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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

FOR ANNUAL AND TRANSITION REPORTS

Commission file number: 333-107219

United Components, Inc.

Registrant’s telephone number, including area code: (812) 867-4156

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

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

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     þ

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).     Yes o          No þ

Documents Incorporated by Reference: None

TABLE OF CONTENTS

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PART I

Overview

      We were incorporated on April 16, 2003, and on June 20, 2003, we purchased all of our operating units from UIS, Inc., and UIS Industries, Inc. (together “UIS”). For more information regarding the purchase of our operations, see “The Acquisition and Ownership” section, which immediately follows this overview.

      Prior to June 20, 2003, our operations comprised the vehicle parts business of UIS. Beginning with the purchase of Airtex in 1958, UIS continued acquisitions in the automotive industry over the following four decades resulting in the acquisitions of Wells Manufacturing, Champion Laboratories, Neapco, Flexible Lamps and Pioneer. Over the years, UIS achieved growth in these businesses through increased parts offerings and domestic and international expansion.

      We are among North America’s largest and most diversified companies servicing the vehicle replacement parts market, or the aftermarket. We supply a broad range of filtration products, fuel and cooling systems, engine management systems, driveline components and lighting systems to the automotive, trucking, marine, mining, construction, agricultural and industrial vehicle markets. We estimate about 80% of our net sales in 2003 were made in the aftermarket, to a customer base that includes some of the largest and fastest growing companies servicing the aftermarket. We believe we have leading market positions in our primary business lines, including fuel and cooling systems, filtration products and engine management systems. We continue to expand our product and service offerings to meet the needs of our customers, and we believe that we offer one of the most comprehensive lines of products in the vehicle replacement parts market consisting of approximately 60,000 part numbers. We believe our breadth of product offering is a key competitive advantage. 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. We have established a network of manufacturing facilities, distribution centers and offices located in the United States, Europe, Mexico and China, with a global work force of more than 6,500 employees as of December 31, 2003. In 2003, our net sales were $959.3 million.

      Unlike many companies that are exclusively or primarily original equipment suppliers, our sales do not necessarily correlate to annual vehicle production. Rather, we believe that the majority of our sales tend to track more closely with the overall growth of the aftermarket. According to the 2003 AAIA Report, the automotive aftermarket (excluding tires) has grown at an annual rate of approximately 4.1% from 1997 through estimated 2003, or 27% during this six-year period, with the lowest year of growth in 1998 of approximately 2.9%. We believe that the aftermarket will continue to grow as a result of increases in the median age of vehicles, average number of miles driven per year by passenger cars, number of vehicles registered in the United States, number of licensed drivers and number of light trucks and sport utility vehicles, which generally require higher priced replacement parts.

      We believe our primary product lines are well positioned in the aftermarket, as our filtration products have relatively short and predictable replacement cycles and our fuel and cooling systems and engine management systems are non-discretionary replacement items. The need for our products increases as cars reach the prime age (six years or more) for aftermarket maintenance. We believe our diversity across products and sales channels is also among the most attractive in the industry, and this diversity allows us to benefit from positive trends impacting different products and sales channels. We have also developed longstanding relationships with our customers through our breadth of product offering, emphasis on customer service, product quality and competitive pricing, as evidenced by the numerous customer awards we have earned over the years. Our customer base includes leading aftermarket companies such as Advance Stores Company, Inc. (Advance Auto Parts), Valvoline Company, a division of Ashland Inc. (Valvoline), AutoZone, Inc. (AutoZone), Carquest Corporation (CARQUEST), MDSA, Inc. (Mighty) and National Automotive Parts Association, a wholly-owned subsidiary of Genuine Parts Company (NAPA), as well as a diverse group of original equipment manufacturers, or OEMs, such as DaimlerChrysler Corporation (DaimlerChrysler), CNH Global N.V. (Case New Holland), Ford Motor Company, Inc. (Ford), General Motors Corporation (GM),

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The Acquisition and Ownership

