<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, 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
Incorporation or Organization) Identification No.)
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 20, 2000, there were 20,751,510 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> <C>
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets at September 30, 2000
(unaudited) and December 31, 1999 ............................... 3
Consolidated Statements of Operations (unaudited) for the Three
and Nine Months ended September 30, 2000 and 1999 .............. 4
Consolidated Statements of Cash Flows (unaudited) for the
Nine Months ended September 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 6. Exhibits and Reports on Form 8-K................................ 21
SIGNATURES...................................................................... 22
EXHIBIT INDEX................................................................... 23
</TABLE>
Note: Items 1-5 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>
September 30, December 31,
2000 1999
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,007 $ 8,469
Accounts receivable, net 55,161 46,266
Inventories 37,716 36,289
Prepaid and other assets 4,179 2,636
Refundable income taxes 3,438 -
Deferred income taxes 58,370 14,036
Net assets of discontinued operations held for sale, net 48,130 90,532
----------- ----------
Total current assets 211,001 198,228
Property, plant and equipment, net 42,829 39,397
Debt issuance costs, net 4,497 5,268
Cost in excess of net assets acquired, net 176,204 179,974
Other assets 265 180
Net assets of discontinued operations held for sale, net 16,903 151,878
----------- ----------
Total assets $ 451,699 $ 574,925
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 40,045 $ 35,976
Accrued expenses 25,617 32,282
Income taxes payable - 2,685
Bank line of credit 1,278 543
Credit facility 25,840 21,760
Amounts due to acquired companies 2,647 2,384
Deferred compensation - 660
----------- ----------
Total current liabilities 95,427 96,290
12% Series B and D Senior Subordinated Notes 111,078 111,214
Amount drawn on credit facility, less current portion 152,199 164,799
Amounts due to acquired companies, less current portion 6,802 7,759
Deferred compensation, less current portion 3,067 2,944
Other long-term liabilities 507 707
Deferred income taxes 10,291 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 (61,358) 42,483
Accumulated other comprehensive loss (1,009) (445)
Common stock held in treasury, at cost (172,000 shares) (1,994) (1,994)
----------- ----------
Total stockholders' equity 72,328 176,144
----------- ----------
Total liabilities and stockholders' equity $ 451,699 $ 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 For the nine months
ended September 30, ended September 30,
2000 1999 2000 1999
------ ------ ------ ------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 81,577 $ 83,157 $ 250,745 $ 241,869
Cost of sales 53,367 54,662 162,665 162,616
---------- ---------- ---------- ----------
Gross profit 28,210 28,495 88,080 79,253
Selling, general and
administrative expense 11,401 12,285 34,981 35,991
Amortization of intangible assets 1,256 1,246 3,769 3,744
Special charges - - - 2,134
---------- ---------- ---------- ----------
Income from operations 15,553 14,964 49,330 37,384
Other income (expense), net (36) 109 (22) 121
Interest expense 5,900 5,883 17,773 16,842
---------- ---------- ---------- ----------
Income from continuing operations,
before income taxes 9,617 9,190 31,535 20,663
Income tax expense 3,674 3,375 12,047 7,588
---------- ---------- ---------- ----------
Income from continuing operations 5,943 5,815 19,488 13,075
Loss from discontinued operations, net
of income taxes - (1,387) (123,329) (6,011)
---------- ---------- ---------- ----------
Net income (loss) $ 5,943 $ 4,428 $ (103,841) $ 7,064
========== ========== ========== ==========
Per common share - basic:
Income from continuing operations $ 0.29 $ 0.29 $ 0.94 $ 0.64
Loss from discontinued operations - (0.07) (5.97) (0.29)
---------- ---------- ---------- ----------
Net income (loss) $ 0.29 $ 0.22 $ (5.03) $ 0.35
========== ========== ========== ==========
Weighted average number of common shares
outstanding 20,740 20,367 20,634 20,294
========== ========== ========== ==========
Per common share - diluted:
Income from continuing operations $ 0.28 $ 0.27 $ 0.92 $ 0.62
Loss from discontinued operations - (0.06) (5.81) (0.29)
