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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 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.
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(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 95-4486486
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(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 April 20, 2000, there were 20,590,204 shares of common stock of the
Registrant outstanding.
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AFTERMARKET TECHNOLOGY CORP.
FORM 10-Q
TABLE OF CONTENTS
PAGE NUMBER
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PART I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets at March 31, 2000 (unaudited)
and December 31, 1999 ............................................................... 3
Consolidated Statements of Income (unaudited) for the Three
Months Ended March 31, 2000 and 1999 ................................................ 4
Consolidated Statements of Cash Flows (unaudited) for the
Three Months Ended March 31, 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 ................................................. 11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk........................................................................... 15
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K...................................................... 16
SIGNATURES............................................................................................ 17
EXHIBIT INDEX......................................................................................... 18
Note: Items 1 - 5 of Part II are omitted because they are not applicable.
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AFTERMARKET TECHNOLOGY CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
MARCH 31, DECEMBER 31,
2000 1999
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(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents $ 6,199 $ 8,469
Accounts receivable, net 71,377 70,786
Inventories 119,071 120,502
Prepaid and other assets 7,274 6,112
Deferred income taxes 13,688 14,036
------------ ------------
Total current assets 217,609 219,905
Property, plant and equipment, net 72,899 75,369
Debt issuance costs, net 4,975 5,268
Cost in excess of net assets acquired, net 293,014 295,039
Other assets 1,060 1,065
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Total assets $ 589,557 $ 596,646
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 45,279 $ 47,127
Accrued expenses 37,597 42,808
Income taxes payable 985 2,685
Bank line of credit - 543
Credit facility 23,120 21,760
Amounts due to acquired companies 2,410 2,384
Deferred compensation 684 660
------------ ------------
Total current liabilities 110,075 117,967
12% Series B and D Senior Subordinated Notes 111,169 111,214
Amount drawn on credit facility, less current portion 158,899 164,799
Amounts due to acquired companies, less current portion 7,913 7,759
Deferred compensation, less current portion 2,991 2,944
Other long-term liabilities 634 707
Deferred income taxes 16,095 15,112
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 - 20,762,204 and 20,612,764 (including shares held
in treasury) 208 206
Additional paid-in capital 136,241 135,894
Retained earnings 47,820 42,483
Accumulated other comprehensive loss (494) (445)
Common stock held in treasury, at cost (172,000 shares) (1,994) (1,994)
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Total stockholders' equity 181,781 176,144
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Total liabilities and stockholders' equity $ 589,557 $ 596,646
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SEE ACCOMPANYING NOTES.
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AFTERMARKET TECHNOLOGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE MONTHS ENDED MARCH 31,
2000 1999
--------------- --------------
(UNAUDITED)
Net sales $ 149,960 $ 135,198
Cost of sales 97,792 93,916
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Gross profit 52,168 41,282
Selling, general and
administrative expense 34,028 30,133
Amortization of intangible assets 2,025 1,760
Special charges - 1,900
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Income from operations 16,115 7,489
Other income, net 113 275
Interest expense 7,755 6,292
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Income before income taxes 8,473 1,472
Income tax expense 3,136 589
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Net income $ 5,337 $ 883
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Per common share - basic:
Net income $ 0.26 $ 0.04
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Weighted average number of common shares
outstanding 20,539 20,246
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Per common share - diluted:
Net income $ 0.25 $ 0.04
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Weighted average number of common and
common equivalent shares outstanding 21,387 21,001
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SEE ACCOMPANYING NOTES.
