<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                               ------------------
                                    FORM 10-K
(Mark One)
  |X|          ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                     For the fiscal year ended December 31, 1998

                                     OR
  |_|         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                       SECURITIES EXCHANGE ACT OF 1934
                        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
        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: 
                          COMMON STOCK, $.01 PAR VALUE

                  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 |_|

                  Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. |_|

                  The aggregate market value of the voting stock held by
non-affiliates of the Registrant (based on the closing price of such stock, as
reported by The Nasdaq National Market, on February 4, 1999) was $71.6 million.

                  The number of shares outstanding of the Registrant's Common
Stock, as of February 4, 1999, was 20,245,768 shares.

                     DOCUMENTS INCORPORATED BY REFERENCE

              None.

<PAGE>

                          AFTERMARKET TECHNOLOGY CORP.

                           ANNUAL REPORT ON FORM 10-K
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
                                                                              PAGE
<S>                                                                           <C>
ITEM 1.  BUSINESS.............................................................. 1

ITEM 2.  PROPERTIES............................................................13

ITEM 3.  LEGAL PROCEEDINGS.....................................................13

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................14

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED 
         STOCKHOLDER MATTERS...................................................14

ITEM 6.  SELECTED FINANCIAL DATA...............................................15

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS ..................................17

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...........................30

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
         ON ACCOUNTING AND FINANCIAL DISCLOSURE................................54

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT....................54

ITEM 11. EXECUTIVE COMPENSATION................................................56

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
         AND MANAGEMENT........................................................62

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................64

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K......66
</TABLE>

                                         i
<PAGE>



                        FORWARD LOOKING STATEMENT NOTICE

         Certain statements contained in this Annual Report that are not related
to historical results are forward-looking statements. 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, those discussed under Item 1. "Business--Certain Factors Affecting
the Company" and Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Further, certain forward-looking
statements are based upon assumptions as to future events that may not prove to
be accurate.

                                     PART I

ITEM 1. BUSINESS

BACKGROUND

         Aftermarket Technology Corp. ("ATC") was incorporated under the laws 
of Delaware in July 1994 at the direction of Aurora Capital Partners L.P. to 
acquire Aaron's Automotive Products, Inc. ("Aaron's"), H.T.P., Inc. ("HTP"), 
Mamco Converters, Inc. ("Mamco") and RPM Merit, Inc. ("RPM") (collectively, 
the "Initial Acquisitions"). Aaron's, HTP, Mamco and RPM as they existed 
prior to the Initial Acquisitions are hereinafter collectively referred to as 
the "Predecessor Companies." Subsequent to the Initial Acquisitions, the 
Company acquired Component Remanufacturing Specialists, Inc. ("CRS") and 
Mascot Truck Parts Inc. ("Mascot") in June 1995, and King-O-Matic Industries 
Limited ("King-O-Matic") in September 1995 (collectively, the "1995 
Acquisitions"), Tranzparts, Inc. ("Tranzparts") in April 1996 and Diverco, 
Inc. ("Diverco") in October 1996 (collectively, the "1996 Acquisitions"), 
Replacement and Exchange Parts Co., Inc. ("REPCO") in January 1997, ATS 
Remanufacturing ("ATS") in July 1997, Trans Mart, Inc. ("Trans Mart") in 
August 1997 and the Metran companies (Metran Automatic Transmission Parts 
Corp., Metran Boston, Inc. and Metran Parts of Pennsylvania, Inc.) ("Metran") 
in November 1997 (collectively, the "1997 Acquisitions"), and the OEM 
Division ("Autocraft") of The Fred Jones Companies, Inc. (formerly known as 
Autocraft Industries, Inc.) in March 1998 (the "Autocraft Acquisition" and, 
together with the Initial Acquisitions, the 1995 Acquisitions, the 1996 
Acquisitions and the 1997 Acquisitions, the "Acquisitions"). At the end of 
1997, Diverco, HTP, Mamco, Metran, REPCO, Trans Mart and Tranzparts were 
merged together to form ATC Distribution Group, Inc. RPM was merged into ATC 
Distribution Group, Inc. at the end of 1998. In February 1999, ATC sold 
Mascot. ATC conducts all of its operations through its wholly-owned 
subsidiaries and each of their respective subsidiaries. Throughout this 
Annual Report, except where the context otherwise requires, the "Company" 
refers collectively to ATC and its subsidiaries and the Predecessor Companies.

