase our annual interest cost by $1.9 million.

Covenant Compliance

UCI’s Credit Agreement requires us to maintain certain financial covenants and requires mandatory prepayments under certain events as defined in the agreement. Also, the Credit Agreement 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 Credit Agreement contains the following financial covenants beginning with the fiscal quarter ending December 31, 2010: a minimum interest coverage ratio, a maximum leverage ratio and a maximum level of capital expenditures. The financial covenants are calculated on a trailing four consecutive quarters basis.

The minimum interest coverage ratio and maximum leverage ratio levels become increasingly more restrictive over time. The Credit Agreement provides for minimum interest coverage ratio and a maximum leverage ratio levels as set forth opposite the corresponding fiscal quarter.


	Minimum Interest Coverage Ratio Level		Maximum Leverage Ratio Level
Quarters ending December 31, 2010 – September 30, 2011		1.85x		5.00x
Quarters ending December 31, 2011 – September 30, 2012		1.95x		4.75x
Quarters ending December 31, 2012 – September 30, 2013		2.25x		4.25x
Quarters ending December 31, 2013 – September 30, 2014		2.50x		3.75x
Quarters ending December 31, 2014 – September 30, 2015		2.75x		3.25x
Quarter ending December 31, 2015 and thereafter		2.75x		2.75x

Credit Agreement Adjusted EBITDA is used to determine UCI’s compliance with the covenants disclosed above. Credit Agreement Adjusted EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) further adjusted to exclude unusual items and other adjustments permitted by the Credit Agreement in calculating covenant compliance. For purposes of calculating the Consolidated Interest Coverage ratio, interest expense includes interest expense on the Senior PIK Notes. Similarly, for purposes of calculating the Consolidated Leverage ratio, leverage includes the Senior PIK Notes.

A breach of covenants in UCI’s Credit Agreement that are tied to ratios based on Credit Agreement Adjusted EBITDA could result in a default under the Credit Agreement and the lenders could elect to declare all amounts borrowed due and payable. Any such acceleration would also result in a default under the Senior PIK Notes.

Management’s Action Plan and Outlook

Our primary sources of liquidity are cash on hand, cash flow from operations, available borrowing capacity under the Credit Agreement and accounts receivable factoring arrangements. At September 30, 2010, we had $170.9 million of cash and cash equivalents on hand.

Accounts Receivable Factoring

Factoring of customer trade accounts receivable is a significant part of our liquidity and is related to extended terms provided to certain customers. Subject to certain limitations, the Credit Agreement permits sales

of and liens on receivables, which are being sold pursuant to non-recourse factoring agreements between certain of our customers and a number of banks. At September 30, 2010, we had factoring relationships arranged by four customers with eight banks. The terms of these relationships are such that the banks are not obligated to factor any amount of receivables. Due to factors beyond our control, 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, and our customers may not continue to offer such programs in the future.

We sold approximately $176.2 million and $165.4 million of receivables during the nine months ended September 30, 2010 and 2009, respectively. If receivables had not been factored, $128.3 million, $121.5 million and $134.6 million of additional receivables would have been outstanding at September 30, 2010, December 31, 2009 and September 30, 2009, respectively. If we had not factored these receivables, we would have had to finance these receivables in some other way, renegotiate terms with customers or reduce cash on hand. Our short-term cash projections assume a level of factored accounts receivable in a range of $120.0 million to $135.0 million at any given time based upon our current customer contracts.

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 $5.5 million in 2009 and $3.0 million and $4.2 million, respectively, for the nine month periods ended September 30, 2010 and 2009.

Short-Term Liquidity Outlook

We intend to use the net proceeds from this offering, together with cash on hand, to redeem all of our outstanding Senior PIK Notes.