---------- ---------- ---------- ----------
Net income (loss) $ 0.28 $ 0.21 $ (4.89) $ 0.33
========== ========== ========== ==========
Weighted average number of common and
common equivalent shares outstanding 21,099 21,225 21,243 21,142
========== ========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
-4-
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the nine months ended September 30,
2000 1999
-------- ---------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (103,841) $ 7,064
Net loss from discontinued operations 123,329 6,011
------------ ---------
Net income from continuing operations 19,488 13,075
Adjustments to reconcile net income to
net cash provided by operating activities - continuing operations:
Depreciation and amortization 8,943 8,646
Amortization of debt issuance costs 916 718
Provision for losses on accounts receivable 215 50
Loss on sale of equipment 46 60
Deferred income taxes 1,259 (546)
Changes in operating assets and liabilities
(net of businesses sold):
Accounts receivable (9,552) (5,060)
Inventories (1,852) 212
Prepaid and other assets (1,643) 11,713
Accounts payable and accrued expenses 2,325 3,264
------------ ---------
Net cash provided by operating activities - continuing operations 20,145 32,132
------------ ---------
Net cash used in operating activities - discontinued operations (6,142) (20,395)
------------ ---------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (7,951) (6,260)
Proceeds from sale of business - 3,808
Proceeds from sale of equipment 121 224
------------ ---------
Net cash used in investing activities - continuing operations (7,830) (2,228)
------------ ---------
Net cash used in investing activities - discontinued operations (1,934) (14,064)
------------ ---------
FINANCING ACTIVITIES:
Borrowings (payments) on credit facility, net (8,520) 9,694
Borrowings (payments) on bank line of credit, net 752 (849)
Payment of debt issuance costs (144) (727)
Proceeds from exercise of stock options 378 565
Payments on amounts due to acquired companies (1,173) (2,748)
------------ ---------
Net cash provided by (used in) financing activities (8,707) 5,935
------------ ---------
Effect of exchange rate changes on cash and cash equivalents 6 139
------------ ---------
Increase (decrease) in cash and cash equivalents (4,462) 1,519
Cash and cash equivalents at beginning of period 8,469 580
------------ ---------
Cash and cash equivalents at end of period $ 4,007 $ 2,099
============ =========
Cash paid during the period for:
Interest $ 26,184 $ 21,690
Income taxes, net 3,685 (6,418)
</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 September 30, 2000 and for
the three and nine months ended September 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 nine months ended
September 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, including the reclassification of certain billable
information services costs from selling, general and administrative expense
to cost of sales within the statements of operations.
NOTE 2: INVENTORIES
Inventories for the continuing operations consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------------ -----------------
<S> <C> <C>
Raw materials, including core inventories......... $ 31,632 $ 28,284
Work-in-process................................... 2,041 1,855
Finished goods.................................... 4,043 6,150
----------- -----------
$ 37,716 $ 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 Company's
ATC Distribution Group, Inc. (the "Distribution Group") and its
remanufactured engines business. The Company's Distribution Group 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.
On September 1, 2000, the Company entered into an agreement with an
affiliate of The Riverside Company (the "Buyer") to sell to Buyer all of the
capital stock of the Company's Distribution Group for a purchase price of
$65.0 million in cash and $12.0 million stated value of Buyer's Series B
preferred stock. The cash portion of the purchase price is subject to
increase or decrease if the Distribution Group's net working capital as of
closing is above or below a specified target amount. The completion of the
sale of the Distribution Group, which is subject to Buyer obtaining necessary
financing and the satisfactory completion of Buyer's environmental diligence,
is expected to occur during the fourth quarter of 2000. No assurance can be
given that the sale will be successfully completed.