         On December 20, 1996, ATC consummated an initial public offering of 
its Common Stock (the "IPO"). Simultaneous with the consummation of the IPO, 
Aftermarket Technology Holdings Corp. ("Holdings"), the sole stockholder of 
ATC prior to the IPO, was merged into ATC (the "Reorganization"). Upon the 
effectiveness of the Reorganization, each outstanding share of Holdings 
Common Stock was converted into one share of ATC Common Stock, and each 
outstanding share of Holdings Redeemable Exchangeable Cumulative Preferred 
Stock was converted into one share of ATC Redeemable Exchangeable Cumulative 
Preferred Stock, which was immediately thereafter redeemed for an amount in 
cash equal to $100.00 plus an amount in cash equal to accrued and unpaid 
dividends on the Holdings Preferred Stock to the date of the Reorganization.

GENERAL

         The Company is a leading remanufacturer and distributor of drive 
train products used in the repair of vehicles in the automotive aftermarket. 
The Company's principal products include remanufactured transmissions, torque 
converters, engines, electronic control modules, instrument and display 
clusters, cellular phones and radios, as well as remanufactured and new parts 
for the repair of automotive drive train assemblies. The Company also 
provides logistics services and material recovery services. The Company has 
two reportable segments: the Original Equipment Manufacturer ("OEM") segment 
and the Independent Aftermarket segment.

                                       1

<PAGE>

         The first of these segments consists of four operating units (Aaron's,
Autocraft Industries, Autocraft UK and CRS/ATS) that principally sell factory
approved remanufactured transmissions directly to OEMs for use as replacement
parts by their domestic dealers during the warranty and post-warranty periods
following the sale of a vehicle. The principal customers for these transmissions
are DaimlerChrysler Corporation, Ford Motor Company, General Motors Corporation
and certain foreign OEMs. In addition, the OEM segment sells select
remanufactured engines to DaimlerChrysler and certain European OEMs and a broad
range of remanufactured foreign and domestic engines to general repair shops and
retail automotive parts stores.

         The Company's Independent Aftermarket segment (the ATC Distribution
Group) primarily sells transmission repair kits, soft parts, remanufactured
torque converters and both new and remanufactured hard parts used in drive train
repairs to independent transmission rebuilders for repairs generally during the
period following the expiration of the vehicle warranty. To a lesser extent, the
Distribution Group also sells its products to general repair shops, wholesale
distributors and retail automotive parts stores.

         In addition to the OEM and Independent Aftermarket segments, the
Company has three "other" operating units, all of which were acquired in the
Autocraft Acquisition: an electronic parts remanufacturing and distribution
business; warehouse and distribution services for AT&T Wireless (the cellular
telephone subsidiary of AT&T); and a material recovery processing business for
Ford. None of these operating units has ever met the quantitative thresholds for
determining reportable segments.

         Since the Initial Acquisitions, the Company has grown both internally
and through ten additional acquisitions at a compound annual revenue growth rate
of approximately 32.5%. The Company believes the key elements of its success are
the quality and breadth of its product offerings and its strong technical
support, rapid delivery time, innovative product development and competitive
pricing. In addition, the Company has benefited from the increasing use of
remanufactured products as the industry recognizes that remanufacturing provides
a higher quality, lower cost alternative to rebuilding the assembly or replacing
it with a new assembly manufactured by an OEM.

         The Company's strategy is to continue to grow both internally and
through strategic acquisitions. The Company intends to expand its business by:
(i) increasing penetration of its current customer base; (ii) gaining new OEM
and Independent Aftermarket customers; and (iii) introducing new products to
both existing and new customers. The Company plans to continue to support these
growth strategies through strategic acquisitions in the future. In addition, the
Company believes that its core competency of remanufacturing, which has been
applied to the drive train products segment of the automotive aftermarket, has
the potential to be utilized in other aftermarket segments.

