Aftermarket Technology Corp. Reports Second Quarter Results
-- Sales to Honda increase 165% quarter over quarter -- $8 million of newly awarded business in Logistics segment -- Second quarter adjusted EPS of $0.30 ($0.24 on a GAAP basis) -- Issues third quarter EPS guidance and revised full year guidance
WESTMONT, Ill., July 28 -- Aftermarket Technology Corp. today reported financial results for the second quarter of 2004 and guidance for the balance of the year.
Second Quarter Results
For the quarter ended June 30, 2004 revenues increased by $3.0 million to $103.1 million from $100.1 million for the quarter ended June 30, 2003. Adjusted income from continuing operations decreased $0.7 million to $6.4 million for the second quarter 2004 from $7.1 million for the second quarter 2003. Adjusted income from continuing operations increased to $0.30 per diluted share for the second quarter 2004 from $0.29 for the second quarter of last year.
On a Generally Accepted Accounting Principles (GAAP) basis, second quarter 2004 income from continuing operations decreased to $5.0 million ($0.24 per diluted share) from $6.5 million ($0.27 per diluted share) for the second quarter 2003.
Management Comments
In commenting on the Company's results, Don Johnson, President and CEO said, "I am pleased that our second quarter results are on the high end of our previous guidance. Continuing our recovery from the events of 2003, we have experienced good improvement in our Drivetrain and Logistics segments but disappointing results in our Independent Aftermarket business."
"On the Drivetrain side of the business, we achieved $73.6 million in sales for the quarter primarily on the strength of Honda volumes, which increased 165% compared to the same period last year. While business with Ford and Chrysler met expectations, we experienced softness in our GM business due to investments in our plant to improve material flow and processes to achieve improved quality levels. Our drive for excellent quality across all customers is a key element of our strategy to continue our market leadership in providing remanufactured drivetrain products to the automotive industry. By focusing on quality, we believe our efforts and results to date position us well for future business opportunities with our customers."
"The Logistics segment again delivered strong performance, exceeding expectations with sales of $24.6 million during the quarter due to continued strength in our business with AT&T Wireless from increased volumes associated with their growth and from new business related to previously awarded contracts for additional services with AT&T Wireless and other customers. I am also pleased to announce two additional business wins achieved this quarter that are expected to eventually generate $8 million in annual revenue once fully implemented - boxing of handsets and related materials for one of our existing customers and accessories packaging and distribution services for an Asian handset manufacturer that is a new customer and an up and coming OEM wireless products provider. These wins further validate our business model and the value we provide to our customers. Year to date, our Logistics Segment has signed new business that is expected to generate $19 million in annualized revenue when fully implemented, with about one third of this revenue to be realized in 2004 through accelerated launches with our customers. We expect additional new business growth with both current and new customers in this segment throughout the balance of the year."
"Excellent results in the Drivetrain and Logistics segments were partially offset by continued operating losses in our smallest business, the Independent Aftermarket. Although we continue to make inroads in aftermarket transmission sales to the individual retail outlets of our key customers and with our larger warehouse distributor customers, the process is slower than expected. We have begun to implement strategic changes to our current business model designed to positively impact results, including the reshaping of our supply chain. As we finalize our planned changes for the Independent Aftermarket business model, geared toward resolution of the performance issues, we will provide you more details."
"We expect third quarter adjusted EPS to be approximately $0.37-$0.41 ($0.32-$0.37 on a GAAP basis). We expect third quarter adjusted income from operations to be in the range of $13.9-$15.2 million, which represents a 65%- 81% increase from the $8.4 million of adjusted income reported in the third quarter of 2003. We expect increasing volumes with Honda, seasonal strength in the Ford business, cost reduction realization and continued strength in the Logistics segment, partially offset by weaker Chrysler volume due to anticipated inventory adjustments and continued, although improved, operating losses in the Independent Aftermarket."
"Although we see continued strength through the fourth quarter from sustained Honda volumes, full year cost reduction realization still expected to meet or exceed our $26 million target and growth expected from the rollout of newly awarded contracts in each of our businesses, the continued losses in the Independent Aftermarket business which are now expected to total approximately $5 million for the year and additional costs to achieve our quality targets, bring our adjusted EPS guidance to $1.30-$1.35 ($1.16-$1.22 on a GAAP basis) for the full year versus our prior guidance of $1.40-$1.50 adjusted EPS ($1.25-$1.35 on a GAAP basis).