-6-
<PAGE>
A provision for anticipated losses on discontinued operations through
disposal date is based on management's estimates and is included in the
results of operations for the nine months ended September 30, 2000.
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. Losses from discontinued operations incurred since the
measurement date are applied against the accrued loss established at June 30,
2000 and presented as a part of the net assets of discontinued operations
held for sale.
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 $57,107 and $58,999 for the three months ended September 30,
2000 and 1999, respectively. Net sales from the Independent Aftermarket were
$180,843 and $176,688 for the nine months ended September 30, 2000 and 1999,
respectively. Interest expense for the three and nine months ended September
30, 2000 has been allocated to the discontinued operations based on the
total consideration anticipated from the sale of the segment. Interest
expense for the three and nine months ended September 30, 1999 has been
allocated to the discontinued operations based on the total consideration
anticipated 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 $1,969 and $1,068 for the three months ended September 30, 2000 and
1999, respectively and $5,855 and $2,908 for the nine months ended September 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 nine months ended
September 30, September 30,
-------------------------- -------------------------
2000 1999 2000 1999
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Loss from operations..................... $ - $ 1,883 $ 12,848 $ 8,888
Income tax benefit....................... - 496 4,368 2,877
---------- -------- --------- --------
Loss from operations, net of income
taxes.................................... - 1,387 8,480 6,011
---------- -------- --------- --------
Loss from disposal....................... - - 160,748 -
Loss from operations during phase-
out period............................... - - 13,265 -
Income tax benefit....................... - - 59,164 -
---------- -------- --------- --------
Loss from disposal, net of income taxes.. - - 114,849 -
---------- -------- --------- --------
Loss from discontinued operations,
net of income taxes............................. $ - $ 1,387 $ 123,329 $ 6,011
========== ======== ========= ========
</TABLE>
-7-
<PAGE>
The net assets of discontinued operations held for sale in the balance
sheets include the following:
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
Accounts receivable, net................................... $ 24,195 $ 24,520
Inventories, net........................................... 84,725 84,213
Other current assets....................................... 3,310 3,476
Property, plant and equipment, net......................... 31,860 35,972
Cost in excess of net assets acquired, net................. 113,471 115,065
Other, net................................................. 973 841
Accounts payable........................................... (14,277) (11,151)
Accrued expenses........................................... (10,869) (10,526)
------------ -----------
233,388 242,410
Valuation allowances for losses on net assets.............. (149,059) -
------------ -----------
Net realizable value of net assets from discontinued
operations............................................... 84,329 242,410
Estimated accrued losses and other costs from discontinued
operations............................................... (19,296) -
------------ -----------
Net assets of discontinued operations held for sale........ $ 65,033 $ 242,410
============ ===========
</TABLE>
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 (See Note 10.)
At September 30, 2000, $87.0 million and $91.0 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 the six months ended June 30, 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 these defaults, the Company was not able to borrow under the Credit
Facility. During 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. As of September 30, 2000, the Company was in
compliance with the various covenants contained in the Credit Facility.
-8-
<PAGE>
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.)
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.
As a result of and concurrent with the decision to discontinue the
Independent Aftermarket, the management fees previously allocated to this
discontinued segment have been re-allocated to continuing operations.