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AFTERMARKET TECHNOLOGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE THREE MONTHS ENDED MARCH 31,
2000 1999
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(UNAUDITED)
OPERATING ACTIVITIES:
Net income $ 5,337 $ 883
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 5,208 4,529
Amortization of debt issuance costs 293 221
Provision for losses on accounts receivable 214 222
Loss on sale of equipment 1 7
Deferred income taxes 1,336 161
Changes in operating assets and liabilities,
net of businesses sold:
Accounts receivable (856) 7,637
Inventories 1,389 (1,984)
Prepaid and other assets (1,159) 4,864
Accounts payable and accrued expenses (7,116) (2,059)
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Net cash provided by operating activities 4,647 14,481
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (2,110) (4,488)
Proceeds from sale of business - 3,808
Proceeds from sale of equipment 10 19
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Net cash used in investing activities (2,100) (661)
FINANCING ACTIVITIES:
Borrowings (payments) on credit facility, net (4,540) 5,865
Payments on bank line of credit, net (543) (1,881)
Payment of debt issuance costs - (520)
Proceeds from exercise of stock options 250 39
Payments on amounts due to acquired companies - (60)
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Net cash (used in) provided by financing activities (4,833) 3,443
Effect of exchange rate changes on cash and cash equivalents 16 4
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Increase (decrease) in cash and cash equivalents (2,270) 17,267
Cash and cash equivalents at beginning of period 8,469 580
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Cash and cash equivalents at end of period $ 6,199 $ 17,847
============ ==========
Cash paid during the period for:
Interest $ 10,543 $ 9,420
Income taxes, net 3,563 22
SEE ACCOMPANYING NOTES.
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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 March 31, 2000 and for the
three months ended March 31, 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 months ended
March 31, 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 consist of the following:
MARCH 31, 2000 DECEMBER 31, 1999
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Raw materials, including core inventories......... $ 43,922 $ 43,915
Work-in-process................................... 3,307 2,993
Finished goods.................................... 71,842 73,594
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$ 119,071 $ 120,502
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Finished goods include purchased parts which are available for sale.
NOTE 3: 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 March 31, 2000,
$97.9 million and $84.1 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 certain 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.
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NOTE 4: ACQUISITIONS
In October and December 1999, the Company acquired substantially all the
assets of All Transmission Parts, Inc. and its affiliate, All Automatic
Transmission Parts, Inc., respectively, ("All Trans") a distributor of standard
and automatic transmission parts and related drivetrain components based in
Portland, Oregon for a combined purchase price of approximately $41.2 million,
including transaction fees and related expenses. Goodwill recorded for the All
Trans acquisition approximated $36.1 million. The financial statements reflect
the preliminary allocation of the purchase price. The purchase price allocation
will be finalized upon a final valuation of the acquired companies' property,
plant and equipment and certain other information.
The All Trans acquisition has been accounted for under the purchase method
of accounting. Accordingly, the allocation of the cost of the acquired assets
and liabilities has been made on the basis of the estimated fair value. Goodwill
for all acquisitions is amortized on a straight-line basis over 40 years. The
consolidated financial statements include the operating results of All Trans
from the date of acquisition.
NOTE 5: EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
FOR THE THREE MONTHS ENDED
MARCH 31,
------------------------------
2000 1999
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Numerator:
Net income....................................................... $ 5,337 $ 883
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Denominator:
Weighted-average common shares outstanding....................... 20,539 20,246
Effect of stock options and warrants............................. 848 755
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Denominator for diluted earnings per common share................ 21,387 21,001
========= =======
Basic earnings per common share.................................. $ 0.26 $ 0.04
Diluted earnings per common share................................ 0.25 0.04
NOTE 6. REPORTABLE SEGMENTS
The Company has two reportable segments: Original Equipment
Manufacturer ("OEM") segment and Independent Aftermarket segment. The
Company's OEM segment consists of four operating units that primarily sell
remanufactured transmissions directly to the OEMs. The Company's Independent
Aftermarket segment consists of two operating units: (i) the Company's
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; and (ii)
Aaron's Engines, which remanufactures and distributes domestic and foreign
engines primarily to general repair shops and retail automotive parts stores.
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.
During the first quarter of 2000, the Company reclassified the Aaron's
Engines operating unit from the OEM segment to the Independent Aftermarket
segment due to similar economic
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characteristics and other factors, including type of customer and method of
distribution, as described in SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. All prior periods have been restated to
conform to this classification.
The Company evaluates performance and allocates resources based upon
income from operations. The reportable segments' accounting policies are the
same as those of the Company. Intersegment sales and transfers are recorded at
the Company's standard cost and intersegment profits, if any, are eliminated.