      On June 20, 2003, we purchased, from UIS, its vehicle parts businesses, consisting of all of the issued and outstanding common stock or other equity interests of Champion Laboratories, Inc., Wells Manufacturing Corporation, Neapco Inc., Pioneer, Inc., Wells Manufacturing Canada Limited, UIS Industries Ltd. (which is the owner of 100% of the capital stock of Flexible Lamps, Ltd. and Airtex Products Ltd.), Mid-South Mfg., Inc., Airtex Products S.A., Airtex Products, Inc., (currently Airtex Mfg., Inc.), Talleres Mecanicos Montserrat S.A. de C.V., Brummer Seal de Mexico, S.A. de C.V., Brummer Mexicana en Puebla, S. A. de C.V., Automotive Accessory Co. Ltd and Airtex Products, LLC, a limited liability company that owns the assets of the Airtex Products business of UIS, Inc. We refer to this transaction as the “Acquisition”.

      The purchase price paid was $808 million, plus transaction fees. The Acquisition was financed through a combination of debt and $260 million in cash contributed to us as equity by our parent, UCI Acquisition Holdings, Inc. through contributions from Carlyle Partners III, L.P. and CP III Coinvestment, L.P. We are a wholly owned subsidiary of UCI Acquisition Holdings, Inc. We and UCI Acquisition Holdings are corporations formed at the directions of The Carlyle Group.

Our Products

      We design, develop, manufacture and distribute a broad range of vehicle replacement parts, including filtration products, fuel and cooling systems, engine management systems, driveline products and commercial vehicle lighting systems. Our products are described below:

      See “Our Product Categories” at the end of this “Item 1. Business” overview section for more information.

Our Industry

      The North American vehicle parts industry contains numerous participants, many with less diverse product lines than ours. We believe industry participants are increasingly focused on limiting their supplier base, and therefore place a premium on suppliers with a diverse offering of quality products, customized service and consistent and timely availability and delivery of products. Our industry is also characterized by relatively high barriers to entry, which include the need for significant start-up capital expenditures, initial product depth within a product line, distribution infrastructure and long-standing customer relationships.

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      The vehicle parts industry is comprised of four main sales channels: the retail sales channel, the traditional sales channel, the original equipment service, or OES, sales channel and the OEM sales channel. The retail, traditional and original equipment service sales channels together comprise the aftermarket. The characteristics of the aftermarket vary considerably from that of the OEM sales channel. While product sales for use by OEMs are one-time sales events, product sales in the aftermarket are of replacement products that are repeatedly purchased.

      Historically, the largest portion of our net sales have been to the aftermarket portion of the vehicle parts industry. According to the AAIA Report, the U.S. automotive aftermarket (excluding tires) is large and fragmented with an estimated $166 billion of aggregate retail sales in 2003, and is organized around two groups of end-users: the do-it-yourself group, or DIY group, and the do-it-for-me group, or DIFM group. The DIY group, which is supplied primarily through the retail channel (e.g., Advance Auto Parts, AutoZone, Pep Boys and Wal-Mart), represents an estimated 21% of industry-wide aftermarket sales in 2003, and consists of consumers who prefer to do various repairs on their vehicles themselves. The DIFM group is supplied primarily through the traditional channel (e.g., CARQUEST and NAPA), which represents an estimated 79% of industry-wide aftermarket sales in 2003, and consists of car dealers, repair shops, service stations and independent installers who perform the work for the consumer. In addition, the OES sales channel includes service bays at vehicle dealerships.

      There are many factors, as supported by the AAIA Report unless otherwise indicated, that contribute to the strong growth of aftermarket sales, including:

      Consumers are retaining their cars longer. According to R.L. Polk and Co., the median age for passenger cars has increased 76% from 4.9 years in 1970 to a median of 8.6 years in 2003. Because of the significant increase in new car sales in the late 1990s, a surge of vehicles entering the prime age for aftermarket maintenance is expected to begin in 2004.