Additionally, and to more accurately reflect segment financial performance,
beginning in the second quarter of 2000, the Company revised its methodology
from a partial to a full allocation of 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 SEPTEMBER 30, 2000:
Revenues from external customers..................... $ 57,152 $ 24,425 $ 81,577
Segment profit....................................... 9,519 6,063 15,582
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000:
Revenues from external customers..................... $ 186,845 $ 63,900 $ 250,745
Segment profit....................................... 36,478 12,689 49,167
OEM OTHER TOTALS
--- ----- ------
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999:
Revenues from external customers..................... $ 67,916 $ 15,241 $ 83,157
Segment profit....................................... 13,375 2,082 15,457
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999:
Revenues from external customers..................... $ 198,985 $ 42,884 $ 241,869
Special charges...................................... - 80 80
Segment profit ...................................... 34,633 5,462 40,095
</TABLE>
-9-
<PAGE>
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 Nine months ended
September 30, September 30,
--------------------- ---------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales:
----------
External revenues from reportable segment............ $ 57,152 $ 67,916 $ 186,845 $ 198,985
Other revenues....................................... 24,425 15,241 63,900 42,884
-------- -------- --------- ---------
Consolidated net sales..................... $ 81,577 83,157 $ 250,745 $ 241,869
======== ======== ========= =========
Profit:
-------
Total profit for reportable segment.................. $ 9,519 $ 13,375 $ 36,478 $ 34,633
Other profit......................................... 6,063 2,082 12,689 5,462
Unallocated amounts:
Special charges................................. - - - (2,054)
Corporate (expense) profit...................... (29) ( 493) 163 (657)
-------- -------- --------- ---------
Income from operations..................... $ 15,553 $ 14,964 $ 49,330 $ 37,384
======== ======== ========= =========
</TABLE>
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 nine months ended
September 30, September 30,
-------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Income from continuing operations........ $ 5,943 $ 5,815 $ 19,488 $ 13,075
======== ======== ======== ========
Denominator:
Weighted-average common shares
outstanding.............................. 20,740 20,367 20,634 20,294
Effect of stock options and warrants..... 359 858 609 848
-------- -------- -------- --------
Denominator for diluted earnings per
common share............................. 21,099 21,225 21,243 21,142
======== ======== ======== ========
Basic earnings per common share.......... $ 0.29 $ 0.29 $ 0.94 $ 0.64
Diluted earnings per common share........ 0.28 0.27 0.92 0.62
</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
-10-
<PAGE>
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.
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.
-11-
<PAGE>
The following table summarizes the provisions and reserves for
restructuring and special charges:
<TABLE>
<CAPTION>
Loss on
Termination Exit / Other Write-Down of
Benefits Costs 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...................... (2,714) (1,728) - (4,442)
Asset write-offs 2000.............. - - (3,833) (3,833)
Discontinued operations............ - - (1,884) (1,884)
------- ------- ------- -------
Reserve at September 30, 2000...... $ 698 $ 2,335 $ - $ 3,033
======= ======= ======= =======
</TABLE>
The entire September 30, 2000 reserve balance is classified as accrued
expenses.
NOTE 9: COMPREHENSIVE INCOME
The following table sets forth the computation of comprehensive income
for the three and nine months ended September 30, 2000 and 1999, respectively:
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
-------------------------- -------------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income (loss)....................... $ 5,943 $ 4,428 $ (103,841) $ 7,064
Other comprehensive income (loss):
Translation adjustment, net of related
taxes..................................... (140) 182 (564) 407
-------- --------- ----------- --------
Total comprehensive income (loss)........... $ 5,803 $ 4,610 $ (104,405) $ 7,471
======== ========= =========== ========
</TABLE>
NOTE 10: SUBSEQUENT EVENT
On October 26, 2000, the Company obtained (i) the required consent of
the parties to the Credit Facility to complete the sale of the Distribution
Group and (ii) certain amendments to the leverage and interest coverage
ratios contained in the Credit Facility consistent with the terms of this
sale. The terms of this consent require that the Company utilize a portion of
the net cash proceeds from the sale of the Distribution Group to make a
prepayment on the Term Loan. The remainder of the cash proceeds will be
applied against the Revolver portion of the Credit Facility and reinvested in
the continuing businesses over the 330 days following the date of the sale.
Concurrent with this consent and amendment, the loan pricing grid contained
in the Credit Facility has been modified to reflect current conditions in the
credit market. However, as of October 26, 2000, the Alternate Base Rate and
Eurodollar margins remain unchanged at 1.00% and 2.00%, respectively.