The reportable segments are each managed and measured separately primarily
due to the differing customers, production processes, products sold and
distribution channels. The reportable segments are as follows:
INDEPENDENT
OEM AFTERMARKET OTHER TOTALS
----- ------------ ----- ------
FOR THE THREE MONTHS ENDED MARCH 31, 2000:
Revenues from external customers................ $ 66,654 $ 63,739 $ 19,567 $ 149,960
Intersegment revenues........................... 281 44 - 325
Segment profit (loss)........................... 16,793 (3,228) 4,156 17,721
FOR THE THREE MONTHS ENDED MARCH 31, 1999:
Revenues from external customers............... $ 62,325 $ 59,022 $ 13,851 $ 135,198
Intersegment revenues.......................... 148 21 - 169
Special charges................................ - 341 - 341
Segment profit (loss).......................... 11,158 (2,641) 2,189 10,706
A reconciliation of the reportable segments to consolidated net sales and
income from operations are as follows:
FOR THE
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
---- ----
NET SALES:
External revenues from reportable segments............ $ 130,393 $ 121,347
Intersegment revenues for reportable segments......... 325 169
Other revenues........................................ 19,567 13,851
Elimination of intersegment revenues.................. (325) (169)
----------- ---------
Consolidated net sales......................... $ 149,960 $ 135,198
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PROFIT:
Total profit for reportable segments.................. $ 13,565 $ 8,517
Other profit.......................................... 4,156 2,189
Unallocated amounts:
Special charges..................................... - (1,559)
Corporate expenses.................................. (1,360) (1,464)
Depreciation and amortization....................... (246) (194)
----------- ---------
Income from operations......................... $ 16,115 $ 7,489
=========== =========
-8-
In order to conform to the new classifications of the segment data,
restated segment information for 1999 and 1998 is presented below:
INDEPENDENT
OEM AFTERMARKET OTHER TOTALS
--- ----------- ----- ------
FOR THE YEAR ENDED DECEMBER 31, 1999:
Revenues from external customers.......... $ 267,534 $ 237,597 $ 59,834 $ 564,965
Intersegment revenues..................... 656 347 - 1,003
Depreciation and amortization expense...... 8,902 7,724 2,151 18,777
Special charges............................ 975 9,786 570 11,331
Segment profit (loss)..................... 54,558 (19,153) 8,695 44,100
FOR THE YEAR ENDED DECEMBER 31, 1998:
Revenues from external customers.......... $ 224,882 $ 214,810 $ 47,081 $ 486,773
Intersegment revenues..................... 720 1,069 - 1,789
Depreciation and amortization expense...... 7,655 5,437 1,628 14,720
Special charges............................ 2,400 4,720 - 7,120
Segment profit (loss)...................... 29,271 (17,011) 4,738 16,998
NOTE 7: 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 related to these
initiatives, consisting 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 consisting 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, which 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, which 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.
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In the fourth quarter of 1999, the Company recorded $9,763 of special
charges 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:
LOSS ON
TERMINATION EXIT / OTHER WRITE-DOWN OF
BENEFITS COSTS ASSETS TOTAL
----------- ------------ ------------- -----
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...................... (1,079) (614) - (1,693)
Asset write-offs 2000.............. - - (3,185) (3,185)
-------- ------- -------- -----------
Reserve at March 31, 2000.......... $ 2,333 $ 3,449 $ 2,532 $ 8,314
-------- ------- -------- -----------
-------- ------- -------- -----------
As of March 31, 2000, $6,005 was classified as accrued expenses and $2,309
was classified as inventory valuation reserves.
NOTE 8: COMPREHENSIVE INCOME
Total comprehensive income for the three months ended March 31, 2000 and
1999 were $5,288 and $1,055, respectively.
The following table sets forth the computation of comprehensive income for
the three months ended March 31, 2000 and 1999, respectively:
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
2000 1999
---- ----
Net income............................................. $ 5,337 $ 883
Other comprehensive income:
Translation adjustment, net of related taxes........... (49) 172
------------ ------------
$ 5,288 $ 1,055
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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 de0pend 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 MARCH 31, 2000 COMPARED
TO THE THREE MONTH PERIOD ENDED MARCH 31, 1999.