Our ability to make scheduled payments of principal or interest on, or to refinance, our indebtedness or to fund working capital requirements, capital expenditures and other current obligations will depend on our ability to generate cash from operations and from factoring arrangements as discussed above. Such cash generation is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

Our capital spending levels were lower in 2009 than historical spending levels. As part of our plans to conserve cash, 2009 capital spending was limited to expenditures necessary to maintain current operations and projects that had short payback periods. Capital expenditures for the full year 2010 are expected to be in the range of $25 million to $28 million. This increase over 2009 relates to funding specific targeted cost reduction opportunities as part of the PSO initiative and incremental growth initiatives.

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

Long-Term Liquidity Outlook

We are a holding company with no business operations or assets other than the capital stock of UCI Acquisition, which itself is a holding company with no operations or assets other than the capital stock of UCI. Consequently, we are dependent on loans, dividends and other payments from UCI to make payments of principal and interest in cash on the Senior PIK Notes, to the extent that we do not redeem all of the outstanding Senior PIK Notes with the proceeds from this offering and cash on hand. As presently structured, UCI would be the sole source of cash for the payment of cash interest on the Senior PIK Notes beginning in 2012, and there is 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 borrowings under the Credit Agreement 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.

On-Going Operational Initiatives

We implemented a number of measures to improve the level of cash generated by our operations in order to increase our liquidity and to align our cost structure with our customers’ spending and current market conditions. These restructuring activities included:

•

Employment cost savings. We implemented hourly and salaried workforce reductions across all overhead and selling, general and administrative cost centers throughout 2009 and 2010 to align staffing levels with current business levels. As a result of these reductions, we had approximately 3,900 employees at September 30, 2010 as compared to approximately 4,900 at December 31, 2008. Additionally in 2009, we implemented wage freezes, suspended certain matching contributions to defined contribution and profit sharing plans and other cost reduction activities. As of September 30, 2010, the wage freeze and suspension of certain matching contributions were still in effect.

•

Additional cost savings. In 2009, we 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. The same tight control over discretionary spending has continued into 2010.

More recently, we have launched our PSO initiative. PSO utilizes our existing global footprint and unique category management insights to optimize the mix of products manufactured versus sourced, and to determine the optimal manufacturing or vendor location. We expect that PSO will allow us to deliver a high-quality, low-cost product by assembling certain products in the markets where they are sold, assembling certain products specifically in low-cost countries, and procuring certain products from selected low-cost country suppliers.

Additionally, we will continue to aggressively manage our investment in working capital.

Contractual Obligations

The following table is a summary of contractual cash obligations at December 31, 2009 (in millions):


	Payments Due by Period
	Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years		Total
Debt repayments (excluding interest) (1)	$	21.4	$	172.7	$	465.2	$	0.1	$	659.4
Interest payments (2)		25.8		137.9		10.1		See (2) below		173.8
Estimated pension funding (3)		3.1		20.4		21.7		See (3) below		45.2
Other postretirement benefit payments (4)		0.7		1.3		1.5		See (4) below		3.5
Operating leases		5.8		8.8		6.8		12.2		33.6
Purchase obligations (5)		70.9		—		—		—		70.9
Management fee (6)		2.0		4.0		4.0		See (6) below		10.0
Unrecognized tax benefits (7)
Employment agreements		0.5		—		—		—		0.5

Total contractual cash obligations	$	130.2	$	345.1	$	509.3	$	12.3	$	996.9

(1)

Debt repayments exclude $89.1 million of our Senior PIK Notes which were issued in lieu of cash interest. See (2) below for a discussion of the catch-up interest payment. Subsequent to December 31, 2009, UCI’s $230.0 million senior subordinated notes, which were due in 2013, were called for redemption on September 23, 2010 and were redeemed on October 25, 2010. See updated table below for a revised schedule of debt repayments as a result of our debt refinancing on September 23, 2010.

