Aftermarket Technology Corp.

1400 Opus Place, Suite 600
Downers Grove, Illinois 60515
U.S.A.
Telephone: (630) 271-8100
Toll Free: (888) 456-2854
Fax: (630) 663-8210
Web site: http://www.goatc.com

Public Company
Incorporated: 1994
Employees: 3,300
Sales: $441.9 million (2005)
Stock Exchanges: NASDAQ
Ticker Symbol: ATAC
NAIC: 336399 All Other Motor Vehicle Parts Manufacturing; 551112 Offices of Other Holding Companies

Aftermarket Technology Corp. (ATC) serves the automobile aftermarket and consumer electronics industries through two business segments, its drivetrain segment and its logistics segment. ATC's drivetrain business, which accounts for roughly two-thirds of its revenue, supplies remanufactured transmissions, engines, torque converters, and valve bodies primarily to the service and repair organizations of original equipment manufacturers such as Ford Motor Co., DaimlerChrysler, and Honda. The company's logistics business offers supply-chain services such as warehousing, distribution, and turnkey order fulfillment to consumer electronics and automotive customers such as Nokia, General Motors, and Cingular.

ORIGINS

ATC began as an amalgamation of separate businesses, its formation representing Gerald L. Parsky's bid to grab a share of the automotive drivetrain market. Parsky's foray into the drivetrain business in 1994 was only one of his pursuits during the mid-1990s. An English teacher at Suffield Academy in Connecticut during the 1960s, Parsky served as an official at the U.S. Department of Treasury and Federal Energy Office during the early 1970s, earning sufficient recognition to win an appointment as the Assistant Secretary of the Department of Treasury for International Affairs in 1974. At around this time, Parsky formed ties with the Bush family, forging a relationship that would lead to his appointment as the Under Secretary of the Department of Treasury during the George H. W. Bush administration and head of George W. Bush's California presidential campaign. Parsky's stint in the federal government and his patronage of the Republican Party occurred at the same time his business career blossomed. He traded his legal career for a career as an investor, teaming with William E. Simon, Secretary of the Treasury during the Nixon-Ford administration, to form WSGP International in 1987. The company focused on investing in real estate and financial service organizations by implementing leveraged buyouts. Enriched by his partnership with Simon, Parsky next formed Aurora Capital Group in 1991. Based in Los Angeles, Aurora Capital operated as an investment firm that adhered to a "buy-and-build" strategy, acquiring companies and increasing their value by collobarating with extant management. In 1994, under the control of its chairman, Parsky, Aurora Capital fixed its sights on the drivetrain market, resulting in the formation of ATC.

ATC was formed via acquisition, establishing itself as an acquirer at its birth and maintaining such a posture throughout the 1990s. Aurora Capital led a group that included the General Electric Pension Trust to form the foundation of ATC, a foundation built by consolidating four companies involved in the remanufacturing of transmissions. The group spent $18.4 million to acquire Aaron's Automotive Products, Inc., H.T.P. Inc., Mamco Converters, Inc., and RPM Merit, Inc., providing the basis of ATC, officially formed in July 1994. Combined, the founding companies generated $110 million in revenues the year before they were consolidated. After the initial investment that gave Aurora Capital an entity to penetrate the drivetrain market, a slew of acquisitions followed, positioning ATC as a consolidator in the fragmented aftermarket drivetrain market. In 1995, the company followed Aurora Capital's buy-and-build strategy, acquiring Component Remanufacturing Specialists, Inc. and Mascot Truck Parts Inc. in June before completing the purchase of King-O-Matic Industries Limited in September. The drive to expand continued into 1996, bringing Tranzparts, Inc. into the fold in April and Diverco, Inc. in October. By the end of 1996, annual revenues had increased to $272 million, at which point the company completed its initial public offering of stock, making its public debut in December.