Net income increased $4.4 million, or 488.9 %, from $0.9 million for the
three months ended March 31, 1999 to $5.3 million for the three months ended
March 31, 2000. Excluding pre-tax special charges of $1.9 million in 1999, net
income increased $3.3 million, or 165.0%, from $2.0 million for the three months
ended March 31, 1999 to $5.3 million for the three months ended March 31, 2000.
This increase was primarily attributable to increased sales and profitability
within the Company's OEM segment and Logistics Services business unit during
2000 as compared to 1999. During the three months ended March 31, 1999, the
Company recorded special charges of $1.9 million related to certain initiatives
designed to improve operating efficiencies and reduce costs (see "Special
Charges" below). Excluding the special charges, net income increased from $0.10
per diluted share during the three months ended March 31, 1999 to $0.25 per
diluted share in 2000. Including special charges, net income per diluted share
increased $0.21 per share from $0.04 for the three months ended March 31, 1999.
NET SALES
Net sales increased $14.8 million, or 10.9%, from $135.2 million for the
three months ended March 31, 1999 to $150.0 million for the three months ended
March 31, 2000. This increase was primarily attributable to increased sales from
the Company's OEM segment and Logistics Services business unit combined with the
additional sales from All Trans, acquired during the fourth quarter of 1999. On
a pro forma basis, as if the acquisition of All Trans and the February 1999 sale
of Mascot had taken place on January 1, 1999, net sales would have increased
$10.0 million, or 7.1%, from $140.0 million for the three months ended March 31,
1999.
Sales to DaimlerChrysler accounted for 21.4% and 18.2% of the Company's
revenues for the three months ended March 31, 2000 and 1999, respectively. Sales
to Ford accounted for 16.6% and
-11-
18.7% of the Company's revenues for the three months ended March 31, 2000 and
1999, respectively.
GROSS PROFIT
Gross profit as a percentage of net sales increased from 30.5% for the
three months ended March 31, 1999 to 34.8% for the three months ended March 31,
2000. This increase was principally due to sales volume-related increases in
gross profit in the OEM segment and the Logistics Services business unit.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") increased $3.9
million, or 13.0%, from $30.1 million for the three months ended March 31, 1999
to $34.0 million for the three months ended March 31, 2000. The increase was
primarily due to volume related cost increases in the Logistics Services
business unit and increased management infrastructure and turnaround support
costs in the Distribution Group, combined with the impact of the All Trans
acquisition. As a percentage of net sales, SG&A expenses increased slightly from
22.3% to 22.7% between the two periods.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets increased $0.2 million, or 11.1%, from
$1.8 million for the three months ended March 31, 1999 to $2.0 million for the
three months ended March 31, 2000. The increase was attributable to the
acquisition of All Trans during the fourth quarter of 1999.
SPECIAL CHARGES
During the three months ended March 31, 1999, the Company incurred $1.9
million of special charges. These restructuring charges consisted of $1.6
million of severance costs and $0.3 million of exit costs. The severance costs
related to the reorganization of certain management functions. The exit costs
related to the consolidation of certain leased facilities in the Independent
Aftermarket segment.
INCOME FROM OPERATIONS
Income from operations increased $8.6 million, or 114.7%, from $7.5
million for the three months ended March 31, 1999 to $16.1 million for the three
months ended March 31, 2000, principally as a result of the factors described
above. As a percentage of net sales, income from operations increased from 5.5%
to 10.7%, between the two periods. Excluding special charges of $1.9 million,
income from operations as a percentage of net sales was 6.9% during the three
months ended March 31, 1999.
INTEREST EXPENSE
Interest expense increased $1.5 million, or 23.8%, from $6.3 million for
the three months ended March 31, 1999 to $7.8 million for the three months ended
March 31, 2000. The increase primarily results from borrowing under the Credit
Facility to finance the All Trans acquisition and an overall increase in
interest rates.