(2)

Estimated interest payments are based on the assumption that (i) December 31, 2009 interest rates will prevail throughout all future periods, (ii) debt is repaid on its due date, and (iii) no new debt is issued. Interest payments beyond year 5 are less than $0.1 million. Nevertheless, estimated interest payments were excluded from the table after year 5. We are required to make cash payments for all accumulated PIK interest on the Senior PIK Notes in 2012 or in some combination of 2012 and 2013, depending on certain circumstances. In the above table, the entire cash payment is presented in 2012. See updated table below for a revised schedule of interest payments as a result of our debt refinancing on September 30, 2010.

(3)

Estimated pension funding is based on the current composition of pension plans and current actuarial assumptions. Pension funding will continue beyond year 5. Nevertheless, estimated pension funding is excluded from the table after year 5. See Note 15 to our audited consolidated financial statements included elsewhere in this prospectus for the funding status of our pension plans at December 31, 2009.

(4)

Estimated benefit payments are based on current actuarial assumptions. Benefit payments will continue beyond year 5. Nevertheless, estimated payments are excluded from the table after year 5. See Note 15 to our audited consolidated financial statements included elsewhere in this prospectus for the funding status of our other postretirement benefit plans at December 31, 2009.

(5)	Included in the purchase obligations is $8.2 million related to property, plant and equipment. The remainder is for materials, supplies and services routinely used in our normal operations.

(6)

The management fee is excluded from the table after year 5. The management fee is expected to continue at an annual rate of $2.0 million as long as the ownership of the Company does not change. In connection with this offering, we expect to amend and restate the management agreement to terminate the annual management fee and will pay a one-time $5.0 million fee in connection therewith. See “Certain Relationships and Related Party Transactions.”

(7)

Possible payments of $3.9 million related to unrecognized tax benefits are not included in the table because management cannot make reasonable reliable estimates of when cash settlement will occur, if ever. These unrecognized tax benefits are discussed in Note 14 to our audited consolidated financial statements included elsewhere in this prospectus.

As a result of our debt refinancing, our contractual cash obligations for debt repayments and related interest repayments changed significantly. The following table is a summary of contractual cash obligations for debt and interest repayments at September 30, 2010 (in millions):


	Payments Due by Period
	Remainder of 2010		2011-2012		2013-2014		2015 and After		Total
Debt repayments (excluding interest)(1)	$	2.9	$	10.4	$	243.6	$	407.1	$	664.0
Interest payments(2)		6.9		188.5		73.7		52.4		321.5

(1)	Debt repayments exclude $112.1 million of Senior PIK Notes which were issued in lieu of cash interest as of September 30, 2010. See (2) below for a discussion of the catch-up interest payment.

(2)

Estimated interest payments are based on the assumption that (i) September 30, 2010 interest rates will prevail throughout all future periods, (ii) debt is repaid on its due date and (iii) no new debt is issued. Commencing on March 15, 2012 and each quarter thereafter, we are required to redeem for cash a portion of each note, to the extent required to prevent the Senior PIK Notes from being treated as an applicable high yield discount obligation. As a result, we are required to make cash payments for all accumulated PIK interest on the Senior PIK Notes in 2012 or in some combination of 2012 and 2013, depending on certain circumstances. In the above table, the entire cash payment of $112.1 million is presented in 2012.

Debt repayments, interest payments and management fee line items in the table above have not been adjusted to give effect to this offering and related transactions. See “Use of Proceeds” and “Certain Relationships and Related Party Transactions.”

Commitments and Contingencies

In December of 2009 a jury determined that Champion, our wholly-owned subsidiary, had infringed on a competitor’s patent and the court entered a partial judgment in this matter, awarding the plaintiff $6.5 million in damages and a permanent injunction. We recorded a provision of $6.5 million in the fourth quarter related to this matter. The plaintiff is currently seeking treble damages and attorneys’ fees. See “Business—Litigation—Patent Litigation.”

