<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
( X )QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1997
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from___________________to_________________
Commission File Number 0-21803
AFTERMARKET TECHNOLOGY CORP.
-----------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 95-4486486
- - --------------------------- ------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
900 Oakmont Lane - Suite 100, Westmont, IL 60559
- - ------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (630) 455-6000
Former Address, Changed Since Last Report: 33309 First Way South, Suite A-206,
Federal Way, Washington 98003
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 (X) No ( )
As of April 30, 1997, there were 16,993,794 shares of common stock of the
Registrant outstanding.
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<PAGE>
AFTERMARKET TECHNOLOGY CORP.
FORM 10-Q
TABLE OF CONTENTS
Page Number
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets at March 31, 1997 (unaudited)
and December 31, 1996............................. .... 3
Consolidated Statements of Income (unaudited) for the Three
Months Ended March 31, 1997 and 1996....................... 4
Consolidated Statements of Cash Flows (unaudited) for the
Three Months Ended March 31, 1997 and 1996................ 5
Notes to Consolidated Financial Statements................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................8
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K........................... 11
Exhibit No. 11. - Calculation of Net Income Per Share................12
Signatures ................................................................13
EXHIBIT INDEX..............................................................14
Note: Items 1 - 5 of Part II are omitted because they are not
applicable.
-2-
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1997 1996
------------ ------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 3,930,983 $ 46,498,249
Accounts receivable, net 44,177,636 38,779,538
Inventories 67,838,394 60,586,056
Prepaid and other assets 2,526,288 2,916,197
Deferred tax assets 2,387,665 2,272,000
------------ -------------
Total current assets 120,860,966 151,052,040
Equipment and leasehold improvements:
Machinery and equipment 14,641,723 12,907,232
Autos and trucks 2,070,548 2,012,450
Furniture and fixtures 2,007,110 1,552,660
Leasehold improvements 4,943,001 4,584,329
------------ -------------
23,662,382 21,056,671
Less accumulated depreciation and amortization (4,268,803) (3,574,276)
------------ -------------
19,393,579 17,482,395
Debt issuance costs, net 4,897,609 6,320,179
Cost in excess of net assets acquired, net 151,054,054 145,430,296
Other assets 616,407 461,714
------------ -------------
Total assets $296,822,615 $ 320,746,624
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 19,335,468 $ 25,225,797
Accrued payroll and related costs 3,922,032 4,429,339
Accrued interest payable 2,574,996 7,995,405
Other accrued expenses 3,923,147 3,371,562
Bank lines of credit 29,412,907 4,334,686
Income taxes payable 1,007,655 321,299
Due to former stockholders 2,002,824 2,002,824
------------ -------------
Total current liabilities 62,179,029 47,680,912
12% Series B and D Senior Subordinated Notes 121,436,441 161,981,356
Deferred tax liabilities 5,527,662 5,252,000
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares - 5,000,000
Issued and outstanding shares - none at
March 31, 1997 and December 31, 1996,
respectively - -
Common stock, $.01 par value:
Authorized shares - 30,000,000
Issued and outstanding shares - 16,980,794
at March 31, 1997 and December 31, 1996,
respectively 169,808 169,808
Additional paid-in capital 81,379,860 81,379,860
Retained earnings 26,057,483 24,239,467
Cumulative translation adjustment 72,332 43,221
------------ -------------
Total stockholders' equity 107,679,483 105,832,356
------------ -------------
Total liabilities and stockholders' equity $296,822,615 $ 320,746,624
------------ -------------
------------ -------------
-3-
SEE ACCOMPANYING NOTES.