"Although I am disappointed about the revised guidance for the year, I remain excited about what we have achieved in the first half and how our team's work has positioned the company for continued improvement in operating profits for the remainder of the year. We also expect the growth initiatives that we have launched with both existing and potential customers during the first two quarters to drive additional improvement across our businesses in the future." Mr. Johnson concluded.
Adjusted income from continuing operations and adjusted income from continuing operations per share are "non-GAAP financial measures". Please see the following pages for an explanation of non-GAAP financial measures and a reconciliation to the most comparable GAAP financial measures.
For further information, please see the Company's most recent Form 10-Q filed with the Securities and Exchange Commission.
ATC is headquartered in Westmont, Illinois. The Company's operations include drivetrain remanufacturing for the automobile manufacturers and the independent aftermarket, third party logistics, electronics remanufacturing and reverse logistics services.
The preceding paragraphs contain statements that are not related to historical results and are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those that are predictive or express expectations, that depend upon or refer to future events or conditions, or that concern future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, or possible future Company actions. Forward-looking statements involve risks and uncertainties because such 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. The factors that could cause actual results to differ are discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2003 and other filings made by the Company with the Securities and Exchange Commission.
AFTERMARKET TECHNOLOGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
For the three months For the six months
ended June 30, ended June 30,
2004 2003 2004 2003
(Unaudited) (Unaudited)
Net sales:
Products $78,501 $78,337 $149,904 $150,762
Services 24,597 21,748 44,168 44,385
Total net sales 103,098 100,085 194,072 195,147
Cost of sales:
Products 60,041 63,011 115,738 115,810
Products - disposal costs - 200 - 200
Services 16,742 10,130 30,003 21,650
Total cost of sales 76,783 73,341 145,741 137,660
Gross profit 26,315 26,744 48,331 57,487
Selling, general and administrative
expense 14,695 14,366 28,345 27,841
Amortization of intangible assets 32 84 63 167
Exit, disposal, certain severance
and other charges 2,865 731 3,734 731
Income from operations 8,723 11,563 16,189 28,748
Interest income 634 720 1,212 1,401
Other income, net 3 61 7 30
Equity in (losses) income of
investee (45) 113 51 113
Interest expense (1,831) (2,141) (3,612) (4,336)
Income from continuing operations
before income taxes 7,484 10,316 13,847 25,956
Income tax expense 2,440 3,817 4,890 9,604
Income from continuing operations 5,044 6,499 8,957 16,352
Gain from discontinued operations,
net of income taxes 1,387 - 1,387 -
Net income $6,431 $6,499 $10,344 $16,352
Per common share - basic:
Income from continuing operations $0.24 $0.27 $0.42 $0.68
Gain from discontinued operations,
net of income taxes 0.07 - 0.07 -
Net income $0.31 $0.27 $0.49 $0.68
Weighted average number of common
shares outstanding 20,743 24,212 21,297 24,212
Per common share - diluted:
Income from continuing operations $0.24 $0.27 $0.41 $0.67
Gain from discontinued operations,
net of income taxes 0.07 - 0.07 -
Net income $0.31 $0.27 $0.48 $0.67
Weighted average number of common
and common equivalent shares
outstanding 21,027 24,413 21,619 24,458
AFTERMARKET TECHNOLOGY CORP.
