<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 September 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
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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)
One Oak Hill Center - Suite 400, Westmont, IL 60559
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (630) 455-6000
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 October 22, 1999, there were 20,417,372 shares of common stock of the
Registrant outstanding.
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<PAGE>
AFTERMARKET TECHNOLOGY CORP.
FORM 10-Q
<TABLE>
<CAPTION>
Table of Contents
-----------------
Page Number
-----------
<S> <C>
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets at September 30, 1999 (unaudited)
and December 31, 1998 ....................................................... 3
Consolidated Statements of Income (unaudited) for the Three and Nine
Months Ended September 30, 1999 and 1998 .................................... 4
Consolidated Statements of Cash Flows (unaudited) for the
Nine Months Ended September 30, 1999 and 1998 ............................... 5
Notes to Consolidated Financial Statements .................................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................................... 11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk ................................................................. 21
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K ............................................ 22
SIGNATURES .................................................................................. 23
EXHIBIT INDEX ............................................................................... 24
Note: Items 1 - 5 of Part II are omitted because they are not applicable.
</TABLE>
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<PAGE>
AFTERMARKET TECHNOLOGY CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
--------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 2,099 $ 580
Accounts receivable, net 78,314 71,357
Inventories, net 116,156 98,696
Prepaid and other assets 4,762 3,959
Refundable income taxes - 10,954
Deferred income taxes 10,519 8,240
--------------- --------------
Total current assets 211,850 193,786
Property, plant and equipment, net 75,900 63,903
Debt issuance costs, net 4,983 5,044
Cost in excess of net assets acquired, net 261,928 267,947
Other assets 455 1,225
--------------- --------------
Total assets $ 555,116 $ 531,905
--------------- --------------
--------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 39,442 $ 35,945
Accrued expenses 45,374 42,643
Amounts due to acquired companies 8,313 10,204
Bank line of credit 1,228 2,060
Income taxes payable 553 -
Current portion of credit facility 18,426 15,000
--------------- --------------
Total current liabilities 113,336 105,852
12% Series B and D Senior Subordinated Notes 111,259 111,394
Amount drawn on credit facility, less current portion 129,618 123,350
Amounts due to acquired companies, less current portion 7,606 8,483
Deferred compensation 3,534 3,323
Deferred income taxes 13,626 11,492
Stockholders' equity:
Preferred stock, $.01 par value; shares authorized - 2,000,000; none issued - -
Common stock, $.01 par value; shares authorized - 30,000,000;
Issued - 20,585,372 and 20,411,768 (including shares held in treasury) 206 204
Additional paid-in capital 135,757 135,104
Retained earnings 42,740 35,676
Accumulated other comprehensive loss (572) (979)
Common stock held in treasury, at cost (172,000 shares) (1,994) (1,994)
--------------- --------------
Total stockholders' equity 176,137 168,011
--------------- --------------
Total liabilities and stockholders' equity $ 555,116 $ 531,905
--------------- --------------
--------------- --------------
</TABLE>
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SEE ACCOMPANYING NOTES.
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the three months ended September 30, For the nine months ended September 30,
1999 1998 1999 1998
------------------- ------------------- -------------------- --------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 142,156 $ 125,003 $ 418,557 $ 362,472
Cost of sales 95,199 86,931 286,560 245,492
------------------- ------------------- -------------------- --------------------
Gross profit 46,957 38,072 131,997 116,980
Selling, general and
administrative expense 30,716 26,066 91,265 70,329
Amortization of intangible assets 1,787 1,889 5,370 5,128
Special charges - - 4,000 3,580
------------------- ------------------- -------------------- --------------------
Income from operations 14,454 10,117 31,362 37,943
Other income (expense), net (196) 550 163 1,500
Interest expense 6,951 6,361 19,750 17,997
------------------- ------------------- -------------------- --------------------
Income before income taxes
and extraordinary items 7,307 4,306 11,775 21,446
Income tax expense 2,879 1,753 4,711 8,592
------------------- ------------------- -------------------- --------------------
Income before extraordinary items 4,428 2,553 7,064 12,854
Extraordinary items - net of income taxes - 170 - 533
------------------- ------------------- -------------------- --------------------
Net income $ 4,428 $ 2,383 $ 7,064 $ 12,321
------------------- ------------------- -------------------- --------------------
------------------- ------------------- -------------------- --------------------
Per common share - basic:
Income before extraordinary items $ 0.22 $ 0.13 $ 0.35 $ 0.65
Extraordinary items - (0.01) - (0.03)
------------------- ------------------- -------------------- --------------------
Net income $ 0.22 $ 0.12 $ 0.35 $ 0.62
------------------- ------------------- -------------------- --------------------
------------------- ------------------- -------------------- --------------------
Weighted average number of common shares
outstanding 20,367 19,991 20,294 19,929
------------------- ------------------- -------------------- --------------------
------------------- ------------------- -------------------- --------------------
Per common share - diluted:
Income before extraordinary items $ 0.21 $ 0.12 $ 0.33 $ 0.61
Extraordinary items - (0.01) - (0.03)
------------------- ------------------- -------------------- --------------------
Net income $ 0.21 $ 0.11 $ 0.33 $ 0.58
------------------- ------------------- -------------------- --------------------
------------------- ------------------- -------------------- --------------------
Weighted average number of common and
common equivalent shares outstanding 21,225 21,091 21,142 21,203
------------------- ------------------- -------------------- --------------------
------------------- ------------------- -------------------- --------------------
</TABLE>
-4-
SEE ACCOMPANYING NOTES.
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the nine months ended September 30,
1999 1998
------------------ -------------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 7,064 $ 12,321
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Extraordinary item - 888
Depreciation and amortization 14,220 11,383
Amortization of debt issuance costs 718 832
Provision for losses on accounts receivable 711 634
Loss on sale of equipment 60 20
Deferred income taxes (546) 729
Changes in operating assets and liabilities, net of businesses
acquired/sold:
Accounts receivable (8,437) (3,768)
Inventories (19,674) (9,318)
Prepaid and other assets 10,830 (5,250)
Accounts payable and accrued expenses 6,930 5,374
------------------ -------------------
Net cash provided by operating activities 11,876 13,845
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (20,324) (15,394)
Acquisition of companies, net of cash received - (114,512)
Proceeds from sale of business 3,808 -
Proceeds from sale of equipment 224 593
------------------ -------------------
Net cash used in investing activities (16,292) (129,313)
FINANCING ACTIVITIES:
Borrowings on credit facility, net 9,694 128,300
Payments on bank line of credit, net (849) (2,387)
Payment of debt issuance costs (727) (2,425)
Redemption of senior subordinated notes - (5,614)
Proceeds from exercise of stock options 565 780
Purchase of common stock for treasury - (1,994)
Payments on amounts due to acquired companies (2,748) (468)
------------------ -------------------
Net cash provided by financing activities 5,935 116,192
------------------ -------------------
Increase in cash and cash equivalents 1,519 724
Cash and cash equivalents at beginning of period 580 78
------------------ -------------------
Cash and cash equivalents at end of period $ 2,099 $ 802
------------------ -------------------
------------------ -------------------
Cash paid during the period for:
Interest $ 21,690 $ 18,776
Income taxes, net (6,418) 3,771
</TABLE>
-5-
SEE ACCOMPANYING NOTES.
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
Notes to Consolidated Financial Statements
(In thousands, except per share data)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
Aftermarket Technology Corp. (the "Company") as of September 30, 1999 and for
the three and nine months ended September 30, 1999 and 1998 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 and nine months ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999. 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, 1998.
Certain prior-year amounts have been reclassified to conform to the 1999
presentation.
NOTE 2: INVENTORIES, NET
Inventories are stated at the lower of cost (first in, first out method)
or market:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
-------------------- -------------------
<S> <C> <C>
Raw materials, including core inventories......... $ 45,556 $41,117
Work-in-process................................... 2,914 3,051
Finished goods.................................... 67,686 54,528
-------------------- -------------------
$116,156 $98,696
-------------------- -------------------
-------------------- -------------------
</TABLE>
Finished goods includes remanufactured and purchased parts which are
available for sale.
NOTE 3: CREDIT FACILITY
The Company has an agreement with The Chase Manhattan Bank, as agent,
providing for a credit facility comprised of a $100.0 million revolving line of
credit and a $120.0 million term loan (the "Credit Facility") to finance the
Company's working capital requirements, future acquisitions and the acquisition
of Autocraft (see Note 4). Amounts advanced under the Credit Facility are
secured by substantially all the assets of the Company. Amounts advanced under
the revolving portion of the Credit Facility will become due on December 31,
2003. The balance outstanding on the term loan (which requires payments through
December 31, 2003) was $97.0 million as of September 30, 1999. The Company may
prepay outstanding advances under the revolving line of credit or the term loan
portion of the Credit Facility in whole or in part without incurring any premium
or penalty. At September 30, 1999, $51.0 million was outstanding under the
revolving line of credit.
During 1998, the Company entered into an interest rate swap agreement in
order to convert $50.0 million of its Credit Facility to a fixed rate.