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Three Months
Ended Ended
March 31, March 31,
1997 1996
------------ -------------
(Unaudited)
Net sales $ 82,688,871 $ 64,146,518
Cost of sales 51,113,124 38,359,022
------------ -------------
Gross profit 31,575,747 25,787,496
Selling, general and
administrative expense 17,459,869 12,462,567
Amortization of intangible assets 984,378 915,655
------------ -------------
Income from operations 13,131,500 12,409,274
Interest and other income 701,479 222,118
Interest expense 4,523,722 5,064,175
------------ -------------
Income before income taxes 9,309,257 7,567,217
and extraordinary item
Provision for income taxes 3,741,926 3,168,416
------------ -------------
Income before extraordinary item 5,567,331 4,398,801
Extraordinary item - net of income tax
benefit of $2,520,443 - Note 4 3,749,315 -
------------ -------------
Net income 1,818,016 4,398,801
------------ -------------
Dividends accrued on preferred stock - 544,630
------------ -------------
Net income available to common
stockholders $ 1,818,016 $ 3,854,171
------------ -------------
------------ -------------
Per share of common stock:
Income before extraordinary item $ 0.29 $ 0.28
Extraordinary item, net of tax (0.20) -
------------ -------------
Net income per share $ 0.09 $ 0.28
------------ -------------
------------ -------------
Shares used in calculation of
net income per share 19,263,391 15,441,679
------------ -------------
------------ -------------
-4-
SEE ACCOMPANYING NOTES.
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Three Months
Ended Ended
March 31, March 31,
1997 1996
------------ -------------
(Unaudited)
OPERATING ACTIVITIES:
Net Income $ 1,818,016 $ 4,398,801
Adjustments to reconcile net income to
net cash used in operating activities:
Extraordinary item 6,269,758 -
Depreciation and amortization 1,678,958 1,342,483
Amortization of debt issuance costs 220,109 205,314
Increase in allowance for
losses on accounts receivable 164,851 145,188
Loss (gain) on sale of equipment (7,175) 8,204
Increase in net deferred tax liabilities 159,997 (14,501)
Changes in operating assets and liabilities:
Accounts receivable (4,379,633) (2,454,368)
Inventories (1,337,698) (5,182,561)
Prepaid and other assets 237,898 (234,145)
Accounts payable and accrued expenses (12,548,785) 1,075,749
------------ ------------
Net cash used in operating activities (7,723,704) (709,836)
INVESTING ACTIVITIES:
Purchases of equipment (2,209,212) (1,126,758)
Acquisition of companies, net of cash received (12,184,068) -
Proceeds from sale of fixed assets 10,616 3,500
------------ ------------
Net cash used in investing activities (14,382,664) (1,123,258)
FINANCING ACTIVITIES:
Redemption of senior subordinated notes (40,000,000) -
Premium paid on redemption of senior notes (4,800,000) -
Borrowings on bank lines of credit 25,078,221 924,997
Payment of debt issuance costs (739,119) -
------------ ------------
Net cash provided by (used in) financing
activities (20,460,898) 924,997
------------ ------------
Decrease in cash and cash equivalents (42,567,266) (908,097)
Cash and cash equivalents at beginning of period 46,498,249 8,755,691
------------ ------------
Cash and cash equivalents at end of period $ 3,930,983 $ 7,847,594
------------ ------------
------------ ------------
Cash paid during the period for:
Interest $ 9,835,829 $ 9,663,016
Income taxes $ 305,511 $ 1,563,943
-5-
SEE ACCOMPANYING NOTES.
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Aftermarket
Technology Corp. (the "Company") as of March 31, 1997 and for the three months
ended March 31, 1997 and 1996 have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three month
period ended March 31, 1997 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1997. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1996.
NOTE 2: INVENTORIES
Inventories are stated at the lower of cost (first in, first out method) or
market:
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
Raw materials.......$ 33,038,742 $ 30,412,730
Work-in-process..... 1,062,409 1,166,275
Finished goods...... 33,737,243 29,007,051
------------- ------------
$ 67,838,394 $ 60,586,056
------------- ------------
------------- ------------
Finished goods include purchased parts which are available for sale.
NOTE 3: ACQUISITIONS
The Company acquired Tranzparts, Inc. for $4.0 million and Diverco, Inc. for
$10.5 million on April 2, 1996 and October 1, 1996, respectively (collectively
the "1996 Acquisitions"). In addition, on January 31, 1997 the Company acquired
Repco Industries, Inc. for $11.8 million. These acquisitions have been accounted
for as purchases. Accordingly, the allocation of the cost of the acquired
assets and liabilities has been made on the basis of the estimated fair value.