Acquisitions gave ATC a significant national presence within a few short years of its founding. By 1997, the company operated 50 supply parts and distribution centers in the United States and Canada, facilities that served customers ranging from small, "mom-and-pop" transmission shops to the giants of the automobile industry such as Chrysler Corp., which accounted for 37 percent of the company's sales. In April 1997, the company moved from its original base in Seattle, Washington, to Westmont, Illinois, relocating its headquarters to be closer to major automobile manufacturers. From their new offices, executives marshaled ATC's operations to meet the growing demand for the company's products, growth that was fueled by used car sales outpacing new car sales by a margin of two to one. ATC addressed the fast-growing market with remanufactured transmissions that were factory approved for a dozen original equipment manufacturers (OEMs) such as Chrysler, Hyundai Motor America, Subaru of America, and American Isuzu. The company also remanufactured "hard" parts such as torque converters, the coupler between the transmission and engine; planetary gears, the speed regulating devices inside the transmission; and transmission fluid pumps. ATC's third major product category consisted of remanufactured engines designed as replacement engines for use in a variety of domestic passenger cars and light trucks.

REPOSITIONING ITSELF: 1998

ATC pressed ahead with its acquisition spree until the end of the 1990s. Between 1995 and 1999, the company completed ten acquisitions, but before its first wave of expansion was completed, signs of trouble emerged. Acquisitions helped lift revenues to $486 million by the end of 1998, nearly doubling the company's sales volume within two years. Acquisitions also forced ATC to reposition itself, ushering in a second stage of development in its history. The company was experiencing difficulties in digesting the new additions to its operations, a consequence of rapid expansion that led to dwindling profits. In 1998, earnings fell to 52 cents per share, less than half the previous year's total, a decline punctuated by a dismal final quarter that resulted in a loss of 22 cents per share. To stop the financial slide, new management was brought in, led by Michael DuBose, the former chief executive officer of Grimes Aerospace, who had earned praise for his ability to spearhead turnarounds.

COMPANY PERSPECTIVES

We believe our service offerings are differentiated from those of our competitors by the degree of customization we provide coupled with our focus on quality and consistency of our performance. We have developed business processes, technical capabilities and information technology systems that allow us to design flexible and scalable solutions that help our customers reduce their costs, improve their supply chain efficiency, increase end-user satisfaction and enhance their profitability.

DuBose, who was appointed chairman, chief executive officer, and president in December 1998, led a sweeping restructuring program that included emphasizing customer service, increasing efficiency, and improving the morale of ATC's workforce. He also divested assets, notably shedding the company of its distribution group, a business that sold other companies' parts to vendors, in October 2000. "I believe," DuBose said in a September 2002 interview with Industry Week, "any turnaround plan for a company has to have a three-step sequence: reconnect with customer expectations, evolve the right manufacturing strategy, and look at process solutions." His efforts produced welcomed results, increasing ATC's gross profit from $76.1 million in 1997 to $137.8 million in 2001, yielding a leaner, more efficient company.

With the company financially on the mend, Du-Bose was able to adopt a more aggressive attitude toward growth. The efforts to improve profitability produced a smaller company, one that generated $381 million in revenue in 2001, down substantially from the $486 million collected three years earlier. One way DuBose sought to increase revenues was by focusing on building ATC's relationship with independent repair shops. Historically, the company had relied on the dealer shops that were part of the major automobile manufacturers' network. By 2002, ATC supplied nearly three out of every four rebuilt transmissions sold by dealers for mainstay brands such as Ford and Chevrolet. The market for dealers' repair shops represented an estimated $400 million worth of business a year for transmission remanufacturers, a market that had served ATC well, but DuBose wanted to extend the company's reach and tap into the 18,000 independent repair shops scattered throughout the country, who represented close to a $1 billion-a-year business. "We always knew this was a great opportunity, but we've been loyal to the major automakers in the past," DuBose said in a June 3, 2002 interview with Crain's Chicago Business. "We think the time is right to go after this bigger market." To begin increasing its business with independent shops, ATC struck a deal in 2002 with Philadelphia-based Aamco Transmissions Inc., which began stocking ATC's products at its 750 locations.