The Credit Facility contains several covenants, including ones that
require the Company to maintain certain levels of net worth, leverage and cash
flow coverage, and others that limit the Company's ability to incur
indebtedness, make capital expenditures, create liens, engage in mergers and
consolidations, make restricted payments (including dividends), sell assets,
make investments, issue stock and engage in transactions with affiliates of the
Company and its subsidiaries.
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<PAGE>
Based on its operating results during 1998, the Company was in technical
default of the leverage and cash flow covenants of the Credit Facility and the
Company's interest rate swap agreement as of December 31, 1998. Due to the
defaults, the Company was not able to borrow under the Credit Facility. In March
1999, the Company obtained from its lenders waivers of the various defaults and
certain amendments to the Credit Facility and the interest rate swap agreement.
In August 1999, the Company obtained consent and amendments to certain of
the covenants to its Credit Facility to allow the Company to acquire
substantially all the assets of All Transmission Parts, Inc. and All Automatic
Transmission Parts, Inc. (See Note 11.)
NOTE 4: ACQUISITIONS
On March 6, 1998, the Company acquired substantially all the assets of the
OEM Division of Autocraft Industries, Inc. ("Autocraft"), a remanufacturer and
distributor of drive train and electronic parts used in the warranty and
aftermarket repair of passenger cars and light trucks. The purchase price was
approximately $115.9 million, including transaction fees and related expenses.
The Company has estimated an additional payment of approximately $5.9 million to
be paid in 1999 based on the performance of the OEM Division's European
operations during 1998. Goodwill recorded of approximately $74.3 million
includes the additional payment to be made and certain other adjustments that
were made during the first quarter of 1999.
The Autocraft acquisition has been accounted for under the purchase method
of accounting. Accordingly, the allocation of the cost of the acquired assets
and liabilities has been made on the basis of the estimated fair value. Goodwill
for all acquisitions is amortized over a period not to exceed 40 years on a
straight-line basis. The consolidated financial statements include the operating
results of Autocraft from the date of acquisition.
See Note 11 - Subsequent Events, regarding the Company's acquisition
activity subsequent to September 30, 1999.
NOTE 5: EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
-------------------------- -------------------------
1999 1998 1999 1998
------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
Numerator:
Net income............................... $ 4,428 $ 2,383 $ 7,064 $12,321
------------ ---------- ----------- ----------
------------ ---------- ----------- ----------
Denominator:
Weighted-average common shares outstanding 20,367 19,991 20,294 19,929
Effect of stock options and warrants..... 858 1,100 848 1,274
------------ ---------- ----------- ----------
Denominator for diluted earnings per
common share............................. 21,225 21,091 21,142 21,203
------------ ---------- ----------- ----------
------------ ---------- ----------- ----------
Basic earnings per common share.......... $ 0.22 $ 0.12 $ 0.35 $ 0.62
Diluted earnings per common share........ 0.21 0.11 0.33 0.58
</TABLE>
-7-
<PAGE>
NOTE 6. REPORTABLE SEGMENTS
The Company has two reportable segments: Original Equipment Manufacturer
("OEM") segment and Independent Aftermarket segment. The Company's OEM segment
consists of four operating units that primarily sell remanufactured
transmissions and engines directly to OEMs. The Company's Independent
Aftermarket segment consists of the Company's Distribution Group, which
primarily sells transmission repair kits, soft parts, remanufactured torque
converters and transmissions, and new and remanufactured hard parts used in
drive train repairs to independent transmission rebuilders and to a lesser
extent to general repair shops, wholesale distributors and retail automotive
parts stores. Other operating units, which are not reportable segments, consist
of an electronic parts remanufacturing and distribution business, warehouse and
distribution services for AT&T Wireless and a material recovery processing
business primarily for Ford.
The Company evaluates performance and allocates resources based upon
profit or loss before income taxes and extraordinary items ("EBT"). The
reportable segments' accounting policies are the same as those of the Company.
Intersegment sales and transfers are recorded at the Company's standard cost and
intersegment profits are eliminated.
The reportable segments are each managed and measured separately primarily
due to the differing customers, production processes, products sold and
distribution channels. The reportable segments are as follows:
<TABLE>
<CAPTION>
Independent
OEM Aftermarket Other Totals
--- ----------- ----- ------
<S> <C> <C> <C> <C>
For the three months ended September 30, 1999:
Revenues from external customers ................. $ 77,422 $ 49,493 $ 15,241 $ 142,156
Intersegment revenues ............................ 269 20 - 289
Special charges .................................. - - - -
Segment profit (loss) ............................ 10,388 (5,274) 1,899 7,013
For the nine months ended September 30, 1999:
Revenues from external customers ................. $ 228,071 $ 147,602 $ 42,884 $ 418,557
Intersegment revenues ............................ 625 880 - 1,505
Special charges .................................. - 1,866 80 1,946
Segment profit (loss) ............................ 26,124 (17,882) 4,939 13,181
Independent
OEM Aftermarket Other Totals
--- ----------- ----- ------
For the three months ended September 30, 1998:
Revenues from external customers ................. $ 65,123 $ 46,027 $ 13,853 $ 125,003
Intersegment revenues ............................ 153 601 - 754
Special charges .................................. - - - -
Segment profit (loss) ............................ 4,496 (1,805) 282 2,973
For the nine months ended September 30, 1998:
Revenues from external customers ................. $ 186,495 $ 143,457 $ 32,520 $ 362,472
Intersegment revenues ............................ 538 688 - 1,226
Special charges .................................. 2,650 795 - 3,445
Segment profit (loss) ............................ 17,197 (2,886) 1,257 15,568
</TABLE>
-8-
<PAGE>
A reconciliation of the reportable segments to consolidated net sales and
income before income taxes and extraordinary item are as follows:
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
-------------------------------- ------------------------------------
1999 1998 1999 1998
--------------- --------------- ----------------- -----------------
Net sales:
- ----------
<S> <C> <C> <C> <C>
External revenues from reportable segments ......... $ 126,915 $ 111,150 $ 375,673 $ 329,952
Intersegment revenues for reportable segments ...... 289 754 1,505 1,226
Other revenues ..................................... 15,241 13,853 42,884 32,520
Elimination of intersegment revenues ............... (289) (754) (1,505) (1,226)
--------------- --------------- ----------------- -----------------
Consolidated net sales ..................... $ 142,156 $ 125,003 $ 418,557 $ 362,472
--------------- --------------- ----------------- -----------------
--------------- --------------- ----------------- -----------------
Profit:
- ------
Total profit for reportable segments ............... $ 5,114 $ 2,691 $ 8,242 $ 14,311
Other profit ....................................... 1,899 282 4,939 1,257
Unallocated amounts:
Special charges .................................. - - (2,054) (135)
Corporate (expense) profit ....................... (1,131) (461) (4,127) 102
Depreciation and amortization .................... (204) (370) (600) (441)
Interest expense, net ............................ 1,629 2,164 5,375 6,352
--------------- --------------- ----------------- -----------------
Income before income taxes and
Extraordinary items ...................... $ 7,307 $ 4,306 $ 11,775 $ 21,446
--------------- --------------- ----------------- -----------------
--------------- --------------- ----------------- -----------------
</TABLE>
NOTE 7: SPECIAL CHARGES
During 1998, the Company took actions related to certain initiatives
designed to improve operating efficiencies and reduce costs and recorded special
charges of $3,580 and $5,164 in the second and fourth quarters of 1998,
respectively. In the first quarter of 1999, the Company recorded special charges
of $1,900, which consisted of $1,559 of severance costs related to its
management reorganization and $341 of exit costs related to the consolidation of
certain of the Company's distribution centers. In the second quarter of 1999,
the Company recorded special charges of $2,100, which included $1,280 of exit
and other costs related to the consolidation of certain of the Company's
distribution centers, as well as $820 of severance and other costs related to
the Company's management reorganization. The Company is continuing to evaluate
its business to identify additional improvements that may result in additional
special charges.
The following table summarizes the provisions and reserves for
restructuring and special charges as included in accrued expenses:
<TABLE>
<CAPTION>
Termination
Benefits Exit / Other Costs Total
------------ ------------------- ----------
<S> <C> <C> <C>
Provision 1998 .................. $ 2,690 $ 6,054 $ 8,744
Payments 1998 ................... (822) (2,528) (3,350)
------------ ------------------- ----------
Reserve at December 31, 1998 .... $ 1,868 $ 3,526 $ 5,394
Provision 1999 .................. 1,829 2,171 4,000
Payments 1999 ................... (1,430) (1,212) (2,642)
------------ ------------------- ----------
Reserve at September 30, 1999 ... $ 2,267 $ 4,485 $ 6,752
------------ ------------------- ----------
------------ ------------------- ----------
</TABLE>
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<PAGE>
NOTE 8: COMPREHENSIVE INCOME
The following table sets forth the computation of comprehensive income for
the three and nine months ended September 30, 1999 and 1998, respectively:
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
--------------------------- ----------------------------
1999 1998 1999 1998
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net income ................................... $ 4,428 $ 2,383 $ 7,064 $ 12,321
Other comprehensive income (loss):
Translation adjustment, net of related
taxes ........................................ 182 (1,682) 407 (1,570)
------------ ----------- ------------ ------------
Total comprehensive income ................... $ 4,610 $ 701 $ 7,471 $ 10,751
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
</TABLE>
NOTE 9: EXTRAORDINARY ITEMS
In September 1998, the Company purchased and retired $5,398 in principle
amount of the Company's 12% Senior Subordinated Notes due 2004 (the "Senior
Notes") in open market transactions. In connection with this repurchase, the
Company recorded an extraordinary item of $170, net of income tax benefit of
$113 related to the purchase price premium and the write-off of unamortized
deferred financing fees.