The cost in excess of net assets acquired will be amortized on the straight line
method over 40 years. The consolidated financial statements include the
operating results of each business from the date of acquisition. Pro forma
information to reflect the 1996 Acquisitions and the acquisition of Repco
Industries has not been presented because the effect of such acquisitions was
not material to prior periods.
-6-
<PAGE>
NOTE 4: EXTRAORDINARY ITEM
The extraordinary item consists largely of a pre-tax charge of $5.7 million
related to the early redemption of $40 million in principal amount of the Senior
Subordinated Notes (including early redemption premium payments totaling $4.8
million). The extraordinary item also includes a pre-tax charge of $0.6 million
related to the restructuring of the Company's revolving credit facility. Both
events occurred in February 1997.
NOTE 5: NET INCOME PER SHARE
Net income per share is based on the weighted average number of shares of common
stock and common equivalent shares outstanding using the treasury stock method.
For the three month period ended March 31, 1996, a pro forma calculation was
used in the computation of the weighted average number of shares outstanding.
This calculation includes the estimated number of shares of common stock issued
in the Company's initial public offering whose net proceeds were used to redeem
the outstanding preferred stock including accrued dividends, and the common and
common equivalent shares issued during the 12-month period prior to the filing
of the Company's initial public offering.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options and warrants will be excluded. The impact is expected to result
in an increase in primary net income per share for the first quarter ended March
31, 1997 and March 31, 1996 of $0.02 and $0.04 per share, respectively. The
impact of Statement 128 on the calculation of fully diluted earnings per share
for these quarters is not expected to be material.
-7-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1997 COMPARED
TO THE THREE MONTH PERIOD ENDED MARCH 31, 1996.
Income before extraordinary item increased 27.3% from $4.4 million for the three
month period ended March 31, 1996 to $5.6 million for the three month period
ended March 31, 1997. Revenue growth was achieved from all three customer
groups, Original Equipment Manufacturers ("OEMs"), retail automotive parts
stores, and the Independent Aftermarket. Approximately one-half of the revenue
growth was from the Independent Aftermarket, primarily through three strategic
acquisitions: Tranzparts, Diverco and Repco, which were acquired on April 2,
1996, October 1, 1996 and January 31, 1997, respectively. Internal growth was
also achieved, particularly from the OEMs. In general, costs and expenses also
increased; however, overall the Company was able to spread its overhead expenses
over a larger revenue base, which contributed to the comparatively higher income
before extraordinary item for the quarter.
Net income decreased from $4.4 million for the three month period ended March
31, 1996 to $1.8 million for the three month period ended March 31, 1997. The
Company recorded a $3.7 million extraordinary charge, net of related income tax
benefit, for the three month period ended March 31, 1997. The extraordinary
charge related primarily to the early redemption of $40 million of the Company's
Senior Subordinated Notes in February 1997, and to a lesser extent to the
restructuring of the Company's revolving credit facility.
On a per share basis, income before extraordinary item increased from $0.28 per
share for the three month period ended March 31, 1996 to $0.29 per share for the
three month period ended March 31, 1997. As a result of the extraordinary
charge, however, net income per share decreased from $0.28 to $0.09. The number
of shares used in the per share calculations were 15.4 million for the three
month period ended March 31, 1996 and 19.3 million for the three month period
ended March 31, 1997. The increase in shares resulted primarily from the
Company's initial public offering in December 1996.
NET SALES
Net sales increased $18.5 million or 29.0%, from $64.1 million for the three
month period ended March 31, 1996 to $82.7 million for the three month period
ended March 31, 1997. Of this increase, $10.6 million was due to internal
growth and $7.9 million was due to the incremental net sales generated by the
companies acquired in 1996 and 1997 (Tranzparts, Diverco and Repco).
The internal growth was generated primarily from increased sales volumes with
existing OEM customers. To a lesser extent, internal growth was also generated
by increased sales to the Independent Aftermarket and increased sales with
retail customers.