      Increasing miles driven. The demand for the majority of our products is tied to the regular replacement cycle or the natural wearing cycle of a vehicle part based on actual miles driven. According to the 2003 Automotive Industry Status Report prepared by Motors & Engine Mechanics Association, or MEMA, annual miles driven in the United States by all types of wheeled vehicles increased every year between 1970 and 2001 with the exception of the three years coinciding with the oil crises of 1974, 1979 and 1980. From 1992 to 2001, the average miles driven for passenger cars increased over 11% over the nine-year period, according to the AAIA Report, and we believe this trend is likely to continue

      Increasing number of registrations. Since 1993, the number of registered passenger cars and light trucks, or light vehicles, has increased by 20% and the number of licensed drivers has grown by 13%. In 2000, the U.S. light vehicle market achieved the highest total sales on record with 17.4 million cars and light trucks sold. We believe the buildup in vehicle sales volumes between 1999 and 2002 will also drive the growth in the installed base of older vehicles over the next several years.

      Shifting vehicle mix. The number of light vehicles in use has increased over the past ten years, driven primarily by growing consumer interest in pickup trucks and sports utility vehicles, or SUVs. From 1993 to 2002, the number of light trucks in use grew annually by 4.5%, as compared to the 0.8% annual increase in passenger cars in use during the same period. In 2002, light trucks accounted for more than half of all light vehicle sales (up from 39% in 1993). This trend is significant as light truck parts are generally more expensive than the parts for passenger cars.

Our Competitive Strengths

      Leading Market Positions. We are among North America’s largest companies serving the aftermarket, supplying a broad range of vehicle replacement products. We have served customers with our products for over 20 years and, as a result, we have developed a strong portfolio of quality products that we believe have achieved market leadership positions. As a result of our performance record, we have won a number of awards from our customers. We believe we have leading market positions in several of our key business lines, including fuel and cooling systems, filtration products and engine management systems.

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      Breadth of Product Offering and Service. We believe our product portfolio is one of the broadest in the North American vehicle parts industry. We currently offer approximately 60,000 part numbers, which provide our business with a competitive advantage by enabling us to offer our customers a wide array of quality products. In addition, we believe we have an excellent reputation with our customers for providing top quality components, as well as timely delivery, high unit fill rates and customer service.

      Diversified Businesses. We believe the diversity across our products and sales channels is among the most attractive in the industry. Our diversification enables us to capitalize on the growth of the traditional channel, align ourselves with rapidly growing retailers, enhance our recognition in the aftermarket through original equipment sales and increase our ability to pursue sales in other growth areas, including the heavy-duty filtration market. We also believe our diversification, combined with the non-discretionary replacement nature of our products, lessens the impact of an economic downturn on our business. The following table describes our approximate 2003 net sales by percentage of product and percentage of sales channel:

2003 Net Sales

(1)	Other Filters includes cabin air filters, hydraulic filters, transmission filters, PVC valves and industrial filters.
(2)	Engine, Driveline and Lighting Systems primarily includes ignition products, signal lighting equipment, specialty distribution, engine management systems, universal joints, electronic controls and heavy-duty components.

      Experienced Management Team. Our operations are led by an experienced management team with an average of almost 20 years of industry experience. In addition, David Squier, the former Chief Executive Officer of Howmet Corporation, is our Chairman of the Board and Bruce Zorich, the former Chief Executive Officer of Magnatrax Corporation and former President of Huck International, Inc., is our Chief Executive Officer. Both of these individuals have experience with implementing lean manufacturing methodologies to realize cost savings and improve cash flow.

Our Strategy

      Our strategic objective is to maximize our return on invested capital by using our strong market position, our breadth of product offering and our strong customer relationships to take advantage of the increasing demand for vehicle replacement parts.

      Focus on Operating Efficiency. We have pursued and will continue to pursue opportunities to optimize our resources and reduce manufacturing costs by, among other things, executing strategic initiatives aimed at improving our operating performance and lowering our manufacturing costs. In 2003, we continued our implementation of a capital investment plan at our filtration production operations, which is designed to expand capacity and reduce manufacturing costs by focusing on lean manufacturing techniques and

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      Capitalize on Favorable Aftermarket Trends. Several trends are likely to affect growth and profitability positively in the aftermarket, including increases in the median age of vehicles, average number of miles driven per year by passenger cars, number of vehicles registered in the United States, number of licensed drivers and number of light trucks and sport utility vehicles, which generally require higher priced replacement parts. Because of our breadth and depth of product offerings, diversity of sales channels served and leading market positions, we believe we are well-positioned to benefit from this growth in the aftermarket. As such, we are focused on expanding our product lines and solidifying our position as a sole-source provider of aftermarket filtration products, pumps, engine management systems and driveline components for many of our customers.