In March 1998, in connection with the restatement and amendment of the
credit agreement to provide for the Credit Facility, the Company recorded an
extraordinary item of $363, net of income tax benefit of $242, related to the
write-off of previously capitalized debt issuance costs.
NOTE 10: SALE OF SUBSIDIARY
In December 1998, the Company agreed to sell the assets of its Canadian
heavy-duty truck remanufacturing operation ("Mascot") for $3.8 million in cash
and the assumption of certain liabilities. As part of this transaction, the
Company recorded a $1.2 million loss in the fourth quarter of 1998. In February
1999, the Company collected the $3.8 million of cash proceeds, of which $1.9
million was used to retire Mascot's bank line of credit and certain other
liabilities and $1.9 million was paid against the term loan portion of the
Credit Facility.
NOTE 11: SUBSEQUENT EVENTS
On October 1, 1999, the Company acquired substantially all the assets of
All Transmission Parts, Inc. for a cash purchase price of $32.0 million. The
purchase price was paid by borrowings under the revolving portion of the Credit
Facility. In addition, the Company expects to complete the acquisition of
substantially all the assets of All Automatic Transmission Parts, Inc., which is
an affiliate of All Transmission Parts, Inc., on or before December 1, 1999 for
a cash purchase price of $8.0 million. The purchase price for this acquisition
and related transaction expenses for both acquisitions will be paid by
borrowings under the revolving portion of the Credit Facility. These
acquisitions will be accounted for under the purchase method of accounting.
Accordingly, the allocation of the cost of the acquired assets and liabilities
will be made on the basis of the fair value.
-10-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENT NOTICE
Readers are cautioned that certain statements contained in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations that are not related to historical results are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Statements that are predictive, that depend upon or refer to future
events or conditions, or that include words such as "expects," "anticipates,"
"intends," "plans," "believes," "estimates," "hopes," and similar expressions
constitute forward-looking statements. In addition, any statements concerning
future financial performance (including future revenues, earnings or growth
rates), ongoing business strategies or prospects, and possible future Company
actions are also forward-looking statements.
Forward-looking statements are based on current expectations, projections
and assumptions regarding future events that may not prove to be accurate.
Actual results may differ materially from those projected or implied in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, dependence on significant
customers, possible component parts shortages, the ability to achieve and manage
growth, future indebtedness and liquidity, environmental matters, and
competition. For a discussion of these and certain other factors, please refer
to Item 1. "Business-Certain Factors Affecting the Company" contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
Please also refer to the Company's other filings with the Securities and
Exchange Commission.
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 1999
COMPARED TO THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 1998.
Net income increased $2.0 million, or 83.3%, from $2.4 million for the
three months ended September 30, 1998 to $4.4 million for the three months ended
September 30, 1999. Income before extraordinary item increased $1.8 million, or
69.2%, from $2.6 million for the three months ended September 30, 1998 to $4.4
million for the three months ended September 30, 1999. This increase was
primarily attributable to an increase in profitability of the Company's OEM
segment partially offset by a decline in profitability of the Company's
Independent Aftermarket segment during 1999 as compared to 1998. Net income per
diluted share was $0.21 for the three months ended September 30, 1999 as
compared to $0.11 per diluted share for the three months ended September 30,
1998. Excluding extraordinary items, net income per diluted share was $0.12 for
the three months ended September 30, 1998.
NET SALES
Net sales increased $17.2 million, or 13.8%, from $125.0 million for the
three months ended September 30, 1998 to $142.2 million for the three months
ended September 30, 1999. On a proforma basis, excluding $1.4 million of 1998
sales from Mascot, the Company's Canadian heavy-duty truck remanufacting
operation, which was sold in February 1999, sales increased $18.6 million, or
15.1%, from $123.6 million for the three months ended September 30, 1998. This
increase was primarily attributable to increased sales from the Company's OEM
segment. In addition, the Independent Aftermarket segment and the Logistics
Services and Material Recovery business units reported increases in 1999 as
compared to 1998.
Sales to DaimlerChrysler accounted for 22.0% and 16.7% of the Company's
revenues for the three months ended September 30, 1999 and 1998, respectively.
Sales to Ford accounted for 19.3% and 21.0% of the Company's revenues for the
three months ended September 30, 1999 and 1998, respectively.
-11-
<PAGE>
GROSS PROFIT
Gross profit increased $8.9 million, or 23.4%, from $38.1 million for the
three months ended September 30, 1998 to $47.0 million for the three months
ended September 30, 1999. This increase was principally due to the increased
sales from the Company's OEM segment and its Logistics Services and Material
Recovery business units, partially offset by a decline in gross profit
experienced by the Company's Independent Aftermarket segment. Gross profit as a
percentage of net sales increased from 30.5% for the three months ended
September 30, 1998 to 33.0% for the three months ended September 30, 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") increased $4.6
million, or 17.6%, from $26.1 million for the three months ended September 30,
1998 to $30.7 million for the three months ended September 30, 1999. As a
percentage of net sales, SG&A expenses increased from 20.9% to 21.6% between the
two periods. The increase was primarily due to (i) $1.4 million of additional
infrastructure costs related to the Independent Aftermarket segment's
enterprise-wide information system, (ii) $1.2 million related to the OEM
segment's remanufactured engine program, primarily due to the expansion of its
branch sales channel, (iii) $0.9 million in the Logistics Services business unit
primarily related to sales volume growth and systems enhancements and (iv) $0.8
million primarily associated with the Company's business improvement
initiatives, including travel, recruitment and professional service costs.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets decreased slightly from $1.9 million for
the three months ended September 30, 1998 to $1.8 million for the three months
ended September 30, 1999.
SPECIAL CHARGES
The Company did not incur any special charges during the three months
ended September 30, 1999. However, the Company, as a normal part of its 2000
business planning process, is identifying and reviewing areas where cost
efficiencies can be achieved through consolidation of redundant facilities,
outsourcing functions or changing processes or systems. Implementation of any of
these could require the Company to incur special charges, which would be offset
over time by the projected cost savings.
INCOME FROM OPERATIONS
Income from operations increased $4.4 million, or 43.6%, from $10.1
million for the three months ended September 30, 1998 to $14.5 million for the
three months ended September 30, 1999, principally as a result of the factors
described above. As a percentage of net sales, income from operations increased
from 8.1% to 10.2%, between the two periods.
INTEREST EXPENSE
Interest expense increased $0.6 million, or 9.4%, from $6.4 million for
the three months ended September 30, 1998 to $7.0 million for the three months
ended September 30, 1999. The increase primarily resulted from borrowings under
the Credit Facility to finance operating activities and purchases of property,
plant and equipment.
-12-
<PAGE>
EXTRAORDINARY ITEM
During the three months ended September 30, 1998, the Company recorded an
extraordinary item of $0.2 million resulting from the repurchase of $5.4 million
in principle amount of the Senior Notes in open market transactions.
OEM SEGMENT
The following table presents net sales and segment profit (EBT) expressed
in millions of dollars and as a percentage of net sales:
<TABLE>
<CAPTION>
For the three months ended September 30,
----------------------------------------
1999 1998
------------------- --------------------
<S> <C> <C> <C> <C>
Net sales............................. $77.4 100.0% $65.1 100.0%
-------- ---------- ---------- ---------
-------- ---------- ---------- ---------
Segment profit........................ $10.4 13.4% $ 4.5 6.9%
-------- ---------- ---------- ---------
-------- ---------- ---------- ---------
</TABLE>
NET SALES. Net sales increased $12.3 million, or 18.9%, from $65.1 million
for the three months ended September 30, 1998 to $77.4 million for the three
months ended September 30, 1999. The increase was primarily due to increased
sales of remanufactured transmissions to DaimlerChrysler and Ford and increased
sales from the OEM segment's engine branch sales channel, partially offset by a
decrease in sales volume of engine and related parts in the segment's European
operations.
Sales to DaimlerChrysler accounted for 40.3% and 32.0% of segment revenues
for the three months ended September 30, 1999 and 1998, respectively. Sales to
Ford accounted for 32.7% and 37.3% of segment revenues for the three months
ended September 30, 1999 and 1998, respectively.
SEGMENT PROFIT. Segment profit increased $5.9 million, or 131.1%, from
$4.5 million (6.9% of OEM net sales) for the three months ended September 30,
1998 to $10.4 million (13.4% of OEM net sales) for the three months ended
September 30, 1999. The increase is primarily attributable to the increased
sales of remanufactured transmissions.
