<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 June 30, 2000
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)
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 July 28, 2000, there were 20,739,510 shares of common stock of the
Registrant outstanding.
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<PAGE>
AFTERMARKET TECHNOLOGY CORP.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets at June 30, 2000 (unaudited)
and December 31, 1999 .................................................. 3
Consolidated Statements of Operations (unaudited) for the Three and Six
Months Ended June 30, 2000 and 1999 .................................... 4
Consolidated Statements of Cash Flows (unaudited) for the
Six Months Ended June 30, 2000 and 1999................................. 5
Notes to Consolidated Financial Statements (unaudited).................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................................... 13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk............................................................. 20
PART II. Other Information
Item 3. Defaults Upon Senior Securities......................................... 21
Item 4. Submission of Matters to a Vote of Security Holders..................... 21
SIGNATURES.......................................................................... 22
EXHIBIT INDEX....................................................................... 23
</TABLE>
Note: Items 1, 2, 5 and 6 of Part II are omitted because they are not
applicable.
-2-
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 7,423 $ 8,469
Accounts receivable, net 57,812 46,266
Inventories 31,608 36,289
Prepaid and other assets 4,736 2,636
Refundable income taxes 3,569 -
Deferred income taxes 59,744 14,036
Net assets of discontinued operations held for sale, net 41,444 90,532
---------------- --------------
Total current assets 206,336 198,228
Property, plant and equipment, net 42,052 39,397
Debt issuance costs, net 4,670 5,268
Cost in excess of net assets acquired, net 177,460 179,974
Other assets 219 180
Net assets of discontinued operations held for sale, net 16,258 151,878
---------------- --------------
Total assets $ 446,995 $ 574,925
================ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 31,060 $ 35,976
Accrued expenses 27,271 32,282
Income taxes payable - 2,685
Bank line of credit 481 543
Credit facility 24,480 21,760
Amounts due to acquired companies 2,295 2,384
Deferred compensation 696 660
---------------- --------------
Total current liabilities 86,283 96,290
12% Series B and D Senior Subordinated Notes 111,124 111,214
Amount drawn on credit facility, less current portion 162,999 164,799
Amounts due to acquired companies, less current portion 8,066 7,759
Deferred compensation, less current portion 3,049 2,944
Other long-term liabilities 570 707
Deferred income taxes 8,379 15,068
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 - 20,911,510 and 20,612,764 (including shares held in treasury) 209 206
Additional paid-in capital 136,480 135,894
Accumulated (deficit) earnings (67,301) 42,483
Accumulated other comprehensive loss (869) (445)
Common stock held in treasury, at cost (172,000 shares) (1,994) (1,994)
---------------- --------------
Total stockholders' equity 66,525 176,144
---------------- --------------
Total liabilities and stockholders' equity $ 446,995 $ 574,925
================ ==============
</TABLE>
SEE ACCOMPANYING NOTES.
-3-
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the three months ended June 30, For the six months ended June 30,
2000 1999 2000 1999
--------------- -------------- ----------- ---------------
Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 82,666 $ 82,388 $ 169,168 $ 158,712
Cost of sales 52,781 55,071 106,774 107,287
--------------- -------------- ----------- ---------------
Gross profit 29,885 27,317 62,394 51,425
Selling, general and
administrative expense 13,308 12,133 26,104 24,373
Amortization of intangible assets 1,256 1,273 2,513 2,498
Special charges - 575 - 2,134
--------------- -------------- ----------- --------------
Income from operations 15,321 13,336 33,777 22,420
Other income (expense), net (38) (72) 14 12
Interest expense 6,037 5,507 11,873 10,959
--------------- -------------- ----------- --------------
Income from continuing operations,
before income taxes 9,246 7,757 21,918 11,473
Income tax expense 3,532 2,848 8,373 4,213
--------------- -------------- ----------- --------------
Income from continuing operations 5,714 4,909 13,545 7,260
Loss from discontinued operations, net
of income taxes (120,835) (3,156) (123,329) (4,624)
--------------- -------------- ----------- ---------------
Net income (loss) $ (115,121) $ 1,753 $ (109,784) $ 2,636
=============== ============== =========== ===============
Per common share - basic:
Income from continuing operations $ 0.28 $ 0.24 $ 0.66 $ 0.36
Loss from discontinued operations (5.86) (0.15) (5.99) (0.23)
--------------- -------------- ----------- ---------------
Net income (loss) $ (5.58) $ 0.09 $ (5.33) $ 0.13
=============== ============== =========== ===============
Weighted average number of common shares
outstanding 20,623 20,268 20,581 20,257
=============== ============== =========== ===============
Per common share - diluted:
Income from continuing operations $ 0.27 $ 0.23 $ 0.64 $ 0.34
Loss from discontinued operations (5.69) (0.15) (5.79) (0.22)
--------------- -------------- ----------- ---------------
Net income (loss) $ (5.42) $ 0.08 $ (5.15) $ 0.12
=============== ============== =========== ===============
Weighted average number of common and
common equivalent shares outstanding 21,246 21,204 21,315 21,101
=============== ============== =========== ===============
</TABLE>
SEE ACCOMPANYING NOTES
-4-
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the six months ended June 30,
2000 1999
----------------- ------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (109,784) $ 2,636
Net loss from discontinued operations 123,329 4,624
---------------- ------------
Net income from continuing operations 13,545 7,260
Adjustments to reconcile net income to
net cash provided by operating activities - continuing operations:
Depreciation and amortization 5,899 5,641
Amortization of debt issuance costs 598 468
Provision for losses on accounts receivable 50 33
Loss on sale of equipment 9 22
Deferred income taxes 1,337 349
Changes in operating assets and liabilities
(net of businesses sold):
Accounts receivable (11,879) (4,050)
Inventories 4,407 (1,910)
Prepaid and other assets (2,148) 5,214
Accounts payable and accrued expenses (8,492) 4,388
---------------- ------------
Net cash provided by operating activities - continuing operations 3,326 17,415
---------------- ------------
Net cash provided by (used in) operating activities - discontinued operations 923 (8,295)
---------------- ------------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (5,274) (4,552)
Proceeds from sale of business - 3,808
Proceeds from sale of equipment 244 101
---------------- ------------
Net cash used in investing activities - continuing operations (5,030) (643)
---------------- ------------
Net cash used in investing activities - discontinued operations (1,508) (10,032)
---------------- ------------
FINANCING ACTIVITIES:
Borrowings on credit facility, net 920 6,179
Payments on bank line of credit, net (51) (1,590)
Payment of debt issuance costs - (520)
Proceeds from exercise of stock options 378 258
Payments on amounts due to acquired companies (100) (1,489)
---------------- ------------
Net cash provided by financing activities 1,147 2,838
---------------- ------------
Effect of exchange rate changes on cash and cash equivalents 96 (21)
---------------- ------------
Increase (decrease) in cash and cash equivalents (1,046) 1,262
Cash and cash equivalents at beginning of period 8,469 580
---------------- ------------
Cash and cash equivalents at end of period $ 7,423 $ 1,842
================ ============
Cash paid during the period for:
Interest $ 15,246 $ 12,097
Income taxes, net 3,555 (3,386)
</TABLE>
SEE ACCOMPANYING NOTES.