         See "Certain Factors Affecting the Company."

REMANUFACTURING

         Remanufacturing is a process through which used assemblies are returned
to a central facility where they are disassembled and their component parts
cleaned, refurbished and tested. The usable component parts are then combined
with new parts in a high volume, precision assembly line manufacturing process
to create remanufactured assemblies.

         When an assembly such as a transmission or engine fails, there are
generally three alternatives available to return the vehicle to operating
condition. The dealer or independent repair shop may: (i) remove the assembly,
disassemble it into its component pieces, replace worn or broken parts with
remanufactured or new components, and reinstall the assembly in the vehicle
("rebuild"); (ii) replace the assembly with an assembly from a remanufacturer
such as the Company; or (iii) in rare instances, replace the assembly with a new
assembly manufactured by the OEM.

         In its remanufacturing operations, the Company obtains used
transmissions, hard parts, engines and related components, commonly known as
"cores," which are sorted by vehicle make and model and either placed into
immediate production or stored until needed. In the remanufacturing process, the
cores are evaluated and disassembled into their component parts and the
components that can be incorporated into the remanufactured product are cleaned,
refurbished and tested. All components determined not reusable or repairable are
replaced by other remanufactured or 

                                       2

<PAGE>

new components. Inspection and testing are conducted at various stages of the 
remanufacturing process, and each finished assembly is tested on equipment 
designed to simulate performance under operating conditions. After testing, 
completed products are then packaged for immediate delivery or shipped to one 
of the Company's distribution centers.

         The cores used in the Company's remanufacturing process for sale to its
OEM customers are provided primarily by the OEMs. In the case of OEMs other than
DaimlerChrysler, the dealers return cores to the OEM, which then ships them to
the Company. Chrysler cores are sent to the Company through its central core
return center. See "OEM Customers."

         The majority of the cores used in the Company's remanufacturing process
for sale to its non-OEM customers are obtained from customers as trade-ins. The
Company encourages these customers to return cores on a timely basis and charges
customers a supplemental core charge in connection with purchases of engines and
critical hard parts. The customer can satisfy this charge by returning a usable
core or making a cash payment equal to the amount of the supplemental core
charge. If cores are not returned in a timely manner, the Company then must
procure cores through its network of independent core brokers. While core prices
are subject to supply and demand price volatility, the Company believes its
procurement network for cores will provide cores as needed at reasonable prices.

         There are three primary benefits of using remanufactured components
rather than rebuilt or new components in repair of vehicles: 

 -   First, costs to the OEM associated with remanufactured assemblies generally
     are 50% less than new or dealer-rebuilt assemblies due to the
     remanufacturer's use of high volume manufacturing techniques and salvage
     methods that enable the remanufacturer to refurbish and reuse a high
     percentage of original components.

 -   Second, remanufactured assemblies are generally of consistent high quality
     due to of the precision manufacturing techniques, technical upgrades and
     rigorous inspection and testing procedures employed in remanufacturing. The
     quality of a rebuilt assembly is heavily dependent on the skill level of
     the particular mechanic. In addition, the proliferation of transmission and
     engine designs, the increasing complexity of transmissions and engines that
     incorporate electronic components and the shortage of highly trained
     mechanics qualified to rebuild assemblies are leading to what management
     believes is a trend toward the use of remanufactured assemblies for
     aftermarket repairs. For warranty repairs, consistent quality is important
     to the OEM providing the applicable warranty, because once installed, the
     remanufactured product is usually covered by the OEM's warranty for the
     balance of the original warranty period.

 -   Third, replacement of a component with a remanufactured component generally
     takes considerably less time than the time needed to rebuild the component,
     thereby significantly reducing the time the vehicle is at the dealer or
     repair shop and allows the dealer and repair shops to increase their volume
     of business.