NEW MANAGEMENT IN 2004

As ATC neared the end of its first decade in business, dynamics in the aftermarket industry conspired against the company, causing another bout of financial worries and leading to the installation of new management. One of the prevailing corporate trends of the 1990s was the outsourcing of certain tasks to third-party organizations in an effort to streamline operations. Instead of attempting to do everything, many companies contracted with other firms to perform functions they previously had taken care of in-house, fueling the rise of a host of businesses that performed functions deemed ancillary by major corporations. For the automotive aftermarket industry, the trend towards outsourcing by major automobile manufacturers ended in the early 21st century when Ford decided to manufacture certain replacement parts in-house, the same parts manufactured by companies such as ATC. Other manufacturers followed Ford's lead, notably DaimlerChrysler and General Motors, major ATC customers along with Ford. The reversal of the outsourcing trend delivered a blow to ATC's financial performance, contributing to a 12 percent decline in revenues in 2003 and to a more painful decline in profits, which plunged 56 percent during the year. ATC needed to respond to the changes in the way its principal market operated, and the company looked for a solution by hiring a nemesis, one of the architects of automakers' plans to manufacture their own replacement parts.

In early 2004, DuBose moved aside to make room for a new president and chief executive officer, taking the title of non-executive chairman so he could pass the duties of president and chief executive officer to Donald T. Johnson, Jr. Johnson spent 26 years working for heavy equipment maker Caterpillar, Inc., rising to the post of vice-president of Caterpillar Logistics Services during his lengthy stay, but it was his time at Ford that was most pertinent to ATC. Johnson joined Ford in 1992 and became global director of parts and supply seven years later, a position that put him in charge of 80 Ford facilities, an annual budget of $6 billion, and of implementing the automaker's plan to manufacture its own drivetrain replacement parts. "Last year was a traumatic time at this firm," Johnson said, referring to ATC in an April 12, 2004 interview with Crain's Chicago Business, "and I realize I was the one who inflicted some the pain while I was at Ford."

KEY DATES

1994:: Aurora Capital Group acquires four transmission repair companies and forms Aftermarket Technology Corp.
1996:: Aftermarket Technology completes its initial public offering of stock.
1998:: Michael DuBose is appointed chairman, chief executive officer, and president of the company.
2004:: A former Ford Motor Co. executive, Donald T. Johnson, is named chief executive officer and president of Aftermarket Technology.
2005:: Aurora Capital Group sells its stake in After-market Technology.

Johnson's task was to cure the ills caused by his actions at Ford. The initiatives he set into place gave ATC the agenda it would pursue as it embarked on its second decade of business. In an effort to recoup the business lost from major automakers, Johnson presided over efforts to offer automakers a new breed of service by breaking down transmission housings into smaller components, which gave mechanics greater flexibility in fixing a vehicle. Johnson also looked to increase ATC's international business, which consisted of a small operation in England that remanufactured diesel engine components. "We're getting just 10 percent of our sales overseas now," Johnson said in his April 12, 2004 interview with Crain's Chicago Business. "That's way low. I know the manufacturers all over Europe and we're going to crack that market in a more significant way." Additionally, Johnson wanted to increase the contributions from ATC's logistics business, which provided shipping and inventory-management services and accounted for roughly 25 percent of ATC's sales volume. As ATC pressed ahead with the implementation of Johnson's directives, Aurora Capital decided to cash in on its initial investment in the company, selling its holdings in a stock offering in March 2005. In the wake of Aurora Capital's departure, ATC prepared for the future, intending to expand its operations and maintain its leading position in the aftermarket drivetrain business.

Jeffrey L. Covell

PRINCIPAL SUBSIDIARIES

ATC Logistics & Electronics, Inc.; PROFormance Powertrain Products, Inc.; Aaron's Automotive Products, Inc.; Autocraft Industries UK.

PRINCIPAL OPERATING UNITS

Drivetrain; Logistics.

PRINCIPAL COMPETITORS

Universal Manufacturing Co.; Remy International, Inc.; Dana Corporation.

Aftermarket Technology Corp

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