-5-
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
Notes to Consolidated Financial Statements
(In thousands and unaudited)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
Aftermarket Technology Corp. (the "Company") as of June 30, 2000 and for the
three and six months ended June 30, 2000 and 1999 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 six months ended June 30, 2000 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000. 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, 1999.
Certain prior-year amounts have been reclassified to conform to the
2000 presentation.
NOTE 2: INVENTORIES
Inventories for the continuing operations consist of the following:
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
Raw materials, including core inventories......... $ 25,138 $ 28,284
Work-in-process................................... 1,889 1,855
Finished goods.................................... 4,581 6,150
------------- -----------------
$ 31,608 $ 36,289
============= =================
</TABLE>
NOTE 3: DISCONTINUED INDEPENDENT AFTERMARKET SEGMENT
On August 3, 2000, the Company adopted a plan to discontinue the
Independent Aftermarket segment of its business, which contains the
Distribution Group and its remanufactured engines business. The Company is
planning to sell the Distribution Group, which sells transmission repair
kits, soft parts, remanufactured torque converters and transmissions and both
new and remanufactured hard parts used in drive train repairs primarily to
independent transmission rebuilders and to a lesser extent to general repair
shops, wholesale distributors and retail automotive parts stores, by June 30,
2001. In addition, the Company is planning to sell its remanufactured engines
business, which remanufactures and distributes domestic and foreign engines
primarily to general repair shops and retail automotive parts stores, by June
30, 2001. A provision for anticipated losses on discontinued operations
through disposal date is based on management's estimates and is included in
the current period.
The estimated loss on disposal of the Independent Aftermarket is
$114,849 (net of tax benefit of $59,164). The pre-tax loss on disposal of
$174,013 consists of an estimated loss on disposal of the segment of $160,748
and a provision of $13,265 for anticipated losses from June 30, 2000 until
disposal. The loss on disposal includes the write-off of goodwill, provisions
for the valuation of certain assets, and anticipated costs of disposal
including lease terminations, severance, retention and other employee
benefits, professional fees and other costs directly associated with the
discontinuance.
-6-
<PAGE>
The consolidated statements of operations have been restated to report
the operating results of the Independent Aftermarket segment as discontinued
operations and accordingly, their results have been excluded from continuing
operations for all periods presented. Net sales from the Independent Aftermarket
were $60,278 and $58,815 for the three months ended June 30, 2000 and 1999,
respectively. Net sales from the Independent Aftermarket were $123,736 and
$117,689 for the six months ended June 30, 2000 and 1999, respectively. Interest
expense for the three and six month periods ended June 30, 2000 has been
allocated to the discontinued operations based on the anticipated cash proceeds
from the sale of the segment. Interest expense for the three and six month
periods ended June 30, 1999 has been allocated to the discontinued operations
based on the anticipated cash proceeds from the sale of the segment, less the
amount of debt attributable to the acquisition of All Trans in the fourth
quarter of 1999. These allocations amounted to $1,967 and $1,000 for the three
months ended June 30, 2000 and 1999, respectively and $3,886 and $1,840 for the
six months ended June 30, 2000 and 1999, respectively.