-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 SEPTEMBER 30, 2000
COMPARED TO THE THREE MONTH PERIOD ENDED SEPTEMBER 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 $0.1 million, or 1.7%, from
$5.8 million for the three months ended September 30, 1999 to $5.9 million
for the three months ended September 30, 2000. This increase was primarily
attributable to an increase in profitability due to growth in the Company's
Logistics Services business unit, offset by a decline in sales and
profitability within the Company's OEM segment during 2000 as compared to
1999. Net income from continuing operations per diluted share was $0.28 for
the three months ended September 30, 2000 as compared to $0.27 per diluted
share for the three months ended September 30, 1999.
NET SALES
Net sales from continuing operations decreased $1.6 million, or 1.9%,
from $83.2 million for the three months ended September 30, 1999 to $81.6
million for the three months ended September 30, 2000. This decrease was
primarily attributable to a decrease in sales in the Company's OEM segment,
partially offset by increased revenues in the Company's Logistic Services
business unit.
-13-
<PAGE>
Sales to DaimlerChrysler from continuing operations accounted for 36.5%
and 27.4% of the Company's revenues from continuing operations for the three
months ended September 30, 1999 and 2000, respectively. Sales to Ford
accounted for 33.0% and 35.0% of the Company's revenues from continuing
operations for the three months ended September 30, 1999 and 2000,
respectively.
GROSS PROFIT
Gross profit from continuing operations decreased $0.3 million, or
1.1%, from $28.5 million for the three months ended September 30, 1999 to
$28.2 million for the three months ended September 30, 2000. This decrease
was principally due to the decline in volume in the Company's OEM segment,
partially offset by revenue growth in its Logistics Services business unit.
Gross profit as a percentage of net sales increased from 34.3% for the three
months ended September 30, 1999 to 34.6% for the three months ended September
30, 2000, primarily due to a change in the Company's sales mix during the
three months ended September 30, 2000 as compared to 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") from continuing
operations decreased $0.9 million, or 7.3%, from $12.3 million for the three
months ended September 30, 1999 and to $11.4 million for the three months
ended September 30, 2000. The decrease was primarily the result of the cost
reduction initiatives implemented over the past twelve months, partially
offset by an increase in expense supporting growth initiatives in the
Logistics Services business unit. As a percentage of net sales, SG&A expenses
decreased from 14.8% to 14.0% between the two periods.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets from continuing operations increased
slightly from $1.2 million for the three months ended September 30, 1999 to
$1.3 million for the three months ended September 30, 2000.
INCOME FROM OPERATIONS
Income from operations from continuing operations increased $0.6
million, or 4.0%, from $15.0 million for the three months ended September 30,
1999 to $15.6 million for the three months ended September 30, 2000,
principally as a result of the factors described above. As a percentage of
net sales, income from operations increased from 18.0% to 19.1%, between the
two periods.
INTEREST EXPENSE
Interest expense from continuing operations remained constant at $5.9
million for the three months ended September 30, 1999 and 2000. Interest
expense of $2.0 million for the three months ended September 30, 2000 has
been allocated to the discontinued operations based on the total
consideration anticipated from the sale of the segment. Interest expense of
$1.1 million for the three months ended September 30, 1999 has been allocated
to the discontinued operations based on the total consideration anticipated
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>
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 September 30,
-----------------------------------------------
2000 1999
--------------- -------------------
<S> <C> <C> <C> <C>
Net sales............................. $ 57.2 100.0% $ 67.9 100.0%
======= ====== ====== ======
Segment profit........................ $ 9.5 16.6% $ 13.4 19.7%
======= ====== ====== ======
</TABLE>
NET SALES. Net sales decreased $10.7 million, or 15.8%, from $67.9
million for the three months ended September 30, 1999 to $57.2 million for
the three months ended September 30, 2000. This decrease was the result of a
combination of factors, including (i) a decline in sales of remanufactured
transmissions to DaimlerChrysler due to an overall softness in demand for
remanufactured transmissions resulting from a relatively mild winter, (ii) a
decline in shipments of Asian car model remanufactured transmissions due to
a general improvement in their quality, the termination of an unprofitable
contract and delays in the introduction of new model years into the
remanufacturing program by certain OEM's, (iii) a decline in sales of
remanufactured transmissions to General Motors due to a reduction of its
inventory levels and the termination of an unprofitable contract and (iv) a
decline in sales of remanufactured transmissions to certain OEM customers
resulting from OEM to end user price increases. Beginning in September 2000,
the market demand for Chrysler remanufactured transmissions began improving
to levels management believes are more reflective of those experienced by the
Company in the first quarter of 2000.