INDEPENDENT AFTERMARKET SEGMENT
The following table presents net sales and segment profit (loss) (EBT)
expressed in millions of dollars and as a percentage of net sales:
<TABLE>
<CAPTION>
For the three months ended September 30,
----------------------------------------
1999 1998
------------------- --------------------
<S> <C> <C> <C> <C>
Net sales........................... $ 49.5 100.0% $ 46.0 100.0%
-------- ---------- ---------- ---------
-------- ---------- ---------- ---------
Segment profit (loss) .............. $ (5.3) (10.7)% $ (1.8) (3.9)%
-------- ---------- ---------- ---------
-------- ---------- ---------- ---------
</TABLE>
NET SALES. Net sales increased $3.5 million, or 7.6%, from $46.0 million
for the three months ended September 30, 1998 to $49.5 million for the three
months ended September 30, 1999. This increase was largely attributable to sales
of hard parts that were introduced after the third quarter of 1998 and to an
improvement from the lower sales volumes experienced during 1998, which were
caused by customer service and fill rate shortfalls related to implementation
issues associated with the segment's enterprise-wide information system.
SEGMENT PROFIT (LOSS). Segment profit decreased $3.5 million, from a $1.8
million loss for the three months ended September 30, 1998 to a $5.3 million
loss for the three months ended September 30, 1999. This decline was primarily
attributable to (i) $1.4 million of additional
-13-
<PAGE>
infrastructure costs related to the segment's enterprise-wide information
system, (ii) an increase of $1.0 million in allocated interest expense,
primarily associated with an increase in segment investment for systems
implementation costs, increased inventory levels to support new product and
customer service initiatives, and segment losses and (iii) $0.7 million of costs
related to the launch of the Company's independent aftermarket remanufactured
transmission program.
OTHER OPERATING UNITS
The following table presents net sales and segment profit (EBT) expressed
in millions of dollars and as a percentage of net sales:
<TABLE>
<CAPTION>
For the three months ended September 30,
----------------------------------------
1999 1998
-------------------- -------------------
<S> <C> <C> <C> <C>
Net sales............................. $15.2 100.0% $13.9 100.0%
-------- ----------- ---------- --------
-------- ----------- ---------- --------
Segment profit........................ $ 1.9 12.5% $ 0.3 2.2%
-------- ----------- ---------- --------
-------- ----------- ---------- --------
</TABLE>
NET SALES. Net sales increased $1.3 million, or 9.4%, from $13.9 million
for the three months ended September 30, 1998 to $15.2 million for the three
months ended September 30, 1999. On a proforma basis, excluding $1.4 million of
1998 sales from Mascot, sales increased $2.7 million, or 21.6% between the
periods. The increase was primarily attributable to increased sales by the
Logistics Services and Material Recovery business units.
SEGMENT PROFIT. Segment profit increased $1.6 million, or 533.3%, from
$0.3 million for the three months ended September 30, 1998 to $1.9 million for
the three months ended September 30, 1999. The increase was primarily the result
of increased sales volumes by the Logistics Services and Material Recovery
business units in 1999 versus 1998.
RESULTS OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
COMPARED TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998.
Net income decreased $5.2 million, or 42.3%, from $12.3 million for the
nine months ended September 30, 1998 to $7.1 million for the nine months ended
September 30, 1999. During the nine months ended September 30, 1999 and 1998,
the Company recorded special charges of $4.0 million and $3.6 million,
respectively, related to certain initiatives designed to improve operating
efficiencies and reduce costs (see "Special Charges" below). After-tax net
earnings before extraordinary item and special charges decreased $5.5 million,
or 36.7%, from $15.0 million for the nine months ended September 30, 1998 to
$9.5 million for the nine months ended September 30, 1999. This decrease was
primarily attributable to a decline in profitability from the Company's
Independent Aftermarket segment, partially offset by an increase in
profitability from the Company's OEM segment, during 1999 as compared to 1998.
Net income per diluted share was $0.33 for the nine months ended September 30,
1999 as compared to $0.58 per diluted share for the nine months ended September
30, 1998. Excluding the special charges and extraordinary item, net income per
diluted share was $0.45 for the nine months ended September 30, 1999 as compared
to $0.71 per diluted share for the nine months ended September 30, 1998.
NET SALES
Net sales increased $56.1 million, or 15.5%, from $362.5 million for the
nine months ended September 30, 1998 to $418.6 million for the nine months ended
September 30, 1999. This increase is partially attributable to a full nine
months of net sales from Autocraft, acquired in March 1998. On a pro forma
basis, as if the Autocraft acquisition and the sale of Mascot had taken place on
January 1, 1998, net sales would have been $417.9 million and $384.3 million for
the nine months ended September 30, 1999 and 1998, respectively. The increase,
on a pro forma
-14-
<PAGE>
basis, was primarily attributable to increased sales across all
reportable and non-reportable segments of the Company.
Sales to DaimlerChrysler accounted for 20.1% and 19.1% of the Company's
revenues for the nine months ended September 30, 1999 and 1998, respectively.
Sales to Ford accounted for 19.3% and 15.4% of the Company's revenues for the
nine months ended September 30, 1999 and 1998, respectively. On a pro forma
basis, as if the Autocraft acquisition and the sale of Mascot had occurred on
January 1, 1998, sales to DaimlerChrysler would have accounted for 18.0% of the
Company's revenues for the nine months ended September 30, 1998 and sales to
Ford would have accounted for 19.0% of the Company's revenues for the same
period.
GROSS PROFIT
Gross profit increased $15.0 million, or 12.8%, from $117.0 million for
the nine months ended September 30, 1998 to $132.0 million for the nine months
ended September 30, 1999. This increase was principally due to the increased
sales in the Company's OEM segment and Logistics Services business unit,
partially offset by a decline in gross profit experienced by the Company's
Independent Aftermarket segment. Gross profit as a percentage of net sales
decreased from 32.3% to 31.5% between the two periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") increased $21.0
million, or 29.9%, from $70.3 million for the nine months ended September 30,
1998 to $91.3 million for the nine months ended September 30, 1999. As a
percentage of net sales, SG&A expenses increased from 19.4% to 21.8% between the
two periods. This increase was due primarily to (i) $6.0 million related to the
OEM segment's remanufactured engine program, primarily due to the expansion of
its branch sales channel, (ii) $5.1 million of additional infrastructure costs
related to the Independent Aftermarket segment's enterprise-wide information
system, (iii) $3.5 million primarily associated with the Company's business
improvement initiatives, including travel, recruitment and professional service
costs, (iv) $2.9 million of additional cost due to a full nine months of SG&A
cost from Autocraft, acquired on March 6, 1998 and (v) $2.4 million in the
Logistics Services business unit primarily related to sales volume growth and
systems enhancements.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets increased $0.3 million, or 5.9%, from
$5.1 million for the nine months ended September 30, 1998 to $5.4 million for
the nine months ended September 30, 1999. The increase is attributable to the
March 1998 Autocraft acquisition.
SPECIAL CHARGES
During the nine months ended September 30, 1999, the Company incurred $4.0
million of special charges. These charges consisted of $2.4 million of severance
and other costs related to the Company's reorganization of certain management
functions and $1.6 million of exit and other costs principally related to the
consolidation of certain of the Company's distribution centers.
During the nine months ended September 30, 1998, the Company incurred $3.6
million of special charges, consisting of $2.5 million of costs relating
principally to idle plant capacity costs and $1.1 million of restructuring
charges consisting principally of employee severance costs and certain other
exit costs. These were the initial special charges the Company incurred in its
efforts designed to improve operating efficiencies and reduce costs.
The Company, as a normal part of its 2000 business planning process, is
identifying and reviewing areas where cost efficiencies can be achieved through
consolidation of redundant
-15-
<PAGE>
facilities, outsourcing functions or changing processes or systems.
Implementation of any of these could require the Company to incur special
charges, which would be offset over time by the projected cost savings.
INCOME FROM OPERATIONS
Income from operations decreased $6.5 million, or 17.2%, from $37.9
million for the nine months ended September 30, 1998 to $31.4 million for the
nine months ended September 30, 1999, principally as a result of the factors
described above. As a percentage of net sales, income from operations decreased
from 10.5% to 7.5%, between the two periods.
INTEREST EXPENSE
Interest expense increased $1.8 million, or 10.0%, from $18.0 million for
the nine months ended September 30, 1998 to $19.8 million for the nine months
ended September 30, 1999. The increase primarily resulted from borrowing under
the $120.0 million term loan portion of the Credit Facility in March 1998 to
finance the Autocraft acquisition.
EXTRAORDINARY ITEMS
During the nine months ended September 30, 1998, an extraordinary item in
the amount of $0.5 million ($0.9 million, net of related income tax benefit of
$0.4 million) was recorded. This amount was comprised of (i) a pre-tax charge of
$0.6 million for the write-off of deferred financing fees in connection with the
restatement and amendment of the credit agreement for the Credit Facility and
(ii) a pre-tax charge of $0.3 million resulting from the repurchase of $5.4
million in principle amount of the Company's Senior Notes in open market
transactions.