Details of the loss recorded from discontinued operations are as
follows:
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
-------------------------- ------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Loss from operations ....................... $ 8,649 $ 4,761 $ 12,848 $ 7,005
Income tax benefit ......................... 2,663 1,605 4,368 2,381
-------- -------- -------- --------
Loss from operations, net of income taxes... 5,986 3,156 8,480 4,624
-------- -------- -------- --------
Loss from disposal ......................... 160,748 - 160,748 -
Loss from operations during phase-out period 13,265 - 13,265 -
Income tax benefit.......................... 59,164 - 59,164 -
-------- -------- -------- --------
Loss from disposal, net of income taxes .... 114,849 - 114,849 -
-------- -------- -------- --------
Loss from discontinued operations, net of
income taxes ............................... $120,835 $ 3,156 $123,329 $ 4,624
======== ======== ======== ========
</TABLE>
The net assets of discontinued operations held for sale in the balance
sheets include the following:
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
Accounts receivable, net................................... $ 25,190 $ 24,520
Inventories, net........................................... 83,209 84,213
Other current assets....................................... 3,314 3,476
Property, plant and equipment, net......................... 31,492 35,972
Cost in excess of net assets acquired, net................. 113,529 115,065
Other, net................................................. 512 841
Accounts payable........................................... (15,316) (11,151)
Accrued expenses........................................... (10,215) (10,526)
------------ -------------
231,715 242,410
Valuation allowances for losses on net assets.............. (149,059) -
------------ -------------
Net realizable value of net assets from discontinued
operations............................................... 82,656 242,410
Estimated accrued losses and other costs from discontinued
operations........................................... (24,954) -
------------ -------------
Net assets of discontinued operations held for sale........ $ 57,702 $ 242,410
============ =============
</TABLE>
-7-
<PAGE>
NOTE 4: CREDIT FACILITY
In March 1998, the credit agreement for the Company's $100.0 million
credit facility with The Chase Manhattan Bank, as agent (the "Bank"), was
amended and restated to provide for a new credit facility comprised of a $100.0
million line of credit (the "Revolver") and a $120.0 million term loan (the
"Term Loan") (collectively, the "Credit Facility") to finance the Company's
working capital requirements, the March 1998 acquisition of the OEM Division of
Autocraft Industries, Inc. and future acquisitions. In December 1999, the
Company's credit agreement was amended to allow for an additional $10.0 million
in borrowings under the Term Loan. Amounts advanced under the Credit Facility
are secured by substantially all the assets of the Company. Amounts outstanding
under the Term Loan are payable in quarterly installments through December 31,
2003. Amounts advanced under the Revolver become due on December 31, 2003. The
Company may prepay outstanding advances under the Revolver or the Term Loan in
whole or in part without incurring any premium or penalty. At June 30, 2000,
$92.5 million and $95.0 million was outstanding under the Term Loan and
Revolver, respectively.
During 1998, in order to convert $50.0 million of its Credit Facility
to a fixed rate, the Company entered into a series of interest rate swap
agreements scheduled to mature during July 2003. During 1999, the Company
revised the maturity dates on $35.0 million of the swap agreements to January
2001 in exchange for proceeds of $0.6 million. The proceeds were recorded as a
deferred gain and are being amortized over the original life of the interest
rate swap agreements.
Based on its operating results during 2000 and in conjunction with the
decision to discontinue the Independent Aftermarket segment (see Note 3.), the
Company was in technical default of the net worth, leverage and interest
coverage covenants of the Credit Facility and the Company's interest rate swap
agreement as of June 30, 2000. Due to the defaults, the Company was not able to
borrow under the Credit Facility. The Company has obtained from its lenders
waivers of the various defaults and certain amendments to the Credit Facility
and the interest rate swap agreement (See Note 10.)
NOTE 5: BANK LINE OF CREDIT
The revolving credit agreement with the Bank of Montreal (the "BOM
Revolving Credit Agreement") contains certain covenants, including a tangible
net worth covenant for the results of the Company's Canadian subsidiary, and
provides for cross-default in the event of a default under the Company's Credit
Facility (see Note 4.) As of June 30, 2000, the Company was in technical default
of the BOM Revolving Credit Agreement due to the cross-default provision and was
restricted from making further borrowings. The Company has obtained the
necessary amendments and waivers to cure the default on its Credit Facility and
the cross-default provision of the BOM Revolving Credit Agreement (See Note 10.)
NOTE 6. REPORTABLE SEGMENTS
The Company has one reportable segment: Original Equipment Manufacturer
("OEM") segment. The Company's OEM segment consists of four operating units that
primarily sell remanufactured transmissions directly to the OEMs. Other
operating units, which are not reportable segments consist of: an automotive
electronic parts remanufacturing and distribution business; warehouse,
distribution and turnkey order fulfillment and information services for AT&T
Wireless Services; and a material recovery processing and Internet-based auction
business primarily for Ford Motor Company.
The Company evaluates performance based upon income from operations.
The reportable segment and "other" business units' accounting policies are the
same as those of the Company.
-8-
<PAGE>
As a result of the decision to discontinue the Independent Aftermarket,
the management fees previously allocated to this discontinued segment have been
re-allocated to continuing operations. Concurrently, and to more accurately
reflect segment financial performance, the Company has revised its methodology
from a partial to a full allocation of budgeted corporate office expenses.
Allocation percentages for each business unit are based on full year estimated
profit before tax. These revisions have been incorporated for all periods
presented.