Sales to DaimlerChrysler accounted for 44.7% and 39.1% of segment
revenues for the three months ended September 30, 1999 and 2000,
respectively. Sales to Ford accounted for 37.3% and 46.5% of segment revenues
for the three months ended September 30, 1999 and 2000, respectively.
SEGMENT PROFIT. Segment profit decreased $3.9 million, or 29.1%, from
$13.4 million (19.7% of OEM net sales) for the three months ended September
30, 1999 to $9.5 million (16.6% of OEM net sales) for the three months ended
September 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.
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 September 30,
----------------------------------------
2000 1999
----------------------------------------
<S> <C> <C> <C> <C>
Net sales............................. $24.4 100.0% $ 15.2 100.0%
===== ====== ====== ======
Segment profit........................ $ 6.1 25.0% $ 2.1 13.8%
===== ====== ====== ======
</TABLE>
NET SALES. Net sales increased $9.2 million, or 60.5%, from $15.2
million for the three months ended September 30, 1999 to $24.4 million for
the three months ended September 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 increased $4.0 million, or 190.5%, from
$2.1 million for the three months ended September 30, 1999 to $6.1 million
for the three months ended September 30, 2000. This increase was primarily
the result of the increased volume in the Logistics Services business unit.
-15-
<PAGE>
RESULTS OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2000
COMPARED TO THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999.
Income from continuing operations increased $6.4 million, or 48.9%,
from $13.1 million for the nine months ended September 30, 1999 to $19.5
million for the nine months ended September 30, 2000. Excluding special
charges of $1.3 million (net of tax) recorded during the nine months ended
September 30, 1999, income from continuing operations increased $5.1 million,
or 35.4%, from $14.4 million for the nine months ended September 30, 1999.
This increase was primarily attributable to the significant growth
experienced in the Company's Logistics Services business unit, combined with
an increase in profitability of its OEM segment. Income from continuing
operations per diluted share was $0.92 for the nine months ended September
30, 2000 as compared to $0.62 per diluted share for the nine months ended
September 30, 1999. Excluding the special charges, income from continuing
operations per diluted share was $0.68 for the nine months ended September
30, 1999.
NET SALES
Net sales from continuing operations increased $8.8 million, or 3.6%,
from $241.9 million for the nine months ended September 30, 1999 to $250.7
million for the nine months ended September 30, 2000. The increase was
primarily attributable to increased revenues in the Company's Logistics
Services business unit, partially offset by a decrease in sales volumes
within the Company's OEM segment.
Sales to DaimlerChrysler from continuing operations accounted for 33.9%
and 32.0% of the Company's revenues for the nine months ended September 30,
1999 and 2000, respectively. Sales to Ford accounted for 33.4% and 32.1% of
the Company's revenues for the nine months ended September 30, 1999 and 2000,
respectively.