         The Company believes that because of this combination of high quality,
low cost and efficiency, the use of remanufactured assemblies for aftermarket
repairs is growing compared to the use of new or rebuilt assemblies. Although
the primary customers for the Company's remanufactured components have
historically been OEMs, the Company expects the Independent Aftermarket to
increase its use of remanufactured components in the future.

ORIGINAL EQUIPMENT MANUFACTURER SEGMENT

         The Company's OEM segment consists of four operating units that
remanufacture and sell transmissions directly to automobile manufacturers. In
addition, the OEM segment sells select remanufactured engines to DaimlerChrysler
and certain European OEMs and a broad range of remanufactured foreign and
domestic engines to general repair shops and retail automotive parts stores.

                                       3

<PAGE>

         REMANUFACTURED TRANSMISSIONS

         The Company remanufactures factory approved transmissions for warranty
and post-warranty replacement of transmissions for DaimlerChrysler, Ford,
General Motors and several foreign OEMs, including Hyundai Motor America,
Mitsubishi and American Isuzu, for their United States dealer networks. The
number of transmission models remanufactured by the Company has been increasing
to accommodate the greater number of models currently used in vehicles
manufactured by the Company's OEM customers.

         REMANUFACTURED ENGINES

         The Company remanufactures select factory approved engine models for
Chrysler vehicles and through the Autocraft Acquisition also operates a facility
in England that remanufactures factory approved engines for several European
OEMs, including Jaguar and the European divisions of Ford and General Motors.
These engines are used for warranty and post-warranty replacement. The facility
in England also does assembly and modification of new production engines for
certain of its OEM customers.

         The Company also remanufactures engines for use as post-warranty
replacements in many domestic and foreign passenger cars and light trucks. In
addition, the Company sources remanufactured engines for other foreign passenger
cars and light trucks from independent suppliers. The Company distributes these
engines through a growing network of 22 local distribution centers located
throughout the eastern half of the United States. Principal customers include
Advanced Auto Parts (a large retail automotive parts store chain) as well as
general repair garages and wholesale distributors. Over the past five years, the
variety of engine models offered by the Company has increased from 250 to more
than 1,000 as the Company has expanded the range of engines offered to meet
customer requirements.

         OEM CUSTOMERS

         The Company's largest OEM segment customer is DaimlerChrysler, to whom
the Company supplies remanufactured transmissions and certain remanufactured
engines for use in Chrysler automobiles and light trucks. As a result of the
Autocraft Acquisition, the Company also provides remanufactured components to
several other OEMs including transmissions to Ford and engines to Jaguar, Land
Rover, Aston Martin and the European divisions of Ford and General Motors. The
Company added General Motors as a transmission customer in July 1997 with the
purchase of ATS and expanded its General Motors business with the Autocraft
Acquisition. Products are sold to each OEM pursuant to supply arrangements for
individual transmission or engine models, which supply arrangements typically
may be terminated by the OEM at any time.

         OEM segment sales accounted for 58.5%, 53.0% and 52.0% of the Company's
1996, 1997 and 1998 revenues, respectively. Sales to DaimlerChrysler accounted
for 37.2%, 32.0% and 18.2% of the Company's revenues in 1996, 1997 and 1998,
respectively, and sales to Ford accounted for 17.1% of the Company's revenues in
1998. On a pro forma basis as if the Autocraft Acquisition had occurred on
January 1, 1998, OEM segment sales would have accounted for approximately 53.0%
of pro forma 1998 revenues with sales to DaimlerChrysler and Ford accounting for
approximately 17.2% and 16.2%, respectively, of the total pro forma revenues.

         Over the past 15 years, the Company has developed and maintained strong
relationships at many levels of both the corporate and the factory organizations
of Chrysler (which was merged with Daimler Benz in 1998 to form
DaimlerChrysler). In recognition of the Company's consistently high level of
service and product quality throughout its relationship with DaimlerChrysler, in
each of the last four years the Company was awarded the Platinum Pentastar
award, the highest award DaimlerChrysler bestows on a Chrysler supplier. The
Company is one of only six of Chrysler's approximately 3,500 suppliers to
receive the Platinum Pentastar every year since the creation of the award.