OEM SEGMENT
The following table presents net sales, special charges and segment profit
(EBT) expressed in millions of dollars and as a percentage of net sales:
<TABLE>
<CAPTION>
For the nine months ended September 30,
---------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C> <C> <C>
Net sales............................. $228.1 100.0% $186.5 100.0%
--------- --------- ---------- --------
--------- --------- ---------- --------
Special charges....................... $ - -% $ 2.6 1.4%
--------- --------- ---------- --------
--------- --------- ---------- --------
Segment profit........................ $ 26.1 11.4% $ 17.2 9.2%
--------- --------- ---------- --------
--------- --------- ---------- --------
</TABLE>
NET SALES. Net sales increased $41.6 million, or 22.3%, from $186.5
million for the nine months ended September 30, 1998 to $228.1 million for the
nine months ended September 30, 1999. The increase was primarily due to (i) the
timing of the Autocraft acquisition which was acquired on March 6, 1998, (ii)
increased sales of remanufactured transmissions to Ford and DaimlerChrysler and
(iii) increased engine sales through the Company's branch sales channel,
partially offset by a decrease in sales volume of engine and related parts in
the segment's European operations.
Sales to DaimlerChrysler accounted for 36.8% and 37.1% of segment revenues
for the nine months ended September 30, 1999 and 1998, respectively. Sales to
Ford accounted for 32.4% and 28.0% of segment revenues for the nine months ended
September 30, 1999 and 1998, respectively. On a pro forma basis, as if the
Autocraft acquisition had occurred on January 1, 1998, sales to DaimlerChrysler
would have accounted for 33.6% of segment revenues for the nine months ended
September 30, 1998 and sales to Ford would have accounted for 33.1% of segment
revenues for the same period.
-16-
<PAGE>
SPECIAL CHARGES. Special charges of $2.6 million during 1998 were
primarily incurred in connection with the consolidation of certain OEM segment
manufacturing plants. There were no such charges incurred during the nine months
ended September 30, 1999.
SEGMENT PROFIT. Segment profit increased $8.9 million, or 51.7%, from
$17.2 million (9.2% of OEM net sales) for the nine months ended September 30,
1998 to $26.1 million (11.4% of OEM net sales) for the nine months ended
September 30, 1999. Excluding 1998 special charges of $2.6 million, segment
profit increased by $6.3 million, as sales volume related increases in gross
profit were partially offset by increased SG&A expenses associated with the
expansion of the Company's branch sales network for remanufactured engines.
Independent Aftermarket Segment
The following table presents net sales, special charges and segment profit
(loss) (EBT) expressed in millions of dollars and as a percentage of net sales:
<TABLE>
<CAPTION>
For the nine months ended September 30,
---------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C> <C> <C>
Net sales......................... $147.6 100.0% $143.5 100.0%
--------- --------- ---------- --------
--------- --------- ---------- --------
Special charges.................. $ 1.9 1.3% $ 0.8 0.6%
--------- --------- ---------- --------
--------- --------- ---------- --------
Segment profit (loss)............ $(17.9) (12.1)% $ (2.9) (2.0)%
--------- --------- ---------- --------
--------- --------- ---------- --------
</TABLE>
NET SALES. Net sales increased $4.1 million, or 2.9%, from $143.5 million
for the nine months ended September 30, 1998 to $147.6 million for the nine
months ended September 30, 1999. This increase was largely attributable to sales
of hard parts that were introduced after the third quarter of 1998 and to an
improvement from the lower sales volumes experienced during 1998, which were
caused by customer service and fill rate shortfalls related to implementation
issues associated with the segment's enterprise-wide information system.
SPECIAL CHARGES. Special charges increased $1.1 million, from $0.8 million
for the nine months ended September 30, 1998 to $1.9 million for the nine months
ended September 30, 1999. Special charges incurred during 1998 consisted of $0.3
million of severance costs and $0.5 million of costs related to the
centralization of the Independent Aftermarket segment's management team and its
MIS function and certain other personnel matters. Special charges incurred
during 1999 consisted of $1.6 million of exit and other costs related to the
consolidation of the Independent Aftermarket's distribution centers, as well as
$0.3 million of severance and other costs related to the reorganization of
certain management functions.
SEGMENT PROFIT (LOSS). Segment profit decreased $15.0 million, from a $2.9
million loss for the nine months ended September 30, 1998 to a $17.9 million
loss for the nine months ended September 30, 1999. Excluding 1999 and 1998
special charges of $1.9 million and $0.8 million, respectively, segment profit
decreased $13.9 million between the two periods. This decline was primarily
attributable to (i) $5.1 million of additional infrastructure costs related to
the segment's enterprise-wide information system, (ii) an overall decline in
gross profit margin of $4.6 million due primarily to changes in sales mix, an
increase in costs and selected temporary sales discounts to maintain customer
satisfaction and service levels as the Company implemented enhancements to its
enterprise-wide information system and an increase in costs associated with the
relocation of one the Company's primary distribution centers to a larger and
more suitable facility, (iii) $2.3 million of costs related to the launch of the
Company's independent aftermarket remanufactured transmission program and (iv)
an increase of $2.2 million in allocated interest expense, primarily associated
with an increase in segment investment for capitalized systems implementation
costs, increased inventory levels to support new product and customer service
initiatives, and segment losses.
-17-
<PAGE>
Other Operating Units
The following table presents net sales, special charges and segment profit
(EBT) expressed in millions of dollars and as a percentage of net sales:
<TABLE>
<CAPTION>
For the nine months ended September 30,
----------------------------------------
1999 1998
------------------- --------------------
<S> <C> <C> <C> <C>
Net sales............................. $42.9 100.0% $ 32.5 100.0%
--------- --------- ---------- ---------
--------- --------- ---------- ---------
Special charges....................... $ 0.1 0.2% $ - -%
--------- --------- ---------- ---------
--------- --------- ---------- ---------
Segment profit........................ $ 4.9 11.4% $ 1.3 4.0%
--------- --------- ---------- ---------
--------- --------- ---------- ---------
</TABLE>
NET SALES. Net sales increased $10.4 million, or 32.0%, from $32.5 million
for the nine months ended September 30, 1998 to $42.9 million for the nine
months ended September 30, 1999. On a pro forma basis, as if the Autocraft
acquisition and the sale of Mascot had taken place on January 1, 1998, net sales
would have been $42.2 million and $34.9 million for the nine months ended
September 30, 1999 and 1998, respectively. This increase was primarily
attributable to increased sales in the Logistics Services and Material Recovery
business units, which were acquired in March 1998 as part of the Autocraft
acquisition. Prior to the Autocraft acquisition, revenue in this segment was
entirely attributable to Mascot, the Company's Canadian heavy-duty truck
remanufacturing operation, which was sold in February 1999.
SEGMENT PROFIT. Segment profit increased $3.6 million, or 276.9%, from
$1.3 million for the nine months ended September 30, 1998 to $4.9 million for
the nine months ended September 30, 1999. The increase was primarily the result
of additional sales volume described above.
LIQUIDITY AND CAPITAL RESOURCES
The Company had total cash and cash equivalents on hand of $2.1 million at
September 30, 1999. Net cash provided by operating activities was $11.9 million
for the nine-month period. Net cash used in investing activities was $16.3
million for the period, which consisted of $20.1 million in net capital
expenditures largely for remanufacturing equipment and systems implementation
costs partially offset by $3.8 million of proceeds from the sale of Mascot. Net
cash provided by financing activities of $5.9 million was primarily from net
borrowings of $9.7 million made under the Credit Facility, partially offset by
$0.8 million in payment of the Canadian bank line of credit, $2.7 million in
payment of amounts due to acquired companies and $0.7 million in payment of
deferred financing fees related to amendments made to the Credit Facility.
Based on its operating results during 1998, the Company was in technical
default of the leverage and cash flow covenants of the Credit Facility and the
Company's interest rate swap agreement as of December 31, 1998. This resulted in
a cross default under the line of credit for the Company's Canadian
subsidiaries. Due to the defaults, the Company was prohibited from further
borrowings under the Credit Facility and its Canadian line of credit. In March
1999, the Company obtained from its lenders waivers of the various defaults and
certain amendments to the Credit Facility and the interest rate swap agreement
that the Company believes will enable it to comply with the covenants in the
future.
Amounts outstanding under the Credit Facility bear interest at either the
"Alternate Base Rate" or the "Eurodollar Rate" (as defined in the Credit
Agreement) plus an applicable margin. At December 31, 1998 the Alternate Base
Rate margin was zero and the Eurodollar margin was 1.0%.
-18-
<PAGE>
As of September 30, 1999, the Alternate Base Rate margin was 1.25% and the
Eurodollar margin was 2.25%.
As of September 30, 1999, the Company had approximately $46.8 million
available to borrow under the revolving portion of the Credit Facility.
On October 1, 1999, the Company acquired substantially all the assets of
All Transmission Parts, Inc. for $32.0 million in cash through borrowings under
the revolving portion of the Credit Facility. In addition, the Company expects
to complete the acquisition of substantially all the assets of All Automatic
Transmission Parts, Inc. for $8.0 million in cash on or before December 1, 1999.
This transaction will also be funded through borrowings under the revolving
portion of the Credit Facility.
As of October 1, 1999, the Company had approximately $14.8 million
available to borrow under the revolving portion of the Credit Facility. In
addition, the Company has received approval from its lending group to increase
its revolving credit commitments by $10.0 million but has not yet obtained the
additional commitments.
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 future acquisitions, the
Company will continue to consider the effect any such acquisition costs may have
on its liquidity. In order to consummate such acquisitions, the Company may need
to seek funds through additional borrowings or equity financing.