The reportable segment and "other" business units are 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>
OEM Other Totals
--- ----- ------
<S> <C> <C> <C>
FOR THE THREE MONTHS ENDED JUNE 30, 2000:
Revenues from external customers ..... $ 62,758 $ 19,908 $ 82,666
Segment profit ....................... 11,961 3,225 15,186
FOR THE SIX MONTHS ENDED JUNE 30, 2000:
Revenues from external customers ..... $129,693 $ 39,475 $169,168
Segment profit ....................... 26,959 6,626 33,585
OEM Other Totals
--- ----- ------
FOR THE THREE MONTHS ENDED JUNE 30, 1999:
Revenues from external customers ..... $ 68,596 $ 13,792 $ 82,388
Special charges ...................... -- 80 80
Segment profit ....................... 12,385 1,537 13,922
FOR THE SIX MONTHS ENDED JUNE 30, 1999:
Revenues from external customers ..... $131,069 $ 27,643 $158,712
Special charges ...................... -- 80 80
Segment profit ....................... 21,258 3,380 24,638
</TABLE>
A reconciliation of the reportable segments to consolidated net sales and
income from operations are as follows:
<TABLE>
<CAPTION>
For the For the
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES:
External revenues from reportable segment............. $ 62,758 $ 68,596 $ 129,693 $ 131,069
Other revenues........................................ 19,908 13,792 39,475 27,643
--------- --------- --------- ---------
Consolidated net sales..................... $ 82,666 $ 82,388 $ 169,168 $ 158,712
========= ========= ========= =========
PROFIT:
Total profit for reportable segment................... $ 11,961 $ 12,385 $ 26,959 $ 21,258
Other profit.......................................... 3,225 1,537 6,626 3,380
Unallocated amounts:
Special charges................................. - (495) - (2,054)
Corporate (expense) profit...................... 387 111 690 232
Depreciation and amortization................... (252) (202) (498) (396)
--------- --------- --------- ---------
Income from operations..................... $ 15,321 $ 13,336 $ 33,777 $ 22,420
========= ========= ========= =========
</TABLE>
-9-
<PAGE>
NOTE 7: 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 six months ended
June 30, June 30,
-------------------------- ------------------------
2000 1999 2000 1999
------- ------- ------- ----------
<S> <C> <C> <C> <C>
Numerator:
Income from continuing operations ......... $ 5,714 $ 4,909 $13,545 $ 7,260
======= ======= ======= =======
Denominator:
Weighted-average common shares outstanding 20,623 20,268 20,581 20,257
Effect of stock options and warrants ...... 623 936 734 844
------- ------- ------- -------
Denominator for diluted earnings per common
share ..................................... 21,246 21,204 21,315 21,101
======= ======= ======= =======
Basic earnings per common share ........... $ 0.28 $ 0.24 $ 0.66 $ 0.36
Diluted earnings per common share ......... 0.27 0.23 0.64 0.34
</TABLE>
NOTE 8: SPECIAL CHARGES
Commencing in 1998, the Company implemented certain initiatives
designed to improve operating efficiencies and reduce costs. In the second
quarter of 1998 the Company recorded $3,580 in special charges, of which $135
was charged to continuing operations and $3,445 was charged to discontinued
operations, related to these initiatives. These charges consisted of $1,085 of
restructuring charges and $2,495 of other charges. The restructuring charges
included $822 of severance costs for 11 people and $263 of exit costs. The
severance costs were incurred in connection with the reorganization of the
management structure in the Independent Aftermarket segment, centralization of
its Management Information Systems ("MIS") operations and certain other
personnel matters. The exit costs were incurred to consolidate the Company's
Joplin and Springfield, Missouri engine remanufacturing lines into the
Springfield facility. The other charges consisted of $2,044 of idle facility
costs incurred at the Joplin facility due to the consolidation of the
remanufacturing lines and $451 of relocation costs related to the centralization
of the Independent Aftermarket segment's management team and to centralize its
MIS operations.
In the fourth quarter of 1998, the Company recorded an additional
$5,164 in special charges, of which $3,889 was charged to continuing operations
and $1,275 was charged to discontinued operations. These charges consisted of
$2,764 in restructuring costs and $2,400 in non-income related taxes. The $2,764
restructuring cost includes $1,868 of severance costs for seven people, $596 of
exit costs and $300 of other costs. The severance costs were incurred in
connection with the replacement of the Company's Chief Executive Officer and
other members of management as well as additional reorganization of the
Independent Aftermarket segment's management structure. The non-income related
tax charge is due to a state's 1998 interpretation of tax laws. This
interpretation was applied retroactively to prior fiscal years. Due to a change
in distribution operations, the Company's exposure to the effect of this tax
interpretation will be significantly reduced in future tax periods.
In the first quarter of 1999, the Company recorded special charges of
$1,900, of which $1,559 was charged to continuing operations and $341 was
charged to discontinued operations. These charges consisted of $1,559 of
severance costs for five people related to its management reorganization and
$341 of exit costs related to the consolidation of certain of the Company's
distribution centers.
-10-
<PAGE>
In the second quarter of 1999, the Company recorded special charges of
$2,100, of which $575 was charged to continuing operations and $1,525 was
charged to discontinued operations. These charges consisted of $1,130 of exit
costs related to the consolidation of certain of the Company's distribution
centers, $700 of other costs primarily related to the Company's management
reorganization and $270 of severance costs for seven people. The severance costs
were also related to the Company's management reorganization.
In the fourth quarter of 1999, the Company recorded $9,763 of special
charges, of which $1,843 was charged to continuing operations and $7,920 was
charged to discontinued operations, primarily related to the initiation of five
actions. First, the Company recorded $4,587 of costs primarily related to
distribution center, distribution branch and manufacturing plant consolidations
within its Independent Aftermarket segment, consisting of $1,930 of inventory
write-downs classified as Cost of Sales - Special Charges, $950 of severance
costs for 198 people, $940 of costs related to the write-down of fixed assets
and $767 of exit costs. Second, the Company recorded $3,333 of costs associated
with the narrowing of its Independent Aftermarket segment's engine product
offerings, consisting of $2,852 of inventory write-downs classified as Cost of
Sales - Special Charges, $173 of severance costs for 31 people, $119 of exit
costs and $189 of costs related to the write-down of certain assets. Third, the
Company recorded $850 of costs to exit an OEM segment plant consisting of $500
of costs related to the write-down of fixed assets and $350 of severance costs
for 130 people. Fourth, the Company recorded $490 of costs related to its
electronics business unit consisting of $168 related to the write-down of
accounts receivable balances from customers the business unit no longer
services, $164 of severance costs for nine people, $113 of inventory write-downs
classified as Cost of Sales - Special Charges and $45 of other costs. Fifth, the
Company recorded $503 of severance costs for 30 people, primarily related to the
Company's management reorganization.