         The Company's facilities that remanufacture transmissions for
DaimlerChrysler, Ford and General Motors, as well as certain of its other OEM
segment facilities, have QS-9000 certification, a complete quality management
system developed for DaimlerChrysler, Ford, General Motors and truck
manufacturers who subscribe to the ISO 9002 quality standards. The system is
designed to help suppliers, such as the Company, develop a quality system that
emphasizes 

                                       4

<PAGE>

defect prevention and continuous improvement in manufacturing processes. 
Certain of the Autocraft facilities have also received Ford's Q1 quality 
certification.

         DaimlerChrysler began implementing remanufacturing programs for its
Chrysler transmission models in 1986 and selected the Company as its sole
supplier of remanufactured transmissions in 1989. DaimlerChrysler has advised
the Company that, by implementing a remanufacturing program for Chrysler
vehicles, DaimlerChrysler has realized substantial warranty cost savings,
standardized the quality of its dealers' aftermarket repairs and reduced its own
inventory of replacement parts. Currently, the Company provides all
remanufactured front wheel drive transmissions purchased by DaimlerChrysler for
use in Chrysler vehicles. In late 1998, the Company commenced production of
remanufactured Chrysler rear wheel drive transmissions. The Company presently
does not provide remanufactured transmissions or other components to
DaimlerChrysler's Mercedes Benz division.

         Autocraft began remanufacturing transmissions for Ford in 1989 and for
General Motors in 1985. The Company believes that as a result of the acquisition
of Autocraft, the Company provides approximately 85% of the remanufactured
transmissions purchased by Ford and approximately 50% of the remanufactured
transmissions purchased by General Motors.

INDEPENDENT AFTERMARKET SEGMENT

         The Company's Independent Aftermarket segment primarily sells
transmission repair kits, soft parts, remanufactured torque converters and new
and remanufactured hard parts used in drive train repairs to independent
transmission rebuilders throughout the United States and Canada. To a lesser
extent, these products are also sold to general repair shops, wholesale
distributors and retail automotive parts stores.

         The market for parts sales and services for vehicles after their
original purchase has been non-cyclical and has generally experienced steady
growth over the past several years, unlike the market for new vehicle sales.
According to the Automotive Parts & Accessories Association, between 1988 and
1997 (the most recent period for which data is available), estimated
industry-wide revenue for the automobile aftermarket increased from
approximately $99.2 billion to $151.2 billion. This consistent growth is due
principally to the increase in the number of vehicles in operation, the increase
in the average age of vehicles, and the increase in the average number of miles
driven annually per vehicle. The Company competes primarily in the aftermarket
segment for automotive transmissions, engines and other drive train related
products, which represents more than $7 billion of the entire automotive
aftermarket.

         PRODUCTS

         Repair kits sold by the Company consist of gaskets, friction plates,
seals, bands, filters, clutch components and other "soft" parts that are used in
rebuilding transmissions for substantially all domestic and most imported
passenger cars and light trucks. Each kit is designed to include substantially
all of the soft parts necessary for rebuilding a particular transmission model.
Due to its high volume of kit sales, the Company maintains a variety of
strategic supply relationships that enable the Company to purchase components
for its kits at prices that the Company believes are more favorable than those
available to its lower volume competitors. The Company also believes that its
remanufacturing capability provides a cost advantage over some of its
competitors who purchase all their parts from suppliers.

         The Company remanufactures torque converters (the coupler between the
transmission and engine) and certain "hard" parts such as planetary gears (speed
regulating devices inside the transmission) and transmission fluid pumps. Many
of the Company's competitors do not distribute as broad a line of hard parts or
remanufacture the hard parts that they distribute. The Company believes these
factors provide it both an availability and cost advantage over many of its
competitors.

         The Company's Independent Aftermarket customers typically require
repair kits, torque converters and hard parts in order to complete a vehicle
repair. For this reason, the Company believes that the breadth of its product
line, which enables a customer to obtain all the parts for a repair job from a
single source, gives the Company a competitive advantage. The Company is one of
the few full line transmission parts suppliers in the industry, with access to
over 20,000 individual part numbers.