YEAR 2000 COMPLIANCE
The Company has assembled an internal project team that is addressing the
issue of computer programs and embedded computer chips being unable to
distinguish between the Year 1900 and the Year 2000. The project team has
developed and is implementing a three-step plan intended to result in the
Company's operations continuing with no or minimal interruption through the Year
2000. The plan has been designed to comply with guidelines established by the
Automotive Industry Action Group (an industry association supported by several
of the major OEMs).
For purposes of this discussion, "Year 2000 compatible" means that the
computer hardware, software or device in question will function in 2000 without
modification or adjustment or will function in 2000 with a one-time manual
adjustment. However, there can be no assurance that any such Year 2000
compatible hardware, software or device will function properly when interacting
with any Year 2000 noncompatible hardware, software or device.
PROCESS OVERVIEW
The first step in the Company's plan was to inventory all of its computer
hardware and software and all of its devices having imbedded computer
technology. The Year 2000 project team focused on four areas: (i) business
systems; (ii) production (e.g., desk top computers and remanufacturing
machinery); (iii) financial management (e.g., banking software, postage
equipment and time clocks); and (iv) facilities (e.g., heating and air
conditioning systems, elevators, telephones, and fire and security systems).
This inventory has been completed.
In the second step, the project team determined whether each inventoried
system or device is Year 2000 compatible, either through testing by the project
team or certification from the vendor of the system or device. In the third
step, those that are not compatible were upgraded or replaced.
BUSINESS SYSTEMS. The business systems used by the Company's Logistics
Services, Material Recovery and electronics operations and the business systems
used by its subsidiaries that remanufacture transmissions for the Company's OEM
transmission customers (including DaimlerChrysler, Ford and General Motors),
have each been certified by the respective vendor as being Year 2000 compatible.
The enterprise system being implemented for the Independent
-19-
<PAGE>
Aftermarket segment has also been certified by the vendor as being Year 2000
compatible. Certain operations within the Independent Aftermarket segment that
are not yet integrated into the enterprise system, are expected to be upgraded
or replaced before the end of the year in order to be Year 2000 compatible. The
noncompatible business system previously used by the Company's European
operation was replaced with a Year 2000 compatible system during the third
quarter of 1999. Substantially all other noncompatible hardware and software has
been or will be decommissioned at or before the end of the year.
PRODUCTION, FINANCIAL MANAGEMENT AND FACILITIES. Each device and each
piece of hardware and non-business system software (a "Non-System Item") that
can be tested by the Company has been tested for Year 2000 compatibility. In the
case of any Non-System Item that cannot be tested, the vendor has been asked for
a certification regarding compatibility. Substantially all of the Non-System
Items have been tested or certified and upgraded or replaced.
VENDORS. The project team has contacted each of the Company's significant
vendors and requested that they apprise the Company of the status of their Year
2000 compliance programs. The Company had originally targeted the end of the
first quarter of 1999 as the date for receiving substantially all vendor
responses. While many vendor responses have been received, the Company is still
pursuing responses from some vendors. There can be no assurance as to when or if
this process will be completed.
COSTS
The total cost associated with the Company becoming Year 2000 compatible
is not expected to be material to its financial position. As of September 30,
1999, the Company had spent approximately $1.0 million in connection with the
project, consisting primarily of costs to replace or upgrade noncompatible
business systems, including the system formerly used in the Company's European
operation. The Company expects its future costs in connection with its Year 2000
project to be nominal.
Excluded from the above cost estimates are the costs associated with the
Distribution Group's enterprise-wide computer system to the extent that such
costs relate to implementation of the system as opposed to making it Year 2000
compatible.
RISKS
The failure to correct a material Year 2000 problem could result in an
interruption in or failure of certain normal business activities or operations
of the Company. Such failures could have a material adverse effect on the
Company. Due to the general uncertainty inherent in the Year 2000 problem,
resulting in part from the uncertainty of Year 2000 compliance by the Company's
significant customers and vendors, the Company is unable to determine at this
time whether the consequences of Year 2000 noncompliance will have a material
adverse effect on the Company.
The Company believes that the areas that present the greatest risk to the
Company are (i) disruption of the Company's business due to Year 2000
noncompatibility of one of its critical business systems and (ii) disruption of
the business of certain of its significant customers and vendors due to their
noncompliance. At this time, the Company believes that all of its critical
business systems are Year 2000 compatible. Whether disruption of a customer's or
vendor's business due to noncompliance will have a material adverse effect on
the Company will depend on several factors including the nature and duration of
the disruption, the significance of the customer or vendor and, in the case of
vendors, the availability of alternate sources for the vendor's products.
-20-
<PAGE>
The Company is in the process of developing a contingency plan to address
any material Year 2000 noncompliance issues. The Company projects to have the
plan completed by the end of November 1999.
FORWARD-LOOKING STATEMENT NOTICE
Readers are cautioned that the preceding discussion contains numerous
forward-looking statements and should be read in conjunction with the
"Forward-Looking Statement Notice" appearing at the beginning of "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Expectations about future Year 2000-related costs and the state of the Company's
Year 2000 program are subject to various uncertainties that could cause the
actual results to differ materially from the Company's expectations, including
the success of the Company in identifying hardware, software and devices that
were not Year 2000 compatible, the nature and amount of remediation required to
make them compatible, the availability, rate and amount of related labor and
consulting costs and the success of the Company's significant vendors and
customers in addressing their Year 2000 issues.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
DERIVATIVE FINANCIAL INSTRUMENTS
The Company does not hold or issue derivative financial instruments for
trading purposes. The Company uses derivative financial instruments to manage
its exposure to fluctuations in interest rates. Neither the aggregate value of
these derivative financial instruments nor the market risk posed by them is
material to the Company. The Company uses interest rate swaps to convert
variable rate debt to fixed rate debt to reduce volatility risk. For additional
discussion regarding the Company's use of such instruments, see Item 1.
"Notes to Consolidated Financial Statements-Note 3."
INTEREST RATE EXPOSURE
Based on the Company's overall interest rate exposure during the nine
months ended September 30, 1999, and assuming similar interest rate volatility
in the future, a near-term (12 months) change in interest rates would not
materially affect the Company's consolidated financial position, results of
operation or cash flows. A 10% change in the rate of interest would not have a
material effect on the Company's financial position, results of operation or
cash flows.
FOREIGN EXCHANGE EXPOSURE
The Company has two foreign operations that expose it to translation risk
when the local currency financial statements are translated to U.S. dollars.
Since changes in translation risk are reported as adjustments to stockholders'
equity, a 10% change in the foreign exchange rate would not have a material
effect on the Company's financial position, results of operation or cash flows.
-21-
<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
See Exhibit Index on Page 24.
(b) Reports on Form 8-K
During the quarter ended September 30, 1999 the Company filed
the following reports on Form 8-K:
(1) Report dated July 30, 1999 reporting under Item 5
earnings estimates for the third quarter of 1999 and the
year ended December 31, 1999. In addition, reporting
under Item 7 the Company's press release dated July 29,
1999.
(2) Report dated September 15, 1999 reporting under Item 5
the Company's intention to acquire substantially all the
assets of All Transmission Parts, Inc. and its
affiliate, All Automatic Transmission Parts, Inc.
including an estimate of the related addition to 2000
earnings. In addition, reporting under Item 7 the
Company's press release dated September 15, 1999.
-22-
<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: October 28, 1999 /s/ Barry C. Kohn
- ---------------------- -------------------------------------------
Barry C. Kohn, Chief Financial Officer
- - Barry C. Kohn is signing in the dual capacities as i) the principal
financial officer, and ii) a duly authorized officer of the company.
-23-
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Electronic (E)
- ------------- ---------------------------------------------------------------- -----------------
<S> <C> <C>
10.57 Consent and Amendment dated as of August 25, 1999 to the Amended (E)
and Restated Credit Agreement, dated as of March 6, 1998 among
Aftermarket Technology Corp., the several banks and other
financial institutions from time to time parties thereto and The
Chase Manhattan Bank, as agent.
27 Financial Data Schedules (E)
</TABLE>
-24-
<PAGE>
EXHIBIT 10.57
CONSENT AND AMENDMENT
CONSENT AND AMENDMENT, dated as of August 25, 1999 (this "AMENDMENT"),
to the Amended and Restated Credit Agreement, dated as of March 6, 1998 (as
amended, supplemented or otherwise modified from time to time, the "AGREEMENT"),
among AFTERMARKET TECHNOLOGY CORP., a Delaware corporation (the "BORROWER"), the
several banks and other financial institutions from time to time parties thereto
(the "LENDERS") and THE CHASE MANHATTAN BANK, a New York banking corporation, as
agent (in such capacity, the "AGENT").
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders and the Agent are parties to the
Agreement;
WHEREAS, the Borrower intends to acquire substantially all of the
assets of All Transmission Parts, Inc. and All Automatic Transmission Parts,
Inc. for approximately $40,000,000 (the "ALL TRANS ACQUISITION");
WHEREAS, the Borrower has requested that the Lenders approve the
amount of the Acquisition pursuant to subsection 8.10(j)(v) and agree to amend
certain provisions of the Agreement, and the Lenders and the Agent are agreeable
to such request upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein, and for other valuable consideration the receipt of which is
hereby acknowledged, the Company, the Lenders and the Agent hereby agree as
follows:
1. DEFINITIONS. All terms defined in the Agreement shall have such
defined meanings when used herein unless otherwise defined herein.