      Expand our Products and Markets Served. We also plan to expand in several fast growing product lines that we believe offer substantial growth opportunities, such as filtration products for the heavy-duty channel and fuel pump assemblies for the aftermarket. We are also pursuing the growth of our business in the Mexican aftermarket. According to the AAIA Report, Mexico has an increasingly large number of vehicles that are older on average than those in the United States, which we believe will result in an increased demand for replacement products. We currently have three manufacturing facilities in Mexico, and we intend to use the Mexican market as an entry point into Central and South America, where countries including Brazil, Chile, and Venezuela may become targets for selective expansion.

      Capitalize on Integration Opportunities. Prior to the Acquisition, separate back office functions were maintained for each of our businesses. We are beginning the process of integrating some of these functions, and we believe that successful integration of these back office functions, combined with continued low-cost sourcing and selective plant and distribution facility consolidation, could generate meaningful savings for us. However, while we believe there are significant savings to be gained through integration, our primary focus will be to share our best practices and to continue to implement lean manufacturing techniques.

Our Sales Channels and Customers

      As of December 31, 2003, we distributed our products to more than 8,000 customers across several sales channels, including the retail, traditional, installer, and OES aftermarket channels and original equipment manufacturers of automotive, trucking, agricultural, marine, mining and construction equipment. We have maintained longstanding relationships with our customers and have been servicing many for well over a decade. Some of our most significant customers include AutoZone, GM, CARQUEST, Ford, Valvoline and Advance Auto Parts. Sales to AutoZone were approximately 23% of our total net sales in both 2003 and 2002. Over the last few years, we believe several customers transitioned to us as a result of their need for improved product quality and service.

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      The following table provides a description of the various sales channels to which we supply our products.

      Our sales are diversified between the retail, traditional, installer, OES, heavy-duty and OEM channels, which enables us to capture demand throughout the life cycle of the vehicle. In the early part of a vehicle’s life, the OES channel services a significant percentage of aftermarket vehicle maintenance and repair volume. However, as vehicles age and their warranties expire, consumers increasingly rely on the retail or traditional channels for vehicle maintenance.

      We estimate that about 80% of our net sales in 2003 were to the aftermarket, which is subdivided into four primary channels: the retail channel, the traditional channel, the installer channel and the OES channel.

      The retail channel represented approximately 30% of our net sales in 2003, and includes national retailers such as AutoZone and Advance Auto Parts. The retail channel is our largest channel, and has historically provided us with a steadily increasing revenue stream. As retailers become increasingly focused on consolidating their supplier base, we believe that our broad product offering, product quality and customer service make us increasingly valuable to these customers. One of our longest standing customers is AutoZone, which we have been supplying since the opening of their first store in 1979. We believe that we are one of the few suppliers in the industry that can provide AutoZone with the levels of quality, customer service and product breadth that AutoZone requires, which is substantiated by our receipt of AutoZone’s Vendor of the Year Award in 1997, 1999 and 2000. Awards from other customers include Automotive Parts Associates Preferred Vendor of the Year 2003, Advance Auto Parts Vendor of the Year 2002, and National Pronto Supplier of the Year 1998.

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      The traditional distribution channel is composed of established warehouses and represented approximately 20% of our net sales in 2003. The traditional channel is important to us because it is the primary source of products for professional mechanics, or DIFM market. We have many longstanding relationships with leading customers in the traditional channel such as CARQUEST and NAPA, for whom we have manufactured products for over 20 years. We believe that our strong position in this channel allows us to capitalize on the fast growth of the traditional channel within the aftermarket. We believe that professional mechanics place a premium on the quality of a product, and unlike the retailer and installer channels, end users in this channel require manufacturers to provide a high level of individual customer service, including field support and product breadth and depth. We have recently been awarded several new contracts in this channel and continue to pursue others.