Reconciliation of certain financial measures reported in accordance with
Generally Accepted Accounting Principles ("GAAP") to those presented on
the basis of methodologies other than in accordance with GAAP ("non-GAAP")
(In millions, except share and per share data)
For the three months For the six months ended
ended June 30, June 30,
2004 2003 2004 2003
Income from operations
(GAAP basis) $8.7 $11.6 $16.2 $28.7
Exit, Disposal, Certain
Severance and Other
Charges:
Non-cash stock option
compensation costs ( a ) 1.9 - 1.9 -
Severance and related
costs ( b ) 0.5 0.1 0.6 0.1
Executive replacement
costs ( c ) - - 0.7 -
Facilities consolidation
and other costs ( d ) 0.5 0.8 0.5 0.8
Total Exit, Disposal,
Certain Severance and
Other Charges 2.9 0.9 3.7 0.9
Adjusted Income from
operations (non-GAAP
basis) 11.6 12.5 19.9 29.6
Depreciation and
amortization 3.1 2.9 6.1 5.7
Other income, net - 0.2 0.1 0.2
Adjusted EBITDA (non-GAAP
basis) 14.7 15.6 26.1 35.5
Exit, disposal, certain
severance and other
charges (2.9) (0.9) (3.7) (0.9)
Depreciation and
amortization (3.1) (2.9) (6.1) (5.7)
Interest expense (1.8) (2.2) (3.6) (4.3)
Interest income 0.6 0.7 1.2 1.4
Income tax expense (2.5) (3.8) (4.9) (9.6)
Income from continuing
operations (GAAP basis) 5.0 6.5 9.0 16.4
Exit, disposal, certain
severance and other
charges, net of tax 1.8 0.6 2.2 0.6
Adjustments to income tax
expense ( e ) (0.4) - (0.4) -
Adjusted income from
continuing operations
(non-GAAP basis) $6.4 $7.1 $10.8 $17.0
Earnings Per Diluted
Share:
Income from continuing
operations (GAAP basis) $0.24 $0.27 $0.41 $0.67
Exit, disposal, certain
severance and other
charges, net of tax 0.08 0.02 0.11 0.02
Adjustments to income tax
expense ( e ) (0.02) - (0.02) -
Adjusted income from
continuing operations
(non-GAAP basis) $0.30 $0.29 $0.50 $0.69
Diluted Shares Outstanding 21,027,465 24,413,486 21,618,773 24,457,629
Free Cash Flow:
Net cash provided by
operating activities -
continuing operations
(GAAP basis) $6.8 $14.4 $10.1 $25.1
Purchases of property,
plant and equipment (3.3) (4.9) (8.0) (8.5)
Free cash flow (non -
GAAP basis) $3.5 $9.5 $2.1 $16.6
( a ) Non-cash compensation expense related to modifications to
unexercized stock options previously granted to our former CEO.
( b ) Severance and related costs associated with the reorganization and
upgrade of certain management functions and other cost reduction
initiatives.
( c ) Consists of $0.5 million of certain non-cash stock-based
compensation costs related to the hiring of our new Chief Executive
Officer and $0.2 million of relocation costs incurred for the hiring of
our new Chief Financial Officer.
( d ) Costs from 2004 relate to facility exit and other costs to
terminate an independent contractor agreement. Costs from 2003 relate to
the consolidation of our transmission remanufacturing facility in Mahwah,
New Jersey into our facility in Oklahoma City, Oklahoma.
( e ) Represents a gain of $0.4 million ($0.02 per diluted share)
recorded during the three months ended June 30, 2004 for an adjustment to
income tax expense related to the 1999 tax year.
AFTERMARKET TECHNOLOGY CORP.
Reconciliation of certain financial measures reported in accordance with
Generally Accepted Accounting Principles ("GAAP") to those presented on
the basis of methodologies other than in accordance with GAAP ("non-GAAP")
(In millions, except per share data)
Actual Projected (1)
For the For The Three For The Twelve
three Months Ended Months Ended
months September 30, December 31,
ended 2004 2004
9/30/2003 Range Range
Low High Low High
Income from operations (GAAP basis) $7.3 $12.3 $13.7 $44.0 $46.1
Exit, Disposal, Certain Severance and
Other Charges:
Non-cash stock option compensation
costs ( a ) - 1.4 1.4 3.3 3.3
Severance and related costs ( b ) 0.2 0.2 0.1 0.9 0.8
Executive replacement costs ( c ) - - - 0.7 0.7
Facilities consolidation and other
costs ( d ) 0.9 - - 0.5 0.5
Adjusted Income from operations (non-
GAAP basis) $8.4 $13.9 $15.2 $49.4 $51.4
Earnings Per Diluted Share: Low High Low High
Income from continuing operations (GAAP
basis) $0.16 $0.32 $0.37 $1.16 $1.22
Exit, disposal, certain severance and
other charges, net of income taxes 0.03 0.05 0.04 0.16 0.15
Adjustments to income tax expense (e) - - - (0.02) (0.02)
Adjusted income from continuing
operations (non-GAAP basis) $0.19 $0.37 $0.41 $1.30 $1.35
(1) Reflects management's guidance as of 7/28/04.