2. CONSENT TO ALL TRANS ACQUISITION. Pursuant to clause (v) of
Section 8.10(j), the Required Lenders hereby consent to the All Trans
Acquisition to the extent it would otherwise exceed the limitations thereof, so
long as the other requirements in respect thereof are satisfied, it being
understood that the aggregate consideration paid in connection with the All
Trans Acquisition shall be applied against and reduce the availability of the
$55,000,000 limit under subsection 8.10(j)(vi) (as such subsection is amended by
this Amendment).
3. AMENDMENT OF SUBSECTION 1.1. Subsection 1.1 of the
Agreement is hereby amended by adding the following new definitions in
alphabetical order:
"NEW LENDER": as defined in subsection 2.7(d).
"NEW LENDER SUPPLEMENT": as defined in subsection 2.7(d).
<PAGE>
2
4. AMENDMENT OF SECTION 2. The Agreement is hereby amended by
adding the following new subsection 2.7 to the end of Section 2:
"2.7 INCREASE IN REVOLVING CREDIT COMMITMENTS OR TERM LOANS (a) The
Borrower may, with notice to the Agent but without the consent of the
Required Lenders, (a) from time to time during the Revolving Credit
Commitment Period, request that the Revolving Credit Commitments be
increased, or (b) from time to time prior to the Termination Date, request
to borrow additional Term Loans; PROVIDED that the sum of incremental
Revolving Credit Commitments and additional Term Loans obtained pursuant to
this subsection shall not exceed $10,000,000 and shall, in each case,
aggregate at least $2,000,000 per requested increase; and PROVIDED FURTHER
that any request made by the Borrower pursuant to this subsection 2.7(a)
shall be accompanied by documentation complying with the provisions of
subsection 6.2(e) and additional written evidence to the extent necessary
to demonstrate that after giving effect to the additional Term Loans or the
Revolving Loans available to the Borrower pursuant to the increased
Revolving Credit Commitments, the Borrower would be in compliance with
subsection 8.17 hereof. Upon receipt of such notice, the Administrative
Agent will seek the agreement of one or more Lenders (including New
Lenders) to increase or, in the case of New Lenders, make, its or their
Revolving Credit Commitment or make additional Term Loans, as applicable,
in an aggregate amount equal to the amount so requested by the Borrower.
(b) If one or more of the Lenders (including New lenders) shall have
agreed to increase its or their existing Revolving Credit Commitment or, in
the case of New Lenders, agree to a Revolving Credit Commitment, or to make
a Term Loan, in each case pursuant to a request made as described in the
foregoing clause (a) (it being understood that no Lender shall have any
obligation to increase its Revolving Credit Commitment or make such
additional Term Loan), such increases in Revolving Credit Commitments shall
become effective, and such Term Loans shall be made available to the
Borrower, on a date mutually agreed upon among the Agent, the Borrower and
the Lenders providing such increase and/or such new Revolving Credit
Commitments or Term Loans and shall be implemented pursuant to
documentation consistent herewith and otherwise in form and substance
reasonably satisfactory to the Agent, providing, among other things, for
adjustments to cause the Loans of each Lender to correspond to their
respective percentage of the applicable facility after giving effect to
such increase (including, without limitation, by providing for prepaying
and reborrowing all then outstanding Loans).
(c) Revolving Credit Loans, Revolving Credit Commitments and Term
Loans made or agreed to pursuant to this subsection 2.7 shall have the same
maturities, interest and fee rates and other terms as the other Revolving
Credit Loans, Revolving Credit Commitments and/or Term Loans hereunder, as
applicable, and shall for all purposes be deemed to be Revolving Credit
Loans, Revolving Credit Commitments and/or Term Loans hereunder, as the
case may be.
<PAGE>
3
(d) Any bank, financial institution or other entity which, with the
consent of the Borrower and the Agent (which consent shall not be
unreasonably withheld), elects to become a "Lender" under this Agreement
pursuant to this subsection 2.7 shall execute a New Lender Supplement
(each, a "NEW LENDER SUPPLEMENT") substantially in the form of Exhibit H,
whereupon such bank, financial institution or other entity (a "NEW LENDER")
shall become a Revolving Credit Lender or Term Loan Lender, as the case may
be, for all purposes and to the same extent as if originally a party hereto
and shall be bound by and entitled to the benefits of this Agreement."
5. AMENDMENT OF SUBSECTION 4.3. Subsection 4.3 is hereby amended by
inserting the new clause (e) after existing clause (d):
"(e) If additional Term Loans are borrowed pursuant to subsection
2.7(c), the remaining scheduled installments in effect on the date such
additional Term Loans are borrowed shall be increased ratably (determined
on the basis of the respective amounts of such remaining installments)."
6. AMENDMENT OF SUBSECTION 8.1(a). Subsection 8.1(a) of the
Agreement is hereby amended by deleting the permitted maximum Leverage Ratios
listed therein for the last day of the Borrower's fiscal quarters ending
December 31, 1999 and March 31, 2000 and inserting in lieu thereof the following
permitted maximum Leverage Ratios:
<TABLE>
<S> <C>
"December 31, 1999 4.25 to 1.0
March 31, 2000 3.75 to 1.0".
</TABLE>
7. AMENDMENT OF SUBSECTION 8.1(b). Subsection 8.1(b) of the
Agreement is hereby amended by deleting the minimum permitted interest coverage
ratio listed therein for the Borrower's four consecutive fiscal quarters ending
March 31, 2000 and inserting in lieu thereof the following interest coverage
ratio:
<TABLE>
<S> <C>
"March 31, 2000 2.25 to 1.0".
</TABLE>
8. AMENDMENT OF SUBSECTION 8.7. Subsection 8.7 of the Agreement is
hereby amended by deleting the existing subsection 8.7 and inserting in lieu
thereof the following new subsection:
"8.7 LIMITATION ON LEASES. Permit Consolidated Lease Expense for any
fiscal year of the Borrower to exceed an amount equal to $11,000,000 for
the fiscal year ending December 31, 1998, $17,000,000 for the fiscal year
ending December 31, 1999 and $21,000,000 for each fiscal year thereafter."
9. AMENDMENT OF SUBSECTION 8.10(j). Subsection 8.10(j) of the
Agreement is hereby amended by deleting "$25,000,000" from clause (vi) and
inserting in lieu thereof "$55,000,000" such that subsection 8.10(j), as
amended, reads as follows:
<PAGE>
4
"(j) acquisitions by the Borrower and its Subsidiaries, of assets or
Capital Stock of one or more corporations or other Persons so long as (i)
each such acquisition and all transactions related thereto shall be
consummated in accordance with applicable Requirements of Law; (ii) each
such acquisition, in the case of an acquisition of Capital Stock, shall
result in such corporation or Person becoming a Subsidiary; (iii) after
giving effect to any such acquisition, no Default or Event of Default shall
have occurred and be continuing; (iv) the Borrower shall have delivered to
the Agent a certificate demonstrating that the requirements of subsection
8.1 would be satisfied on a pro forma basis as at the end of the most
recently ended fiscal quarter of the Borrower with respect to which
financial statements have been delivered pursuant to subsection 7.1 if each
such acquisition (including the Indebtedness incurred in connection
therewith) had occurred on the first day of the four fiscal quarter period
ended with such most recently ended fiscal quarter; (v) in the case of any
acquisition by the Borrower and its Subsidiaries, for cash or other
consideration exceeding $15,000,000 in the aggregate, such acquisition
shall be subject to the prior written consent of the Required Lenders; and
(vi) the aggregate consideration for all such acquisitions after the
Closing Date shall not exceed $55,000,000."
10. ADDITION OF EXHIBIT H. The Agreement is hereby amended by
inserting Exhibit H hereto after existing Exhibit G.
11. REPRESENTATIONS; NO DEFAULT. On and as of the date hereof, and
after giving effect to this Amendment, the Company confirms, reaffirms and
restates that the representations and warranties set forth in Section 5 of the
Agreement and in the other Loan Documents are true and correct in all material
respects, PROVIDED that the references to the Agreement therein shall be deemed
to be references to this Amendment and to the Agreement as amended by this
Amendment.
12. CONDITIONS TO EFFECTIVENESS. This Amendment shall become
effective on and as of the date that the Agent shall have received:
(a) counterparts of this Amendment, duly executed and delivered by a
duly authorized officer of each of the Borrower, the Agent, and the Required
Lenders, along with the written consent of each Subsidiary Guarantor in the form
attached hereto;
(b) an executed certificate of an officer of the Borrower in form
satisfactory to the Agent as to the accuracy of the Borrower's representations
and warranties set forth in Section 5 of the Agreement and in the other Loan
Documents, the absence of any Default or Event of Default after giving effect to
this Amendment and as to such other customary matters as the Agent may
reasonably request; and
(c) an amendment fee for the account of each Lender executing this
Amendment and delivering its executed signature page to the Agent prior to 12:00
Noon, New York City time, on August 25, 1999, in the amount equal to 0.10% of
the sum of such Lender's Aggregate Outstanding Extensions of Credit and its
unutilized Commitments as of such date.