For a discussion of our commitments and contingencies, see “Business—Environmental and Health and Safety Matters,” “Business—Litigation,” and Note 16 to our audited consolidated financial statements and Note J to our unaudited condensed consolidated financial statements included elsewhere in this prospectus.

Recently Adopted Accounting Guidance

On September 30, 2009, we adopted changes issued by the Financial Accounting Standards Board, or FASB, to the authoritative hierarchy of accounting principles generally accepted in the United States of America, or GAAP. These changes establish the FASB Accounting Standards Codification, or ASC, 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 SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead the FASB will issue Accounting Standards Updates. Accounting Standards Updates will not be authoritative in their own right as they will only serve to update the ASC. These changes and the ASC 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 our financial statements.

Business Combinations and Consolidation Accounting

On January 1, 2009, we adopted changes issued by the FASB to consolidation accounting and reporting. These changes establish accounting and reporting for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This guidance defines a noncontrolling interest, previously called a minority interest, as the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. These changes require, among other items: 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 our financial statements. The presentation and disclosure requirements of these changes were applied retrospectively.

Effective January 1, 2010, we 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 O to our unaudited condensed consolidated financial statements as of September 30, 2010 included elsewhere in the prospectus for a discussion of the sale of our 51% owned joint venture.

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

Fair Value Accounting

On January 1, 2009, we 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 our financial statements. These provisions will be applied at such time as 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, we 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 the 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 our financial statements.

Other

On June 30, 2009, we 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 occur after the balance sheet date.

On January 1, 2009, we 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 our financial statements.

On January 1, 2009, we 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 in transferred financial assets and an enterprise’s involvement with variable interest entities and qualifying special purpose entities. We have 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, we retain no rights or interest, and have no obligations, with respect to the sold receivables. Furthermore, we do not service the receivables after the sales. Because of the terms of our sales of receivables, the adoption of the changes did not have an effect on our financial statements.

On January 1, 2009, we 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 our insignificant, if any, use of derivatives, adoption of these changes did not have an effect on our financial statements.

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 the 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 the value of plan assets; and significant concentrations of risk within plan assets. These changes became effective for us on December 31, 2009 and are reflected in Note 15 to our audited consolidated financial statements for the year ended December 31, 2009 included elsewhere in this prospectus.

Recently Issued Accounting Guidance

Revenue Recognition for Multiple-Deliverable Arrangements

In October 2009, the FASB issued changes to revenue recognition for multiple-deliverable arrangements. These changes require separation of consideration received in such arrangements by establishing a selling price hierarchy (not the same as fair value) for determining the selling price of a deliverable, which will be based on available information in the following order: vendor-specific objective evidence, third-party evidence, or estimated selling price. The changes also: eliminate the residual method of allocation and require that the consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method, which allocates any discount in the arrangement to each deliverable on the basis of each deliverable’s selling price; require that a vendor determine its best estimate of selling price in a manner that is consistent with that used to determine the price to sell the deliverable on a standalone basis; and expand the disclosures related to multiple-deliverable revenue arrangements. These changes become effective for us on January 1, 2011. Management has determined that the adoption of these changes will not have an impact on our financial statements, as we do not currently have any such arrangements with its customers.

Quantitative and Qualitative Disclosures about Market Risk

Our exposure to market risk consists of foreign currency exchange rate fluctuations and changes in interest rates.

Foreign Currency Exposure

Currency translation. As a result of international operating activities, we are exposed to risks associated with changes in foreign exchange rates, principally exchange rates between the U.S. dollar and the Mexican peso, British pound and the Chinese yuan. The results of operations of our foreign subsidiaries are translated into U.S. dollars at the average exchange rates for each relevant period, except for our Chinese subsidiaries, where cost of sales is translated primarily at historical exchange rates. This translation has no impact on our cash flow. However, as foreign exchange rates change, there are changes to the U.S. dollar equivalent of sales and expenses denominated in foreign currencies. In 2009, approximately 8% of our net sales were made by our foreign subsidiaries, and our total non-U.S. net sales represented approximately 14.7% of our total net sales. Their combined net income was not material. While these results, as measured in U.S. dollars, are subject to foreign exchange rate fluctuations, we do not consider the related risk to be material to our financial condition or results of operations.