( a ) Non-cash compensation expense related to modifications to
unexercised stock options previously granted to (i) our former CEO of $1.9
million recorded during the three months ended June 30, 2004 and (ii)
former CFO of $1.4 million to be recorded during the three months ended
September 30, 2004.
( b ) Severance and related costs associated with the reorganization and
upgrade of certain management functions and other cost reduction
initiatives.
( c ) Consists of $0.5 million of certain non-cash stock-based
compensation costs related to the hiring of our new CEO and $0.2 million
of relocation costs incurred for the hiring of our new CFO.
( d ) Costs from 2004 relate to facility exit and other costs to
terminate an independent contractor agreement. Costs from 2003 relate to
the consolidation of our transmission remanufacturing facility in Mahwah,
New Jersey into our facility in Oklahoma City, Oklahoma.
( e ) Represents a gain of $0.4 million ($0.02 per diluted share)
recorded during the three months ended June 30, 2004 for an adjustment to
income tax expense related to the 1999 tax year.
AFTERMARKET TECHNOLOGY CORP.
Explanation of non-GAAP Financial Measures
The Company reports its financial results of operations in accordance with
generally accepted accounting principles ("GAAP"). The Company also
provides non-GAAP financial information to complement its consolidated
financial statements presented in accordance with GAAP. This press
release includes such non-GAAP financial measures. A "non-GAAP financial
measure" is defined as a numerical measure of the Company's financial
performance, financial position or cash flows that excludes (or includes)
amounts that are included in (or excluded from) the most directly
comparable measure calculated and presented in accordance with GAAP in the
Company's financial statements.
Following is a description of the various non-GAAP financial measures used
by the Company:
Adjusted Income from Operations: Represents income from operations (GAAP
basis) adjusted to exclude exit, disposal, certain severance and other
charges. Each specific item is described in the footnotes to the schedule
that reconciles the GAAP to non-GAAP financial measures.
Adjusted EBITDA: EBITDA is defined by the Company as income from
continuing operations (GAAP basis) adjusted to exclude interest income and
expense, depreciation and amortization expense, and income tax expense.
Adjusted EBITDA also excludes exit, disposal, certain severance and other
charges and other unusual items of income or expense as determined by
management. Each specific item is described in the footnotes to the
schedule that reconciles the GAAP to non-GAAP financial measures.
Adjusted Income from Continuing Operations: Represents income from
continuing operations (GAAP basis) adjusted to exclude, on an after-tax
basis, exit, disposal, certain severance and other charges and other
unusual items of income or expense as determined by management. Each
specific item is described in the footnotes to the schedule that
reconciles the GAAP to non-GAAP financial measures.
Adjusted Income from Continuing Operations Per Diluted Share: Represents
income from continuing operations per diluted share (GAAP basis) adjusted
to exclude, on an after-tax basis per diluted share, exit, disposal,
certain severance and other charges and other unusual items of income or
expense as determined by management. Each specific item is described in
the footnotes to the schedule that reconciles the GAAP to non-GAAP
financial measures.
Free Cash Flow: Represents net cash provided by operating activities
continuing operations reduced by purchases of property, plant and
equipment.
The Company believes these non-GAAP financial measures provide management
and investors with useful information by removing the effect of variances
in GAAP reported results that are not indicative of fundamental changes in
the earnings capacity of the Company's operations, and enables management
and investors to meaningfully trend, analyze and benchmark the performance
of the Company's operations. The Company also believes that the
presentation of the non-GAAP financial measure is consistent with its past
practice and enables management and investors to compare current non-GAAP
measures with non-GAAP measures presented in prior periods.
In addition, many of the Company's internal performance measures exclude
the effects of these income and expense items and are based upon the
related non-GAAP financial measure.
The Company's non-GAAP financial measures may vary from similar titled
measures of other companies because of differences in the way the measures
are calculated and therefore should not be used to compare the Company's
performance to that of other companies.
Whenever the Company presents non-GAAP financial measures, a
reconciliation to the most directly comparable financial measure
calculated and presented in accordance with GAAP is made available. The
non-GAAP financial measures used by the Company are not intended to
supercede or replace the Company's GAAP results or expectations.