      The OES channel is comprised of a diverse mix of dealership service bays in the automotive, truck, motorcycle and watercraft vehicle markets, and represented approximately 9% of our net sales in 2003. In 2003, we estimate that a substantial majority of our OES net sales were derived from sales of filtration products. Our position in this channel allows us to capitalize on vehicle maintenance in the early years of a vehicle’s life, when the vehicle is under warranty and the consumer typically returns to the dealer for routine maintenance. Our most significant OES channel customers include automotive dealerships associated with companies such as GM, Ford and DaimlerChrysler and other dealerships such as Bombardier.

      The installer channel represented approximately 9% of our net sales in 2003 and includes quick lubes, tire dealers and full service gas stations. Almost all of our sales into this channel consist of filtration products, which are supplied to the national and regional service chains through distributors such as Valvoline and Mighty. We believe the installer channel is a growth area for our filtration products because consumers increasingly prefer to have professionals maintain their vehicles as vehicles become increasingly complex. This channel requires just-in-time availability, ability to meet competitive price points, and product breadth and depth.

      Although the OEM channel comprised less than 15% of our net sales in 2003, it is an important sales channel to us because OEM affiliations have a direct impact on our aftermarket credibility. We believe aftermarket customers show a preference for products that were utilized in original equipment. We sell products to a diverse mix of OEMs, enabling us to capitalize on a number of different opportunities and market shifts. Our OEM products are sold to end users within each of the following categories:

	•	Automotive — GM, Ford, DaimlerChrysler, Volkswagen and Mazda
	•	Recreational Equipment — Polaris and Onan.
	•	Heavy-duty Truck — Freightliner, Caterpillar and GM.
	•	Agriculture — John Deere and Kubota.
	•	Marine — OMC, Mercury Marine, and Sierra Supply.
	•	Lawn and Garden — Briggs and Stratton, Kohler and John Deere.
	•	Motorcycle — Harley-Davidson and Kawasaki.

      We have earned a number of awards and certifications for customer service and product quality, including General Motors’ Supplier of the Year award in 1995 and 1996, Ford’s Preferred Quality Award from 1984 through 2003, Caterpillar’s Certified Supplier Award from 1996 to 2002 and John Deere’s Quality Certification Award from 1996 through 2003.

      We believe the large and highly fragmented heavy-duty channel, which accounted for approximately 9% of our net sales in 2003, provides us with one of our best opportunities for growth. We believe heavy-duty truck owners tend to be less price sensitive and more diligent about maintenance of their vehicles than vehicle

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Sales, Marketing and Distribution

      We market our products predominantly throughout North America and Europe. The sales force is organized and aligned by distribution channel, serving both the traditional and retail channels of the aftermarket, the heavy-duty channel and the original equipment manufacturers channel to effectively address the requirements of our customers and end users. Our sales people are primarily organized by product category and secondarily by sales channel.

      We use both direct sales representatives and independent manufacturers’ representatives to market and sell our products. The number of sales personnel varies within each sales group, ranging from under 10 people in our French sales team for lighting systems to over 100 in our aftermarket sales group for fuel and cooling system products. Each sales group is uniquely qualified to sell their particular products and to focus on the requirements of their particular market. We believe that the market positions we hold with respect to certain of our products are in part related to the specialization of our sales groups.

      We distribute our products primarily into the aftermarket. The aftermarket is further divided into four primary channels: the retail, traditional, installer and OES channels. The OEM market consists of original equipment manufacturers in the automotive, marine, agriculture and heavy-equipment industries.

      Within the traditional channel, a manufacturer of automotive parts sells to traditional and specialty warehouses. Most warehouses in the traditional market belong to buying groups referred to as Program Distribution Groups (e.g., Alliance, Federated and National Pronto). These warehouses sell to wholesale jobbers who redistribute to DIFM outlets. This is an important channel to us because it is the primary source of supply for professional mechanics. Several large oil companies, such as Valvoline and Pennzoil Quaker State purchase directly from manufacturers and distribute filters and other products with their branded motor oil. Within the retail channel, most sales are direct transactions between the manufacturer and retailer, such as Advance, AutoZone, CSK and Pep Boys.