The following table summarizes the provisions and reserves for
restructuring and special charges:
<TABLE>
<CAPTION>
Loss on
Termination Exit / Other Write-Down
Benefits Costs of Assets Total
----------- ------------ ----------- ---------
<S> <C> <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..................... 3,969 3,102 6,692 13,763
Payments 1999...................... (2,425) (2,565) - (4,990)
Asset write-offs 1999.............. - - (975) (975)
------- -------- --------- ---------
Reserve at December 31, 1999....... 3,412 4,063 5,717 13,192
Payments 2000...................... (2,105) (1,494) - (3,599)
Asset write-offs 2000.............. - - (3,758) (3,758)
Discontinued operations............ - - (1,959) (1,959)
------- -------- --------- ---------
Reserve at June 30, 2000........... $ 1,307 $ 2,569 $ - $ 3,876
======= ======== ========= =========
</TABLE>
The entire June 30, 2000 reserve balance is classified as accrued
expenses.
-11-
<PAGE>
NOTE 9: COMPREHENSIVE INCOME
The following table sets forth the computation of comprehensive income
for the three and six months ended June 30, 2000 and 1999, respectively:
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
-------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ------------- ----------
<S> <C> <C> <C> <C>
Net income (loss)....................... $ (115,121) $ 1,753 $ (109,784) $ 2,636
Other comprehensive income (loss):
Translation adjustment, net of related
taxes..................................... (375) 53 (424) 225
---------- ----------- ------------- ----------
Total comprehensive income (loss)........... $ (115,496) $ 1,806 $ (110,208) $ 2,861
========== =========== ============ ==========
</TABLE>
NOTE 10: SUBSEQUENT EVENTS
In August 2000, the Company obtained from its lenders, waivers of the
various defaults under the Credit Facility as of June 30, 2000 and certain
amendments to the Credit Facility and interest rate swap agreements.
-12-
<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, 1999.
Please also refer to the Company's other filings with the Securities and
Exchange Commission.
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2000 COMPARED TO
THE THREE MONTH PERIOD ENDED JUNE 30, 1999.
Due to the Company's decision to exit the Independent Aftermarket
segment, the consolidated statements of operations have been restated to report
the operating results of the Independent Aftermarket segment as discontinued
operations and accordingly, their results have been excluded from the continuing
operations for all periods presented. With the exception of the discussion on
discontinued operations, the discussion below relates to the continuing
operations of the Company.
Income from continuing operations increased $0.8 million, or 16.3%,
from $4.9 million for the three months ended June 30, 1999 to $5.7 million for
the three months ended June 30, 2000. Excluding special charges of $0.4 million
(net of tax) recorded during the three months ended June 30, 1999, income from
continuing operations increased $0.4 million, or 7.5%, from $5.3 million for the
three months ended June 30, 1999. This increase was primarily attributable to an
increase in profitability due to substantial growth in the Company's Logistics
Services business unit during 2000 as compared to 1999. Net income from
continuing operations per diluted share was $0.27 for the three months ended
June 30, 2000 as compared to $0.23 per diluted share for the three months ended
June 30, 1999. Excluding the special charges, net income from continuing
operations per diluted share was $0.25 for the three months ended June 30, 1999.
NET SALES
Net sales from continuing operations increased $0.3 million, or 0.4%,
from $82.4 million for the three months ended June 30, 1999 to $82.7 million for
the three months ended June 30, 2000. This increase was primarily attributable
to increased revenues in the Company's Logistic Services and Electronics
business units, partially offset by a decrease in sales in the Company's OEM
segment.
-13-
<PAGE>
Sales to DaimlerChrysler from continuing operations accounted for 33.5%
and 32.1% of the Company's revenues from continuing operations for the three
months ended June 30, 1999 and 2000, respectively. Sales to Ford accounted for
34.1% and 32.6% of the Company's revenues from continuing operations for the
three months ended June 30, 1999 and 2000, respectively.
GROSS PROFIT
Gross profit from continuing operations increased $2.6 million, or
9.5%, from $27.3 million for the three months ended June 30, 1999 to $29.9
million for the three months ended June 30, 2000. This increase was principally
due to significant revenue growth in the Company's Logistic Services business
and improved cost performance in its Electronics business unit, partially offset
by a decline in volume in the OEM segment. Gross profit as a percentage of net
sales increased from 33.2% for the three months ended June 30, 1999 to 36.2% for
the three months ended June 30, 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") from continuing
operations increased $1.2 million, or 9.9%, from $12.1 million for the three
months ended June 30, 1999 to $13.3 million for the three months ended June 30,
2000, primarily attributable to the significant growth experienced by the
Company's Logistics Services business. As a percentage of net sales, SG&A
expenses increased from 14.7% to 16.1% between the two periods.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets from continuing operations remained
constant at $1.3 million for the three months ended June 30, 1999 and 2000.
SPECIAL CHARGES
During the three months ended June 30, 1999, the Company incurred $0.6
million of special charges from continuing operations. These charges consisted
of $0.5 million of severance and other costs related to the reorganization of
certain management functions as well as $0.1 million of exit costs in the
Electronics business unit.
INCOME FROM OPERATIONS
Income from operations from continuing operations increased $2.0
million, or 15.0%, from $13.3 million for the three months ended June 30, 1999
to $15.3 million for the three months ended June 30, 2000, principally as a
result of the factors described above. As a percentage of net sales, income from
operations increased from 16.2% to 18.5%, between the two periods.