                                       5

<PAGE>

         INDEPENDENT AFTERMARKET CUSTOMERS

         The Company, through its ATC Distribution Group, supplies transmission
repair kits, soft parts, torque converters and hard parts used in drive train
repairs to independent transmission rebuilders throughout the United States and
Canada. To a lesser extent, the Company also sells to general repair shops and
wholesale distributors. These products are used in the Independent Aftermarket
to rebuild transmissions and other assemblies using remanufactured and new
component parts purchased from a variety of suppliers. In addition, the Company
supplies transmission filter kits to less than 2,000 of the approximately 40,000
retail automotive parts stores located in the United States and Canada, which
principally sell to "do-it-yourself" customers and general repair shops.

         As the number of vehicle models has proliferated and repairs have
become increasingly complex, independent transmission rebuilders and general
repair shops have grown more dependent on their suppliers for technical support
and assistance in managing inventory by delivering product on a just-in-time
basis at competitive prices. To address these needs, the Company maintains more
than 50 distribution centers located in metropolitan areas throughout the United
States and Canada from which the Company provides technical support and a wide
range of drive train related products that are delivered on a same day basis by
trucks or delivery service to customers in and around metropolitan areas and on
a next day basis by overnight carrier to customers in more remote areas. The
Company believes that its distribution system is the most extensive in the drive
train segment of the automotive aftermarket and represents a competitive
advantage for the Company relative to its typically smaller, local competitors.
The Company believes there are opportunities for further geographic penetration
in this relatively fragmented market. See "Business Strategy."

         The Company conducts telemarketing that, when coupled with the
Company's next day delivery strategy to more remote areas, enables the Company
to establish customer relationships in areas that cannot support the costs
associated with setting up and maintaining a distribution center. Additionally,
new customers are developed by the Company's direct sales force operating from
its distribution centers, by advertising in national and local trade
publications, and by participating in various trade shows. The Company believes
its DIVERCO, HTP, KING-O-MATIC, MAMCO, METRAN, REPCO, RPM, TRANS MART and
TRANZPARTS trademarks are well recognized and respected in their regional
markets.

         The Company believes it is well positioned within the highly fragmented
aftermarket for drive train products as a result of its extensive product line,
diverse customer base and broad geographic presence, with over 50 local
distribution centers throughout the United States and Canada. The Independent
Aftermarket segment accounted for 39.2%, 44.8% and 38.4% of the Company's
revenues in 1996, 1997 and 1998, respectively.

OTHER OPERATING UNITS

         The Company's other operating units, acquired as part of the Autocraft
Acquisition, were determined not to be reportable segments. They consist of an
electronic parts remanufacturing and distribution business, warehouse and
distribution services and a material recovery processing business.

         Prior to the Autocraft Acquisition, the Company's "other" operating
units consisted solely of Mascot, which remanufactured heavy duty and medium
truck transmissions, differentials and air compressors primarily for sales to
truck dealers in Canada. However, during 1998 the Company decided to concentrate
on the remanufacturing of automobile and light truck drive train components
rather than on heavy duty truck components. For that reason, in February 1999
the Company sold all of Mascot's assets to a third party buyer.

         ELECTRONIC COMPONENTS

         The electronic components operating unit remanufactures automotive
electronic control modules (which manage various engine functions) for General
Motors, remanufactures and distributes radios and instrument and display
clusters for General Motors and Ford, and remanufactures and distributes
cellular telephones and other cellular products (E.G., navigation systems) for
Ford, General Motors, Audi, Jaguar and Volkswagen.

                                       6

<PAGE>

         LOGISTICS SERVICES

         The logistics services operating unit provides centralized warehouse
and distribution services for AT&T Wireless, the cellular telephone subsidiary
of AT&T. As part of this service, the Company handles all warranty-service
exchanges and inventory tracking for AT&T Wireless.