Operations

      Our operational strategy is to pursue operational excellence at all of our locations. This initiative encompasses a lean enterprise strategy, the goals of which include improvement of inventory management, customer delivery, plant utilization and cost structure. The foundation for this is lean manufacturing, which targets the elimination of waste from every business process. This involves transforming our manufacturing processes from typical batch systems to single piece flow systems, which will enable us to better match production to customer demand. To achieve this transformation, employees are being trained to implement value stream mapping and implement Kanban to improve production, lead times and reduce inventory. Kanban is a system that allows a company to manufacture a product or order supplies as needed. The system reduces production lead times, amount of inventory required, and subsequently, the costs in high volume production lines.

      Several of our plants have made good progress in the implementation of lean manufacturing and have received related benefits. We plan to expand and accelerate the use of lean manufacturing across all of our operations. This expansion is being accomplished by applying additional resources, outside consultant support, the sharing of best practices, and the establishment of appropriate metrics and incentives. An industry expert has been hired as Vice President of Lean Manufacturing to drive our lean manufacturing initiatives.

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      In addition, we will examine each of our logistics and distribution systems with an objective of developing an integrated system that fully meets customer requirements, eliminates redundancies, lowers costs and minimizes inventories and cycle times. Going forward, we expect to continue to enhance our lean strategy by utilizing our senior management team’s experience with similar programs at Howmet Corporation and Huck International.

Suppliers and Raw Materials

      We purchase various components and raw materials for use in our manufacturing processes. In 2003, we sourced the raw materials used in our manufacturing processes from approximately 1,800 suppliers. The primary raw materials that we use include steel, brass, iron, rubber, resins, plastic, paper and packaging material, each of which is available in sufficient quantities from numerous sources. We have not historically experienced any shortages of these items.

      Currently, each of our product groups has its own purchasing staff, which makes its purchasing decisions. We intend to have a centralized purchasing group which will facilitate the spread of best practices and will enable us to leverage the buying power of all of UCI. That central group will continue to be supported by a smaller number of product group level purchasing personnel making many of the day-to-day purchasing decisions. We believe that centralized procurement and increased global sourcing represent attractive opportunities to lower the cost of our purchased materials. A Vice President of Procurement has been recently added to our central staff, and the centralization process has begun. Significant benefits are already being realized.

Trademark and Patents

      We rely on a combination of patents, trademarks, copyright and trade secret protection, employee and third-party non-disclosure agreements, license arrangements and domain name registrations to protect our intellectual property. We sell many of our products under a number of registered trademarks, which we believe are widely recognized in the sales channels we serve. No single patent, trademark or trade name is material to our business as a whole.

      Any issued patents that cover our proprietary technology and any of our other intellectual property rights may not provide us with adequate protection or be commercially beneficial to us. The issuance of a patent is not conclusive as to its validity or its enforceability. Our competitors may also be able to design around our patents. If we are unable to protect our patented technologies, our competitors could potentially commercialize our technologies.

      With respect to proprietary know-how, we rely on trade secret protection and confidentiality agreements. Monitoring the unauthorized use of our technology is difficult, and the steps we have taken may not prevent unauthorized use of our technology. The disclosure or misappropriation of our intellectual property could harm our ability to protect our rights and our competitive position.

Employees

      As of December 31, 2003, we had more than 6,500 employees and several different union affiliations and collective bargaining agreements across our businesses, mostly concentrated in Mexico, representing approximately 21% of our workforce. Management considers our labor relations to be good and our labor rates competitive. Other than a short-term stoppage in April 1997 at one of our smaller plants in Pottstown, Pennsylvania, we have not had a labor stoppage since 1984.

Our Product Categories

      We have an extensive product offering made up of approximately 60,000 part numbers. Our products can be categorized into three primary categories: filtration products, which primarily includes oil, air and fuel filters; fuel and cooling systems, which mainly consists of fuel pumps, fuel pump assemblies and water pumps;

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          Filtration Products

      We are a leading designer and manufacturer of a broad range of filtration products for the automotive, trucking, construction, mining, agriculture and marine industries as well as other industrial markets. We distribute into both the original equipment manufacturer and the aftermarket channels. We are one of the leading global manufacturers of private label filter products for companies such as AutoZone, GM and Valvoline. Our filtration product offering consists of approximately 4,100 part numbers and includes oil filters, air filters, fuel filters, transmission filters, cabin air filters, PCV valves, hydraulic filters, fuel dispensing filters and fuel/water separators. Filtration products comprised approximately 37% of our net sales in 2003. The table below summarizes our product offerings.