<PAGE>
5
13. LIMITED CONSENT AND AMENDMENT. Except as expressly amended
herein, the Agreement shall continue to be, and shall remain, in full force and
effect. This Amendment shall not be deemed to be a waiver of, or consent to, or
a modification or amendment of, any other term or condition of the Agreement or
any other Loan Document or to prejudice any other right or rights which the
Lenders may now have or may have in the future under or in connection with the
Agreement or any of the instruments or agreements referred to therein, as the
same may be amended from time to time.
14. COSTS AND EXPENSES. The Company agrees to pay or reimburse the
Agent for all its reasonable and customary out-of-pocket costs and expenses
incurred in connection with the preparation, negotiation and execution of this
Amendment, and the consummation of the transactions contemplated hereby,
including, without limitation, the reasonable fees and disbursements of its
counsel.
15. COUNTERPARTS. This Amendment may be executed by one or more of
the parties hereto in any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
16. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered by their respective duly authorized officers as of the
date first above written.
AFTERMARKET TECHNOLOGY CORP.
By: /s/ Joseph Salamunovich
-------------------------------
Name: Joseph Salamunovich
Title: Vice President and Secretary
THE CHASE MANHATTAN BANK, as Agent and
as a Lender
By: /s/ Julie S. Long
-------------------------------
Name: Julie S. Long
Title: Vice President
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION
By: /s/ William S. Richards, Jr.
-------------------------------
Name: William S. Richards, Jr.
Title: Vice President
THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. Ashby
-------------------------------
Name: F.C.H. Ashby
Title: Senior Manager Loan Operations
<PAGE>
7
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Glenn A. Currin
-------------------------------
Name: Glenn A. Currin
Title: First Vice President
FIRST UNION NATIONAL BANK
By: /s/ Kent Davis
-------------------------------
Name: Kent Davis
Title: Vice President
HARRIS TRUST & SAVINGS
By: /s/ Melissa A. Whitson
-------------------------------
Name: Melissa A. Whitson
Title: Vice President
LASALLE NATIONAL BANK
By: /s/ James J. Hess
-------------------------------
Name: James J. Hess
Title: Vice President
NATIONAL CITY BANK
By: /s/ Matthew R. Klinger
-------------------------------
Name: Matthew R. Klinger
Title: Assistant Vice President
<PAGE>
8
BANK OF NEW YORK
By: /s/ R. Wes Towns
-------------------------------
Name: R. Wes Towns
Title: Senior Vice President
CREDIT AGRICOLE INDOSUEZ
By: /s/ Ernest V. Hodge
-------------------------------
Name: Ernest V. Hodge
Title: Vice President - Senior
Relationship Manager
By: /s/ Sarah U. Johnston
-------------------------------
Name: Sarah U. Johnston
Title: Vice President - Senior
Relationship Manager
<PAGE>
9
CONSENT
Each of the undersigned Guarantors hereby consents and agrees to the
provisions of the foregoing Amendment, and hereby affirms that upon the
effectiveness of the foregoing Amendment, each Loan Document to which it is a
party shall continue to be, and shall remain, in full force and effect.
AFTERMARKET TECHNOLOGY CORP.
By: /s/ Joseph Salamunovich
-------------------------------
Name: Joseph Salamunovich
Title: Vice President and Secretary
AARON'S AUTOMOTIVE PRODUCTS, INC.
By: /s/ Joseph Salamunovich
-------------------------------
Name: Joseph Salamunovich
Title: Vice President and Secretary
ACI ELECTRONICS HOLDING CORP.
By: /s/ Joseph Salamunovich
-------------------------------
Name: Joseph Salamunovich
Title: Vice President and Secretary
ACI ELECTRONICS INVESTMENT CORP.
By: /s/ Joseph Salamunovich
-------------------------------
Name: Joseph Salamunovich
Title: Vice President and Secretary
ATC ELECTRONICS & LOGISTICS, L.P.
By: ACI ELECTRONICS HOLDING CORP., its
General Partner
By: /s/ Joseph Salamunovich
-------------------------------
Name: Joseph Salamunovich
Title: Vice President and Secretary
<PAGE>
10
ATC DISTRIBUTION GROUP, INC.
By: /s/ Joseph Salamunovich
-------------------------------
Name: Joseph Salamunovich
Title: Vice President and Secretary
ATS REMANUFACTURING, INC.
By: /s/ Joseph Salamunovich
-------------------------------
Name: Joseph Salamunovich
Title: Vice President and Secretary
COMPONENT REMANUFACTURING SPECIALISTS, INC.
By: /s/ Joseph Salamunovich
-------------------------------
Name: Joseph Salamunovich
Title: Vice President and Secretary
AUTOCRAFT REMANUFACTURING CORP.
By: /s/ Joseph Salamunovich
-------------------------------
Name: Joseph Salamunovich
Title: Vice President and Secretary
AUTOCRAFT INDUSTRIES, INC.
By: /s/ Joseph Salamunovich
-------------------------------
Name: Joseph Salamunovich
Title: Vice President and Secretary
<PAGE>
EXHIBIT H
FORM OF NEW LENDER SUPPLEMENT
SUPPLEMENT, dated _________________, to the Amended and Restated
Credit Agreement, dated as of March 6, 1998 (as amended, supplemented or
otherwise modified from time to time, the "AGREEMENT"), among AFTERMARKET
TECHNOLOGY CORP., a Delaware corporation (the "BORROWER"), the several banks and
other financial institutions from time to time parties thereto (the "LENDERS")
and THE CHASE MANHATTAN BANK, a New York banking corporation, as agent (in such
capacity, the "AGENT"). Capitalized terms used herein that are not defined
herein shall have the meanings ascribed to them in the Agreement.
W I T N E S S E T H :
WHEREAS, subsection 2.7(d) of the Agreement provides that any bank,
financial institution or other entity may become a party to the Agreement with
the consent of the Borrower and the Agent (which consent shall not be
unreasonably withheld) by executing and delivering to the Borrower and the Agent
a supplement to the Agreement in substantially the form of this Supplement; and
WHEREAS, the undersigned now desires to become a party to the
Agreement as a [Revolving Credit Lender] [Term Loan Lender];
NOW, THEREFORE, the undersigned hereby agrees as follows:
1. The undersigned agrees to be bound by the provisions of the
Agreement, and agrees that it shall, on the date this Supplement is
accepted by the Borrower and the Agent, become a [Revolving Credit Lender]
[Term Loan Lender] for all purposes of the Agreement to the same extent as
if originally a party thereto, with a [Revolving Credit Commitment] [Term
Loan] of $__________________.
2. The undersigned (a) represents and warrants that it is legally
authorized to enter into this Supplement; (b) confirms that it has received
a copy of the Agreement and all amendments thereto, together with copies of
the most recent available audited and unaudited financial statements
delivered pursuant thereto and such other documents and information as it
has deemed appropriate to make its own credit analysis and decision to
enter into this Supplement; (c) agrees that it will, independently and
without reliance the Agent or any other Lender and based on such documents
and information as it shall deem appropriate at the time, continue to make
its own credit decisions in taking or not taking action under the
Agreement, the other Loan Documents or any other instrument or document
furnished pursuant hereto or thereto; (d) appoints and authorizes the Agent
to take such action as agent on its behalf and to exercise such powers and
discretion under the Agreement, the other Loan Documents or any other
instrument or document furnished pursuant hereto or thereto as are
delegated to the Agent by the terms thereof, together with such powers as
are incidental thereto; and (e) agrees that it will be bound by the
provisions of the Agreement and will perform in accordance with its terms
all the obligations which by the terms of the Agreement are required to be
performed by it as a
<PAGE>
Lender including, if it is organized under the laws of a jurisdiction
outside the United States, its obligation pursuant to subsection 4.13
(b) of the Agreement.
3. The undersigned's address for notices for the purposes of the
Agreement is as follows:
IN WITNESS WHEREOF, the undersigned has caused this Supplement to be
executed and delivered by a duly authorized officer on the date first above
written.
[INSERT NAME OF NEW LENDER]
By
-----------------------------------
Title:
Accepted this day of
----
- --------------, --------.
AFTERMARKET TECHNOLOGY CORP.
By
----------------------------
Title:
Accepted this day of
-----
- ---------------, ------.
THE CHASE MANHATTAN BANK,
as Agent
By
----------------------------
Title:
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,099
<SECURITIES> 0
<RECEIVABLES> 81,067
<ALLOWANCES> 2,753
<INVENTORY> 116,156
<CURRENT-ASSETS> 211,850
<PP&E> 106,443
<DEPRECIATION> 30,543
<TOTAL-ASSETS> 555,116
<CURRENT-LIABILITIES> 113,336
<BONDS> 111,259
0
0
<COMMON> 206
<OTHER-SE> 175,931
<TOTAL-LIABILITY-AND-EQUITY> 555,116
<SALES> 418,557
<TOTAL-REVENUES> 418,720
<CGS> 286,560
<TOTAL-COSTS> 386,484
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 711
<INTEREST-EXPENSE> 19,750
<INCOME-PRETAX> 11,775
<INCOME-TAX> 4,711
<INCOME-CONTINUING> 7,064
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,064
<EPS-BASIC> 0.35
<EPS-DILUTED> 0.33
</TABLE>