INTEREST EXPENSE
Interest expense from continuing operations increased $0.5 million, or
9.1%, from $5.5 million for the three months ended June 30, 1999 to $6.0 million
for the three months ended June 30, 2000. The increase primarily resulted from
an overall increase in interest rates in 2000 as compared to 1999. Interest
expense of $2.0 million for the three month period ended June 30, 2000 has been
allocated to the discontinued operations based on the anticipated cash proceeds
from the sale of the segment. Interest expense of $1.0 million for the three
month period ended June 30, 1999 has been allocated to the discontinued
operations based on the anticipated cash proceeds from the sale of the segment,
less the amount of debt attributable to the acquisition of All Trans in the
fourth quarter of 1999.
-14-
<PAGE>
DISCONTINUED OPERATIONS
On August 3, 2000, the Company adopted a plan to discontinue the
Independent Aftermarket segment of its business, comprised of the
Distribution Group and the remanufactured engines business. The Company plans
to sell the Distribution Group and the remanufactured engines business by
June 30, 2001. Management believes that the exit from this segment, which
provides the opportunity to reduce debt and generates a significant tax
shelter, offers a strategic opportunity to focus resources on the businesses
of the Company that are profitable and have greater growth potential. As a
result of the decision to exit the Independent Aftermarket, the Company
recorded a charge of $114.8 million for the loss on disposal of discontinued
operations, net of tax benefits of $59.2 million, during the three months
ended June 30, 2000. The pre-tax charge of $174.0 million includes the
write-off of goodwill, valuation allowances for certain assets, provisions
for anticipated operating losses until disposal of $13.3 million, and
anticipated costs of disposal, including lease terminations, severance,
retention and other employee benefits and professional fees. Additionally,
the loss from discontinued operations includes a loss of $6.0 million, net of
income tax benefits of $2.7 million, from the operations of the Independent
Aftermarket segment during the three months ended June 30, 2000.
OEM SEGMENT
The following table presents net sales and segment profit expressed in
millions of dollars and as a percentage of net sales:
<TABLE>
<CAPTION>
For the three months ended June 30,
-----------------------------------
2000 1999
----------------- --------------
<S> <C> <C> <C> <C>
Net sales............................. $ 62.8 100.0% $ 68.6 100.0%
====== ====== ====== ======
Segment profit........................ $ 12.0 19.1% $ 12.4 18.1%
====== ====== ====== ======
</TABLE>
NET SALES. Net sales decreased $5.8 million, or 8.5%, from $68.6
million for the three months ended June 30, 1999 to $62.8 million for the three
months ended June 30, 2000. This decrease was the result of a combination of
factors, including (i) an overall softness in demand for remanufactured
transmissions resulting from a relatively mild winter and OEM to end user price
increases, (ii) a decline in shipments of Asian car model remanufactured
transmissions due to a general improvement in their quality, delays in the
introduction of new model years and production delays due to component
shortages, and (iii) decreased sales of engines and related parts in the
segment's European operations.
Sales to DaimlerChrysler accounted for 40.3% and 42.3% of segment
revenues for the three months ended June 30, 1999 and 2000, respectively. Sales
to Ford accounted for 37.9% and 39.5% of segment revenues for the three months
ended June 30, 1999 and 2000, respectively.
SEGMENT PROFIT. Segment profit decreased $0.4 million, or 3.2%, from
$12.4 million (18.1% of OEM net sales) for the three months ended June 30, 1999
to $12.0 million (19.1% of OEM net sales) for the three months ended June 30,
2000. This decrease is primarily the result of the decline in volume, partially
offset by improved yield on remanufactured transmissions, favorable material
variances, the benefit of cost reduction initiatives over the past 12 months and
lower allocated management fees in 2000 as compared to 1999.
-15-
<PAGE>
OTHER OPERATING UNITS
The following table presents net sales and segment profit expressed in
millions of dollars and as a percentage of net sales:
<TABLE>
<CAPTION>
For the three months ended June 30,
-----------------------------------
2000 1999
--------------- --------------
<S> <C> <C> <C> <C>
Net sales............................. $19.9 100.0% $ 13.8 100.0%
===== ====== ====== ======
Special charges....................... $ - -% $ 0.1 0.7%
===== ====== ====== ======
Segment profit........................ $ 3.2 16.1% $ 1.5 10.9%
===== ====== ====== ======
</TABLE>
NET SALES. Net sales increased $6.1 million, or 44.2%, from $13.8
million for the three months ended June 30, 1999 to $19.9 million for the three
months ended June 30, 2000. This increase was primarily attributable to
increased revenues in the Company's Logistics Services business unit, driven by
the strong growth in the market for cellular phones and services.
SEGMENT PROFIT. Segment profit before special charges increased $1.6
million, or 100.0%, from $1.6 million for the three months ended June 30, 1999
to $3.2 million for the three months ended June 30, 2000. This increase was
primarily the result of the increased volume in the Logistics Services business
unit, combined with the benefit of restructuring initiatives implemented in the
Electronics business unit in late 1999.
RESULTS OF OPERATIONS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2000 COMPARED TO
THE SIX MONTH PERIOD ENDED JUNE 30, 1999.