      In an effort to improve our cost structure, in 2001 we completed construction of a new manufacturing facility in Saltillo, Mexico. We have also recently completed an $18.6 million major expansion and efficiency improvement project at our Albion, Illinois manufacturing site. This effort was the first phase, or Phase I, in a two-phase capital investment plan designed to improve operating efficiency and lower costs. We completed Phase I early in the third quarter of 2003.

      We recently initiated Phase II of the capital investment plan. Among other things, the project will add two new high-speed oil assembly lines in Albion and relocate most of the West Salem, Illinois operations to Albion. We expect Phase II will generate additional manufacturing capacity and lower our overall manufacturing costs, which we believe will position us to pursue new business opportunities and market share.

      We are also focused on increasing our penetration into the heavy-duty channel. The heavy-duty channel represents our most significant opportunity for growth with respect to filtration, and we believe that our heavy-duty sales could experience meaningful growth for our Luber-finer branded filters. We are investing capital to improve capacity utilization, employee productivity and distribution in this channel, which will enable us to manufacture a greater proportion of our heavy-duty product line. Prior to the Phase I capital investment plan, we were operating at 100% capacity in heavy-duty filters, and therefore, were unable to grow this business.

      According to the April 2001 North America Automotive Filter Aftermarket Report No. 7886-18 prepared by Frost & Sullivan, which we refer to as the Frost & Sullivan Filter Report, in 2000, the total North American automotive filter market generated an estimated $1.3 billion in manufacturer-level revenues and is expected to grow at approximately 3.0% annually during 2000 to 2007, reaching $1.5 billion by 2007. The two primary factors driving this growth are the number of cars on the road and the number of miles being driven. As vehicle owners are driving their vehicles for longer periods of time and for more miles, the total demand for filters is increasing. The rate of replacement of automotive filters exceeds that of all other auto parts.

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	•	Oil filters. According to the Frost & Sullivan Filter Report, in 2000, the North American oil filter aftermarket generated an estimated $848 million in manufacturer-level revenues, or 67% of the total North American automotive filter aftermarket.
	•	Air filters. According to the Frost & Sullivan Filter Report, in 2000, the North American air filter aftermarket generated an estimated $280 million in manufacturer-level revenues, or 22% of the total North American automotive filter aftermarket.
	•	Fuel filters. According to the Frost & Sullivan Filter Report, in 2000, the North American fuel filter aftermarket generated an estimated $124 million in manufacturer-level revenues, or 10% of the total North American automotive filter aftermarket.

      According to the Frost & Sullivan Filter Report, the North American automotive filter aftermarket is comprised of several large manufacturers and we, Honeywell Consumer Product Group (FRAM), ArvinMeritor (Purolator), and Wix Filtration of Dana Corporation control approximately 90% of the market with shares split between the four companies. In the heavy-duty channel, we believe our market share ranks behind Cummins, Donaldson and Clarcor.

          Fuel and Cooling Systems

      We design and manufacture a broad range of fuel pump and cooling systems. Our fuel and cooling systems are distributed to both the OEM and the aftermarket under the Airtex and Master Parts brand names and some private labels. The table below sets forth a summary of our product offerings.

      We are currently in the final stages of a facility expansion in Puebla, Mexico, where upon completion, we will double our foundry capacity for water pumps. We also have a strategic arrangement with a Chinese manufacturer for the supply of various water pump components. We believe these initiatives have positioned us to take advantage of lower-cost labor rates, thereby reducing manufacturing costs on high labor content products.

      To strengthen our OEM market share in fuel systems, we have recently developed two new programs: demand delivery returnless fuel systems and a fuel-conditioning module for diesel applications. Our demand delivery returnless fuel system utilizes a patented electronic system, engineered to control the responses of a comprehensive fuel pump process for light vehicles. To compliment the demand delivery program for the diesel market, we have co-developed a fuel-conditioning module with Parker Hannifin Corp. This system has expanded our relationships with Parker Hannifin, Caterpillar and other OEM customers.