-8-
<PAGE>
Net sales to the Mopar Parts Division of Chrysler Corporation ("Chrysler") of
$28.7 million for the three month period ended March 31, 1997 represented 34.7%
of the Company's total net sales for the period, as compared to $23.2 million
and 36.2% for the three month period ended March 31, 1996.
GROSS PROFIT
Gross profit as a percentage of net sales decreased from 40.2% for the three
month period ended March 31, 1996 to 38.2% for the three month period ended
March 31, 1997. The decrease in gross profit margin was largely attributable to
increased raw material costs on OEM products, which the company was unable to
pass on to its OEM customers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") increased $5.0 million
or 40.0%, from $12.5 million for the three month period ended March 31, 1996
to $17.5 million for the three month period ended March 31, 1997. As a
percentage of net sales, SG&A increased from 19.5% to 21.2%. The higher SG&A
resulted largely from the ongoing incremental expenses of the companies
acquired in 1996 and 1997 (Tranzparts, Diverco and Repco). In addition, the
increased SG&A expenses were attributable to certain enhancements to the
Company's infrastructure (including additional management and improved
information systems), and additional selling and other variable overhead
costs associated with the higher sales volume.
The Company also recorded a non-cash charge of $0.5 million in the first
quarter of 1997 for deferred compensation expense relating to the difference
between the exercise price and the intrinsic value for financial statement
presentation purposes of employee stock options granted in October 1996, just
prior to the Company's initial public offering. There was no corresponding
charge recognized in the first quarter of 1996. In the future, the Company
anticipates that it will recognize approximately $2.4 million of total
additional non-cash deferred compensation expense relating to these options.
Approximately $1.3 million of this amount will be recognized during the
balance of 1997, $0.7 million in 1998, $0.3 million in 1999 and the remaining
$0.1 million thereafter. These amounts are subject to potential adjustments
resulting from exercise or early termination of the options.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets increased from $0.9 million for the three
month period ended March 31, 1996 to $1.0 million for the three month period
ended March 31, 1997. The increase resulted from the additional intangible
assets arising from the acquisitions of Tranzparts, Diverco and Repco.
INCOME FROM OPERATIONS
Principally as a result of the factors described above, income from operations
increased 5.6%, from $12.4 million for the three month period ended March 31,
1996 to $13.1
-9-
<PAGE>
million for the three month period ended March 31, 1997. As a percentage of
net sales, income from operations decreased from 19.3% to 15.8%.
INTEREST EXPENSE
Interest expense decreased from $5.1 million for the three month period ended
March 31, 1996 to $4.5 million for the three month period ended March 31, 1997.
The lower interest resulted from the net effect of the early redemption of $40
million of the Company's Senior Subordinated Notes in February 1997 offset to
some extent by increased borrowings under the Company's revolving credit
facility. The revolving credit facility carries a significantly lower effective
interest rate than did the Senior Subordinated Notes.
EXTRAORDINARY ITEM
An extraordinary item in the amount of $6.3 million ($3.7 million, net of
related income tax benefit of $2.5 million) was recorded in the three month
period ended March 31, 1997. This amount has two components: first, a $5.7
million charge resulting from the early redemption of $40 million of the
Company's Senior Subordinated Notes in February 1997, which included the payment
of a 12% early redemption premium and the write-off of related debt issuance
costs; and second, a $0.6 million charge for the write-off of previously
capitalized debt issuance costs in connection with the termination of the
Company's previous revolving credit facility.
LIQUIDITY AND CAPITAL RESOURCES
The Company had total cash and cash equivalents on hand of $3.9 million at March
31, 1997, representing a decrease in net cash of $42.6 million for the three
month period then ended. Net cash used in operating activities was $7.7 million
for the three month period, including the scheduled semi-annual interest payment
of $9.6 million on the Senior Subordinated Notes made February 1, 1997. Net
cash used in investing activities was $14.4 million for the period, including
$12.2 million for the acquisition of Repco and $2.2 million in capital
expenditures largely for remanufacturing equipment. Net cash used in financing
activities was $20.5 million, including payments totaling $44.8 million in
connection with the redemption of Senior Subordinated Notes and net borrowings
of $25.1 million on bank lines of credit.