Except for the Chinese subsidiaries, the balance sheets of foreign subsidiaries are translated into U.S. dollars at the closing exchange rates as of the relevant balance sheet date. Any adjustments resulting from the translation are recorded in accumulated other comprehensive income (loss) on our statements of changes in shareholders’ equity (deficit). For our Chinese subsidiaries, non-monetary assets and liabilities are translated into U.S. dollars at historical rates and monetary assets and liabilities are translated into U.S. dollars at the closing exchange rate as of the relevant balance sheet date. Adjustments resulting from the translation of the balance sheets of our Chinese subsidiaries are recorded in our income statements.

Currency transactions. Currency transaction exposure arises where actual sales and purchases are made by a company in a currency other than its own functional currency. In 2010, we expect to source approximately $112 million of components from China. To the extent possible, we structure arrangements where the purchase transactions are denominated in U.S. dollars as a means to minimize near-term exposure to foreign currency fluctuations. During the period from December 31, 2007 through June 30, 2008, the Chinese yuan strengthened against the U.S. dollar by approximately 6%. Since June 30, 2008, the relationship of the U.S. dollar to the Chinese yuan has remained fairly stable. In the third quarter of 2010, the Chinese government changed its policy of “pegging” the Chinese yuan to the U.S. dollar.

A weakening U.S. dollar means that we must pay more U.S. dollars to obtain components from China, which equates to higher cost of sales. If we are unable to negotiate commensurate price decreases from our Chinese suppliers, these higher prices would eventually translate into higher cost of sales. In that event we would attempt to obtain corresponding price increases from our customers, but there are no assurances that we would be successful.

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 September 30, 2010, the U.S. dollar weakened against the Mexican peso by approximately 15%, 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. These higher prices translate into higher cost of sales for our Mexican operations. We are attempting to obtain corresponding price increases from our customers served by our Mexican operations, but the weakness in the Mexican economy has limited the ability to entirely offset the higher cost of sales.

We will continue to monitor our transaction exposure to currency rate changes and may enter into currency forward and option contracts to limit the exposure, as appropriate. Gains and losses on contracts are deferred until the transaction being hedged is finalized. As of September 30, 2010, we had no foreign currency contracts outstanding. We do not engage in speculative activities.

Interest Rate Risk

We periodically enter into interest rate agreements to manage interest rate risk on borrowing activities. On September 28, 2010, in connection with the Credit Agreement, we entered into a “swaption” agreement providing us with the right but not the obligation to enter into an interest rate swap on or about March 23, 2012. If we exercise the swaption, we would effectively convert $212.5 million of variable rate debt under the Credit Agreement into fixed rate debt, with a Eurodollar rate of 2.75% plus the applicable margin under the Credit Agreement for a two-year period ending March 23, 2014. The cost of entering into the swaption was $0.5 million. While we consider the swaption to be an effective economic hedge of interest rate risks, we did not designate or account for the swaption as a hedge. Changes in the market value of the swaption are recognized currently in income.

We utilize, and we will continue to utilize, sensitivity analyses to assess the potential effect of our variable rate debt. At our September 30, 2010 debt level and borrowing rates, annual interest expense including amortization of deferred financing costs and debt discount, would be approximately $62.8 million. If variable interest rates were to increase by 0.25% per annum, the net impact would be a decrease of approximately $1.1 million of our net income and cash flow.

Treasury Policy

Our treasury policy seeks to ensure that adequate financial resources are available for the development of our businesses while managing our currency and interest rate risks. Our policy is to not engage in speculative transactions. Our policies with respect to the major areas of our treasury activity are set forth above.

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UCI International, Inc. S-1/A