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      The fuel pump aftermarket and OEM markets are concentrated in the hands of several large manufacturers. According to the 2003 United States Automotive Fuel Pump Aftermarket Report No. A542-18 prepared by Frost & Sullivan, in 2003, we and our top competitor together controlled 59% of the U.S. electric fuel pump aftermarket. We believe we are a leader in the aftermarket for water pumps. Our primary competitors are ASC Industries, Inc. and GMB North America Inc.

     Engine, Driveline and Lighting Systems

      Four of our wholly owned subsidiaries, Wells Manufacturing, Neapco, Flexible Lamps and Pioneer, produce products that we describe as our engine, driveline and lighting systems. Our engine, driveline and lighting systems businesses consist of four broad product lines, which include engine management systems, driveline products, lighting systems and specialty distribution. U.S. sales account for approximately 83% of our engine, driveline and lighting systems revenues, while international sales constitute the remaining 17%. More than two-thirds of the 2003 sales outside of the U.S. were made in Europe, while the balance of the remaining sales were predominantly made in Canada and Mexico.

      We believe that we have one of the industry’s most comprehensive lines of highly engineered engine management system components, commercial lighting systems and driveline components for use in a broad range of vehicle platforms. Additionally, our engine, driveline and lighting systems offerings allow us to distribute specialty or “hard-to-find” products to the aftermarket and OEM channels. The following table provides a description of the principal products comprising our engine, driveline and lighting systems businesses.

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      The competitors for our engine, driveline and lighting systems businesses are involved in manufacturing and distributing engine management systems, driveline components and lighting systems to the aftermarket, as well as aftermarket specialty distribution. Within the North American engine management systems aftermarket, Standard Motor Products and Bosch are our two largest competitors. The market for driveline components is comprised of small private manufacturers and divisions of large, multi-national manufacturers. The European signal lighting equipment market competition is concentrated among a select number of large, multi-product automotive suppliers and several smaller manufacturers that focus primarily on lighting products. Our direct competition in the North American specialty distribution market comes primarily from small, family-owned operations. Many of these companies are niche industry participants with narrow product line offerings.

      We are subject to a variety of federal, state, local and foreign environmental laws and regulations, including those governing the discharge of pollutants into the air or water, the management and disposal of hazardous substances or wastes and the cleanup of contaminated sites. Some of our operations require environmental permits and controls to prevent and reduce air and water pollution, and these permits are subject to modification, renewal and revocation by issuing authorities. We are also subject to the U.S. Occupational Health and Safety Act and similar state and foreign laws. We believe that we are in substantial compliance with all applicable material laws and regulations in the United States. Historically, our costs of achieving and maintaining compliance with environmental and health and safety requirements have not been material to our operations.

      Some environmental laws, such as the U.S. Federal Superfund law and similar state statutes, can impose liability for the entire cost of cleanup of contaminated sites upon any of the current or former site owners or operators, or upon parties who sent waste to these sites, regardless of whether the owner or operator owned the site at the time of the release of hazardous substances or the lawfulness of the original disposal activity. We have been identified as a potentially responsible party for contamination at several contaminated sites and currently are addressing historic contamination at other facilities. These activities include remediation of a former Champion/ Interlee facility in Edison, New Jersey, where the New Jersey Department of Environmental Protection has ordered Champion to continue with an ongoing groundwater remediation of chlorinated solvent contamination. Champion is currently seeking a declaratory judgment that this contamination was caused by another party at a neighboring facility. The California Regional Water Quality Control Board has also requested that Champion investigate and remediate solvent and petroleum contamination at a previously owned site in Solano County, California. An investigation is underway. Our costs in connection with some of these sites are difficult to predict; however, we do not expect them to exceed amounts accrued in the December 31, 2003 balance sheet by a material amount, if at all.

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      We currently maintain 26 manufacturing facilities, 19 of which are located in North America, six in Europe and one in Asia. In addition, we maintain 24 distribution and warehouse facilities. Listed below are the locations of our principal manufacturing facilities:

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