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SEGMENT CLASSIFICATION
The Company has two reportable segments: Original Equipment
Manufacturer ("OEM") segment and Independent Aftermarket segment. The
Company's OEM segment consists of four operating units that primarily sell
remanufactured transmissions directly to the OEMs. The Company's Independent
Aftermarket segment consists of two operating units: (i) the Company's
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; and (ii)
Aaron's Engines, which remanufactures and distributes domestic and foreign
engines primarily to general repair shops and retail automotive parts stores.
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.
During the first quarter of 2000, the Company reclassified the Aaron's
Engines operating unit from the OEM segment to the Independent Aftermarket
segment due to similar economic characteristics and other factors, including
type of customer and method of distribution, as described in SFAS No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. All
prior periods have been restated to conform to this classification.
OEM SEGMENT
The following table presents net sales and segment profit expressed in
millions of dollars and as a percentage of net sales:
FOR THE THREE MONTHS ENDED MARCH 31,
-----------------------------------------
2000 1999
------------------- ------------------
Net sales........................ $ 66.7 100.0% $ 62.4 100.0%
-------- ----- -------- -----
-------- ----- -------- -----
Segment profit................... $ 16.8 25.2% $ 11.1 17.8%
-------- ----- -------- -----
-------- ----- -------- -----
NET SALES. Net sales increased $4.3 million, or 6.9%, from $62.4 million
for the three months ended March 31, 1999 to $66.7 million for the three months
ended March 31, 2000. The increase was primarily due to an increase in sales of
remanufactured transmissions to DaimlerChrysler, partially offset by a decrease
in sales of remanufactured transmissions to General Motors.
Sales to DaimlerChrysler accounted for 47.2% and 38.5% of segment revenues
for the three months ended March 31, 2000 and 1999, respectively. Sales to Ford
accounted for 34.3% and 36.1% of segment revenues for the three months ended
March 31, 2000 and 1999, respectively.
SEGMENT PROFIT. Segment profit increased $5.7 million, or 51.4%, from
$11.1 million (17.8% of OEM net sales) for the three months ended March 31, 1999
to $16.8 million (25.2% of OEM net sales) for the three months ended March 31,
2000. The increase was primarily the result of the changes in sales volume and
mix of remanufactured transmissions as referenced above.
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INDEPENDENT AFTERMARKET SEGMENT
The following table presents net sales, special charges and segment loss
expressed in millions of dollars and as a percentage of net sales:
FOR THE THREE MONTHS ENDED MARCH 31,
-----------------------------------------
2000 1999
------------------- ------------------
Net sales........................ $ 63.7 100.0% $ 59.0 100.0%
-------- ----- ------- -----
-------- ----- ------- -----
Special charges.................. $ - -% $ 0.3 0.5%
-------- ----- ------- -----
-------- ----- ------- -----
Segment loss..................... $ (3.2) (5.0)% $ (2.6) (4.4)%
-------- ----- ------- -----
-------- ----- ------- -----
NET SALES. Net sales increased $4.7 million, or 8.0%, from $59.0 million
for the three months ended March 31, 1999 to $63.7 million for the three months
ended March 31, 2000. On a pro forma basis, as if the All Trans acquisition had
taken place on January 1, 1999, net sales would have decreased $0.9 million, or
1.4%, from $64.6 million in 1999. This decrease is primarily related to
decreased sales of remanufactured engines through the Company's branch sales
channel.
SPECIAL CHARGES. Special charges of $0.3 million during the three months
ended March 31, 1999 relate to exit costs for the consolidation of certain
leased facilities.