GROSS PROFIT
Gross profit from continuing operations increased $8.8 million, or
11.1%, from $79.3 million for the nine months ended September 30, 1999 to
$88.1 million for the nine months ended September 30, 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 32.8% to 35.1% between the two periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A from continuing operations decreased $1.0 million, or 2.8%, from
$36.0 million for the nine months ended September 30, 1999 to $35.0 million
for the nine months ended September 30, 2000. The decrease was primarily the
result of the cost reduction initiatives implemented over the past twelve
months, partially offset by an increase in expense supporting growth
initiatives in the Logistics Services business unit. As a percentage of net
sales, SG&A expenses decreased from 14.9% to 14.0% between the two periods.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets from continuing operations increased
slightly from $3.7 million for the nine months ended September 30, 1999 to
$3.8 million for the nine months ended September 30, 2000.
-16-
<PAGE>
SPECIAL CHARGES
During the nine months ended September 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 $11.9
million, or 31.8%, from $37.4 million for the nine months ended September 30,
1999 to $49.3 million for the nine months ended September 30, 2000,
principally as a result of the factors described above. As a percentage of
net sales, income from operations increased from 15.5% to 19.7%, between the
two periods.
INTEREST EXPENSE
Interest expense from continuing operations increased $1.0 million, or
6.0%, from $16.8 million for the nine months ended September 30, 1999 to
$17.8 million for the nine months ended September 30, 2000. The increase
primarily resulted from an overall increase in interest rates in 2000 as
compared to 1999. Interest expense of $5.9 million for the nine months ended
September 30, 2000 has been allocated to the discontinued operations based on
the total consideration anticipated from the sale of the segment. Interest
expense of $2.9 million for the nine months ended September 30, 1999 has been
allocated to the discontinued operations based on the total consideration
anticipated 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
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. On September 1,
2000, the Company entered into an agreement to sell all of the capital stock
of the Company's Distribution Group for $65.0 million in cash and $12.0
million stated value of buyer's Series B preferred stock. The completion of
the sale of the Distribution Group, which is subject to the buyer obtaining
necessary financing and the satisfactory completion of buyer's environmental
diligence, is expected to occur during the fourth quarter of 2000. No
assurance can be given that the sale will be successfully completed. The
Company plans to sell 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 nine months ended September 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 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.
-17-
<PAGE>
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 nine months ended September 30,
---------------------------------------
2000 1999
------ ------
<S> <C> <C> <C> <C>
Net sales............................. $ 186.8 100.0% $ 199.0 100.0%
======= ===== ======= =====
Segment profit........................ $ 36.5 19.5% $ 34.6 17.4%
======= ===== ======= =====
</TABLE>
NET SALES. Net sales decreased $12.2 million, or 6.1%, from $199.0
million for the nine months ended September 30, 1999 to $186.8 million for
the nine months ended September 30, 2000. The decrease was primarily the
result of (i) a decline in sales of remanufactured transmissions to
DaimlerChrysler due to an overall softness in demand for remanufactured
transmissions resulting from a relatively mild winter, (ii) a decline in
shipments of Asian car model remanufactured transmissions due to a general
improvement in their quality, the termination of an unprofitable contract
and delays in the introduction of new model years into the remanufacturing
program by certain OEMs, (iii) a decline in sales of remanufactured
transmissions to General Motors due to a reduction of its inventory levels
and the termination of an unprofitable contract, (iv) a decline in sales of
remanufactured transmissions to certain OEM customers resulting from OEM to
end user price increases and (v) decreased sales of engines and related parts
in the segment's European operations. Beginning in September 2000, the
market demand for Chrysler remanufactured transmissions began improving to
levels management believes are more reflective of those experienced by the
Company in the first quarter of 2000.
Sales to DaimlerChrysler accounted for 41.2% and 43.0% of segment
revenues for the nine months ended September 30, 1999 and 2000, respectively.
Sales to Ford accounted for 37.1% and 39.7% of segment revenues for the nine
months ended September 30, 1999 and 2000, respectively.