Income from continuing operations increased $6.2 million, or 84.9%,
from $7.3 million for the six months ended June 30, 1999 to $13.5 million for
the six months ended June 30, 2000. Excluding special charges of $1.3 million
(net of tax) recorded during the six months ended June 30, 1999, income from
continuing operations increased $4.9 million, or 57.0%, from $8.6 million for
the six months ended June 30, 1999. This increase was primarily attributable to
an increase in profitability of the Company's OEM segment combined with the
significant growth experienced in its Logistics Services business unit during
2000 as compared to 1999. Income from continuing operations per diluted share
was $0.64 for the six months ended June 30, 2000 as compared to $0.34 per
diluted share for the six months ended June 30, 1999. Excluding the special
charges, income from continuing operations per diluted share was $0.41 for the
six months ended June 30, 1999.
NET SALES
Net sales from continuing operations increased $10.5 million, or 6.6%,
from $158.7 million for the six months ended June 30, 1999 to $169.2 million for
the six months ended June 30, 2000. The increase was primarily attributable to
increased revenues in the Company's Logistics Services business unit.
Sales to DaimlerChrysler from continuing operations accounted for 32.5%
and 34.3% of the Company's revenues for the six months ended June 30, 1999 and
2000, respectively. Sales to Ford accounted for 33.6% and 30.6% of the Company's
revenues for the six months ended June 30, 1999 and 2000, respectively.
GROSS PROFIT
Gross profit from continuing operations increased $11.0 million, or
21.4%, from $51.4 million for the six months ended June 30, 1999 to $62.4
million for the six months ended June 30,
-16-
<PAGE>
2000. This increase was principally due to increased revenues in the Logistics
Services business unit, improved yield and favorable mix of remanufactured
transmissions, favorable material variances and the benefit of cost reduction
initiatives implemented over the past twelve months. As a result, gross profit
as a percentage of net sales increased from 32.4% to 36.9% between the two
periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") from continuing
operations increased $1.7 million, or 7.0%, from $24.4 million for the six
months ended June 30, 1999 to $26.1 million for the six months ended June 30,
2000. The increase is primarily the result of the significant growth being
experienced in the Company's Logistics Services business unit, partially offset
by the benefit of cost reductions implemented in other business units. As a
percentage of net sales, SG&A expenses remained constant at 15.4% for the two
periods.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets from continuing operations remained
constant at $2.5 million for the six months ended June 30, 1999 and 2000.
SPECIAL CHARGES
During the six months ended June 30, 1999, the Company incurred $2.1
million of special charges from continuing operations. These charges consisted
of $2.0 million of severance and other costs related to the Company's
reorganization of certain management functions and $0.1 million of exit costs in
the Electronics business unit.
INCOME FROM OPERATIONS
Income from operations from continuing operations increased $11.4
million, or 50.9%, from $22.4 million for the six months ended June 30, 1999 to
$33.8 million for the six months ended June 30, 2000, principally as a result of
the factors described above. As a percentage of net sales, income from
operations increased from 14.1% to 20.0%, between the two periods.
INTEREST EXPENSE
Interest expense from continuing operations increased $0.9 million, or
8.2%, from $11.0 million for the six months ended June 30, 1999 to $11.9 million
for the six months ended June 30, 2000. The increase primarily resulted from an
overall increase in interest rates in 2000 as compared to 1999. Interest expense
of $3.9 million for the six month period ended June 30, 2000 has been allocated
to the discontinued operations based on the anticipated cash proceeds from the
sale of the segment. Interest expense of $1.8 million for the six month period
ended June 30, 1999 has been allocated to the discontinued operations based on
the anticipated cash proceeds from the sale of the segment, less the amount of
debt attributable to the acquisition of All Trans in the fourth quarter of 1999.
DISCONTINUED OPERATIONS
As a result of the decision to exit the Independent Aftermarket
segment, the Company recorded a charge of $114.8 million for the loss on
disposal of discontinued operations, net of tax benefits of $59.2 million,
during the six months ended June 30, 2000. The pre-tax charge of $174.0
million includes the write-off of goodwill, valuation allowances for certain
assets, provisions for anticipated operating losses until disposal of $13.3
million, and anticipated costs of disposal, including lease terminations,
severance, retention and other employee benefits and professional fees.
Additionally, the loss from discontinued operations includes a loss of $8.5
-17-
<PAGE>
million, net of income tax benefits of $4.4 million, from the operations of the
Independent Aftermarket segment during the six months ended June 30, 2000.
OEM SEGMENT
The following table presents net sales and segment profit expressed in
millions of dollars and as a percentage of net sales:
<TABLE>
<CAPTION>
For the six months ended June 30,
---------------------------------
2000 1999
--------------- ----------------
<S> <C> <C> <C> <C>
Net sales............................. $ 129.7 100.0% $ 131.1 100.0%
======= ===== ======= =====
Segment profit........................ $ 27.0 20.8% $ 21.3 16.2%
======= ===== ======= =====
</TABLE>
NET SALES. Net sales decreased $1.4 million, or 1.1%, from $131.1
million for the six months ended June 30, 1999 to $129.7 million for the six
months ended June 30, 2000. The decrease was primarily the result of (i) a
decline in sales of remanufactured transmissions to General Motors due to the
contract termination on an unprofitable model type, (ii) a decline in shipments
of Asian car model remanufactured transmissions due to a general improvement in
their quality, delays in the introduction of new model years and production
delays due to component shortages, and (iii) decreased sales of engines and
related parts in the segment's European operations, partially offset by an
increase in the volume and yield on sales of remanufactured transmissions to
DaimlerChrysler.
Sales to DaimlerChrysler accounted for 39.4% and 44.7% of segment
revenues for the six months ended June 30, 1999 and 2000, respectively. Sales to
Ford accounted for 37.0% and 36.7% of segment revenues for the six months ended
June 30, 1999 and 2000, respectively.