SEGMENT LOSS. Segment loss increased $0.6 million, from a loss of $2.6
million for the three months ended March 31, 1999 to a loss of $3.2 million for
the three months ended March 31, 2000. Excluding the 1999 special charges of
$0.3 million, segment loss would have increased $0.9 million, or 39.1%, from a
loss of $2.3 million in 1999. The increase in segment loss was primarily due to
an increase in management infrastructure and other turnaround support costs in
the Distribution Group and a decline in gross profit resulting from the lower
sales volumes of remanufactured engines, partially offset by operating income
generated by All Trans, which was acquired in the fourth quarter of 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:
FOR THE THREE MONTHS ENDED MARCH 31,
---------------------------------------
2000 1999
-------------------- -----------------
Net sales........................ $ 19.6 100.0% $ 13.8 100.0%
-------- ----- ------- -----
-------- ----- ------- -----
Segment profit................... $ 4.1 20.9% $ 2.2 15.9%
-------- ----- ------- -----
-------- ----- ------- -----
NET SALES. Net sales increased $5.8 million, or 42.0%, from $13.8 million
for the three months ended March 31, 1999 to $19.6 million for the three months
ended March 31, 2000. On a pro forma basis, as if the sale of Mascot had taken
place on January 1, 1999, net sales would have increased $6.5 million, or 49.6%,
from $13.1 million in 1999. The increase was attributable to increased sales by
the Logistics Services and automotive electronic components business units.
SEGMENT PROFIT. Segment profit increased $1.9 million, or 86.4%, from $2.2
million for the three months ended March 31, 1999 to $4.1 million for the three
months ended March 31, 2000. The increase was primarily the result of the
increased sales volume as referenced above.
LIQUIDITY AND CAPITAL RESOURCES
The Company had total cash and cash equivalents on hand of $6.2 million at
March 31, 2000. Net cash provided by operating activities was $4.6 million for
the three-month period then ended. Net cash used in investing activities was
$2.1 million for the period primarily related to capital
-14-
expenditures for remanufacturing equipment. Net cash used in financing
activities of $4.8 million included net payments of $4.5 million made on the
Credit Facility and $0.5 million of payments on the Canadian bank line of
credit offset by $0.2 million of proceeds from the exercise of stock options.
Based on its operating results during 1998, the Company was in technical
default of the leverage and cash flow covenants of the Credit Facility and the
Company's interest rate swap agreement as of December 31, 1998. This resulted in
a cross default under the line of credit for the Company's Canadian
subsidiaries. Due to the defaults, the Company was prohibited from further
borrowings under the Credit Facility and its Canadian line of credit. In March
1999, the Company obtained from its lenders waivers of the various defaults and
certain amendments to the Credit Facility and the interest rate swap agreement
that the Company believes will enable it to comply with the covenants in the
future.
Amounts outstanding under the Credit Facility bear interest at either the
"Alternate Base Rate" or the "Eurodollar Rate" (as defined in the Credit
Agreement) plus an applicable margin. As of March 31, 2000, the Alternate Base
Rate margin was 1.25% and the Eurodollar margin was 2.25%.
As of March 31, 2000, the Company's borrowing capacity under the Credit
Facility and the Canadian line of credit was $13.8 million and C$3.0 million,
respectively. In addition, the Company had cash and cash equivalents on hand of
$6.2 million at March 31, 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DERIVATIVE FINANCIAL INSTRUMENTS
The Company does not hold or issue derivative financial instruments for
trading purposes. The Company uses derivative financial instruments to manage
its exposure to fluctuations in interest rates. Neither the aggregate value of
these derivative financial instruments nor the market risk posed by them is
material to the Company. The Company uses interest rate swaps to convert
variable rate debt to fixed rate debt to reduce volatility risk. For additional
discussion regarding the Company's use of such instruments, see Item 1. "Notes
to Consolidated Financial Statements--Note 3."
INTEREST RATE EXPOSURE
Based on the Company's overall interest rate exposure during the three
months ended March 31, 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.
-15-
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 18
(b) Reports on Form 8-K
During the quarter ended March 31, 2000 the Company filed the
following report on Form 8-K:
(1) Report dated February 22, 2000 reporting under Item 5
financial information as disclosed in securities analysts
meetings held on February 22 and 23, 2000. In addition,
reporting under Item 7 the Company's press release dated
February 22, 1999 regarding fourth quarter and year-end
1999 financial results and certain other information.
-16-
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: APRIL 27, 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.
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AFTERMARKET TECHNOLOGY CORP.
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION ELECTRONIC (E)
- ------- ------------------------------------ --------------
27 Financial Data Schedules (E)
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