SEGMENT PROFIT. Segment profit increased $1.9 million, or 5.5%, from
$34.6 million (17.4% of OEM net sales) for the nine months ended September
30, 1999 to $36.5 million (19.5% of OEM net sales) for the nine months ended
September 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 nine months ended September 30,
---------------------------------------
2000 1999
------ ------
<S> <C> <C> <C> <C>
Net sales............................. $ 63.9 100.0% $ 42.9 100.0%
======= ===== ======= =====
Special charges....................... $ - -% $ 0.1 0.2%
======= ===== ======= =====
Segment profit........................ $ 12.7 19.9% $ 5.5 12.8%
======= ===== ======= =====
</TABLE>
NET SALES. Net sales increased $21.0 million, or 49.0%, from $42.9
million for the nine months ended September 30, 1999 to $63.9 million for the
nine months ended September 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.
-18-
<PAGE>
SEGMENT PROFIT. Segment profit increased $7.2 million, or 130.9%, from
$5.5 million for the nine months ended September 30, 1999 to $12.7 million
for the nine months ended September 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company had total cash and cash equivalents on hand of $4.0 million
at September 30, 2000. Net cash provided by operating activities from
continuing operations was $20.1 million for the nine-month period. Net cash
used in investing activities from continuing operations was $7.8 million for
the period, which consisted of $7.9 million in capital expenditures largely
for remanufacturing equipment, partially offset by $0.1 million of proceeds
from the sale of equipment. Net cash used in financing activities of $8.7
million included net payments of $8.5 million made on the Credit Facility and
$1.2 million in payment of amounts due to former owners of acquired
companies, partially offset by $0.8 million of borrowings under the Canadian
bank line of credit and $0.4 million of proceeds from the exercise of stock
options.
Based on its operating results during the first six months of 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 of September 30,
2000, the Company was in compliance with the various covenants contained in
the Credit Facility.
On October 26, 2000, the Company obtained (i) the required consent of
the parties to the Credit Facility to complete the sale of the Distribution
Group and (ii) certain amendments to the leverage and interest coverage
ratios contained in the Credit Facility consistent with the terms of this
sale. The terms of this consent require that the Company utilize a portion of
the net cash proceeds from the sale of the Distribution Group to make a
prepayment on the Term Loan. The remainder of the cash proceeds will be
applied against the Revolver portion of the Credit Facility and reinvested in
the continuing businesses over the 330 days following the date of the sale.
Any remaining balances outstanding on the term loan will be amortized ratably
in quarterly installments through December 31, 2003. Concurrent with this
consent and amendment, the loan pricing grid contained in the Credit Facility
has been modified to reflect current conditions in the credit market. However,
as of October 26, 2000, the Alternate Base Rate and Eurodollar margins remain
unchanged at 1.00% and 2.00%, respectively.
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 September 30, 2000 the Alternate
Base Rate margin was 1.00% and the Eurodollar margin was 2.00%.
As of September 30, 2000, the Company's borrowing capacity under the
Credit Facility was $7.2 million. In addition, the Company had cash and cash
equivalents on hand of $4.0 million at September 30, 2000.
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 nine
months ended September 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 1-5 are not applicable.
Item 6. - Exhibits and Reports on Form 8-K.
(a) Exhibits
See Exhibit Index on Page 23.
(b) Reports on Form 8-K
During the quarter ended September 30, 2000 the Company filed
the following reports on Form 8-K:
(1) Report dated August 4, 2000 reporting under Item 5
(i) the August 3, 2000 announcement of the
discontinuance of the Company's Independent Aftermarket
Segment (consisting of the Distribution Group business
unit and the Company's domestic remanufactured engine
business), (ii) that the Company is in negotiations to
sell the Distribution Group business unit and
(iii) certain earnings per share estimates for 2000 and
2001.
(2) Report dated September 1, 2000 reporting under Item 5
that the Company had entered into an agreement to sell
all of the capital stock of the Company's ATC
Distribution Group, Inc. subsidiary to the buyer, an
affiliate of The Riverside Company.
-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: October 26, 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-