SEGMENT PROFIT. Segment profit increased $5.7 million, or 26.8%, from
$21.3 million (16.2% of OEM net sales) for the six months ended June 30, 1999 to
$27.0 million (20.8% of OEM net sales) for the six months ended June 30, 2000.
The increase was primarily the result of the changes in sales volume and mix of
remanufactured transmissions as referenced above, coupled with improved yield,
favorable material variances, the benefit of cost reduction initiatives over the
past 12 months and lower allocated management fees in 2000 as compared to 1999.
OTHER OPERATING UNITS
The following table presents net sales, special charges and segment
profit expressed in millions of dollars and as a percentage of net sales:
<TABLE>
<CAPTION>
For the six months ended June 30,
---------------------------------
2000 1999
--------------- ----------------
<S> <C> <C> <C> <C>
Net sales............................. $ 39.5 100.0% $ 27.6 100.0%
======= ===== ======= =====
Special charges....................... $ - -% $ 0.1 0.4%
======= ===== ======= =====
Segment profit........................ $ 6.6 16.7% $ 3.4 12.3%
======= ===== ======= =====
</TABLE>
NET SALES. Net sales increased $11.9 million, or 43.1%, from $27.6
million for the six months ended June 30, 1999 to $39.5 million for the six
months ended June 30, 2000. This increase was primarily attributable to
increased sales in the Logistics Services business unit, driven by the strong
growth in the market for cellular phones and services.
SEGMENT PROFIT. Segment profit increased $3.2 million, or 94.1%, from
$3.4 million for the six months ended June 30, 1999 to $6.6 million for the six
months ended June 30, 2000. This increase
-18-
<PAGE>
was primarily the result of the increased volume in the Logistics Services
business unit, combined with the benefit of restructuring initiatives
implemented in the Electronics business unit in late 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company had total cash and cash equivalents on hand of $7.4 million
at June 30, 2000. Net cash provided by operating activities from continuing
operations was $3.3 million for the six-month period. Net cash used in investing
activities from continuing operations was $5.0 million for the period, which
consisted of $5.3 million in capital expenditures largely for remanufacturing
equipment, partially offset by $0.3 million of proceeds from the sale of
equipment. Net cash provided by financing activities of $1.1 million was
primarily from net borrowings of $0.9 million made under the Credit Facility and
$0.4 million of proceeds from the exercise of stock options, partially offset by
$0.1 million in payment of the Canadian bank line of credit and $0.1 million in
payment of amounts due to acquired companies.
Based on its operating results during 2000 and in conjunction with the
decision to discontinue the Independent Aftermarket segment, the Company was in
technical default of the net worth, leverage and interest coverage covenants of
the Credit Facility and the Company's interest rate swap agreement as of June
30, 2000. This resulted in a cross default under the line of credit for the
Company's Canadian subsidiary. Due to the defaults, the Company was prohibited
from further borrowings under the Credit Facility and its Canadian line of
credit. The Company has 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.
As required under the terms of the Credit Facility, the Company will
utilize the cash proceeds from the sale of its discontinued businesses to make
prepayments on the Term Loan. Any remaining balances outstanding on the term
loan will be amortized ratably in quarterly installments through December 31,
2003.
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 June 30, 2000 the Alternate Base Rate
margin was 1.25% and the Eurodollar margin was 2.25%.
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.
-19-
<PAGE>
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 4."
INTEREST RATE EXPOSURE
Based on the Company's overall interest rate exposure during the six
months ended June 30, 2000, 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.
-20-
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
PART II. OTHER INFORMATION
Items 1-2 are not applicable.
Item 3. Defaults Upon Senior Securities.
Based on its operating results during 2000 and in conjunction with the
decision to discontinue the Independent Aftermarket segment, the
Company was in technical default of the net worth, leverage and
interest coverage covenants of the Credit Facility and the Company's
interest rate swap agreement as of June 30, 2000. This resulted in a
cross default under the line of credit for the Company's Canadian
subsidiary. Due to the defaults, the Company was prohibited from
further borrowings under the Credit Facility and the Canadian line of
credit. In August 2000, 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.
Item 4. - Submission of Matters to a Vote of Security Holders
The 2000 annual meeting of stockholders of the Company was held on May
10, 2000 for the purpose of the following: (i) electing ten directors
to hold office until the next annual meeting of stockholders and
thereafter until their successors are elected and qualified and (ii)
approval of the adoption of the 2000 Stock Incentive Plan.
The following directors were elected by the following vote:
<TABLE>
<CAPTION>
Votes
------------------------------
For Against
--- -------
<S> <C> <C>
Robert Anderson 19,132,277 336,985
Richard R. Crowell 17,947,827 1,521,435
Michael T. DuBose 19,137,277 331,985
Dale F. Frey 19,137,277 331,985
Mark C. Hardy 19,137,277 331,985
Dr. Michael J. Hartnett 19,137,277 331,985
Gerald L. Parsky 18,160,875 1,308,387
Richard K. Roeder 18,477,875 991,387
William A. Smith 19,137,277 331,985
J. Richard Stonesifer 19,137,277 331,985
</TABLE>
The proposal to approve the adoption of the 2000 Stock Incentive Plan
was approved by the following vote:
<TABLE>
<CAPTION>
Nonvotes and
For Against Abstentions
---------- ------- ------------
<S> <C> <C>
18,752,234 700,148 16,880
</TABLE>
Items 5 and 6 are not applicable.
-21-
<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: August 3, 2000 /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.
-22-
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Electronic (E)
------- ----------- --------------
<S> <C> <C>
27 Financial Data Schedules (E)
</TABLE>
-23-