As of March 31, 1997, the Company had approximately $72.0 million available
under its $100.0 million revolving credit facility.
The Company believes that cash on hand, cash flow from operations and existing
borrowing capacity will be sufficient to fund its ongoing operations and its
budgeted capital expenditures. In pursuing acquisitions, the Company will
consider the effect any such acquisition costs may have on its liquidity. In
order to consummate such acquisitions, the Company may accordingly need to seek
to raise additional capital through additional borrowings or equity financing.
-10-
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
Part II. Other Information
Items 1 - 5 are not applicable.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11 - Calculation of net income per share
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter.
-11-
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AFTERMARKET TECHNOLOGY CORP.
Date: May 14, 1997 /s/ John C. Kent
- - --------------------- -------------------------------------
John C. Kent, Chief Financial Officer
- - - John C. Kent is signing in the dual capacities as i) the principal financial
officer, and ii) a duly authorized officer of the company.
-13-
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
EXIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Paper (P) or
Number Descripton Electronic (E)
- - ------- ----------------------------------- --------------
<C> <S> <S>
11 Calculation of Net Income Per Share (P)
27 Financial Data Schedule (E)
</TABLE>
-14-
<PAGE>
EXHIBIT 11
AFTERMARKET TECHNOLOGY CORP.
CALCULATION OF NET INCOME PER SHARE
Three Months Three Months (a)
Ended Ended
March 31, March 31,
1997 1996
------------ ----------------
(Unaudited)
Income before extraordinary item $ 5,567,331 $ 4,398,801
Extraordinary item - net of income tax 3,749,315 -
------------ ----------------
Net income per statements of income $ 1,818,016 $ 4,398,801
------------ ----------------
------------ ----------------
Shares:
Weighted average common shares outstanding 16,980,794 12,000,000
Net effect of stock options granted during
the twelve months prior to the Company's
filing of its initial public offering,
calculated using the treasury stock method
at an offering price of $13.50 per share
(pro forma) - 523,772
Net effect of stock options and warrants
outstanding, excluding those discussed
above, calculated using the treasury stock
method at the average price for the period 2,282,597 1,036,443
Number of shares of common stock assumed
to be issued in the Company's initial public
offering whose net proceeds would be used
to redeem the outstanding preferred stock
including accrued dividends (pro forma) - 1,881,464
------------ ----------------
Total 19,263,391 15,441,679
------------ ----------------
------------ ----------------
Per share of common stock:
Income before extraordinary item $ 0.29 $ 0.28
Extraordinary item, net of tax (0.20) -
------------ ----------------
Net income per share $ 0.09 $ 0.28
------------ ----------------
------------ ----------------
(a) The March 31, 1996 share data includes the pro forma effects of the
Company's initial public offering.
-12-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,930,983
<SECURITIES> 0
<RECEIVABLES> 45,668,963
<ALLOWANCES> 1,491,327
<INVENTORY> 67,838,394
<CURRENT-ASSETS> 120,860,966
<PP&E> 23,662,382
<DEPRECIATION> 4,268,803
<TOTAL-ASSETS> 296,822,615
<CURRENT-LIABILITIES> 62,179,029
<BONDS> 121,436,441
0
0
<COMMON> 169,808
<OTHER-SE> 107,509,675
<TOTAL-LIABILITY-AND-EQUITY> 296,822,615
<SALES> 82,688,871
<TOTAL-REVENUES> 83,390,350
<CGS> 51,113,124
<TOTAL-COSTS> 69,392,520
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 164,851
<INTEREST-EXPENSE> 4,523,722
<INCOME-PRETAX> 9,309,257
<INCOME-TAX> 3,749,315
<INCOME-CONTINUING> 5,567,331
<DISCONTINUED> 0
<EXTRAORDINARY> 3,749,315
<CHANGES> 0
<NET-INCOME> 1,818,016
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0
</TABLE>