         MATERIAL RECOVERY

         As part of its relationship with Ford, the Company also provides
material recovery services to assist Ford with the management of its dealer
parts inventory. Under this program, Ford dealers send their excess parts
inventory to Autocraft. The parts are then sorted and disposed of in one of
three ways: useful parts that are needed by other dealers are redistributed;
useful parts that are not needed by other dealers are sold to remanufacturers,
wholesale distributors and other third parties through an innovative on-line
Internet auction process; and useless parts are scrapped. As a result of the
introduction of the materials recovery program, the number of parts that are
scrapped has been significantly reduced to less than 2%.

BUSINESS STRATEGY

         The Company's strategy is to achieve growth both internally and through
strategic acquisitions. The Company intends to expand its business by: (i)
increasing penetration of its current customer base; (ii) gaining new OEM and
Independent Aftermarket customers; and (iii) introducing new products to both
existing and new customers. Strategic acquisitions have been an important
element in the Company's historical growth, and the Company plans to continue to
support its growth strategy through strategic acquisitions in the future. In
addition, the Company believes that its core competency of remanufacturing,
which has been applied to the drive train products segment of the automotive
aftermarket, has the potential to be utilized in other aftermarket segments.

         INCREASING SALES TO EXISTING CUSTOMERS

         OEM CUSTOMERS. The Company intends to increase its business with its
existing OEM customers by working with OEMs to increase dealer utilization of
remanufactured transmissions in both the warranty and post-warranty periods. The
Company is working in tandem with OEMs to highlight to dealers the quality and
cost advantages of using remanufactured assemblies versus rebuilding. In
addition, the post-warranty repair market, which the Company believes is
significantly larger than the OEM dealer warranty repair market, presents a
growth opportunity. Currently, the vast majority of post-warranty repairs are
performed in the Independent Aftermarket rather than at OEM dealers. Given the
relatively low cost and high quality of remanufactured components, OEM dealers
can enhance their cost competitiveness compared to independent service centers
through the increased use of remanufactured components as well as providing end
customers with a high quality product. To the extent that OEM dealers increase
their level of post-warranty repairs, the Company is well positioned to
capitalize on this market growth. The Company has introduced a number of new
transmission models and related drive train products in the last several years
for its OEM customers. In March 1998, the Company expanded its business with
General Motors by purchasing Autocraft, one of General Motors' other three
remanufactured transmission suppliers.

         INDEPENDENT AFTERMARKET CUSTOMERS. The Company believes that it
currently supplies approximately 15% of the remanufactured or new drive train
component requirements of its independent transmission rebuilder and general
repair shop customers. The Company believes it will be well positioned to expand
sales to these customers through common product identification and numbering in
conjunction with a computer network that will electronically link its
distribution centers. This will enable the Company to offer its full line of
products throughout the entire Distribution Group.

         INTRODUCING NEW PRODUCTS

         OEM CUSTOMERS. The Company believes that OEMs recognize that the use of
remanufactured assemblies provide a high quality, lower cost alternative to
rebuilding damaged assemblies or replacing them with new assemblies. For this
reason, the Company believes that OEMs are interested in working with large,
high quality remanufacturers to 

                                       7

<PAGE>

reduce the OEMs warranty costs and increase their parts sales into the 
post-warranty aftermarket. The Company continues to work with its OEM 
customers to identify additional remanufactured products and services where 
the Company can provide value to the OEM. In this way, the Company believes 
that it will be able to leverage its customer relationships and 
remanufacturing competency. For example, in 1998 the Company began 
remanufacturing rear wheel drive transmissions for Chrysler.

         INDEPENDENT AFTERMARKET CUSTOMERS. The Company believes that its
reputation for high quality products and customer service enables it to leverage
its relationships with existing customers to sell additional products. The
Company monitors sales trends and is in frequent communication with customers
regarding potential new products. The Company is beginning to remanufacture
complete transmissions for sale to its independent transmission rebuilder
customers. In addition, the Company has begun offering new hard parts such as
planetary gears, sun gears and oversized pump gears. In introducing new
products, the Company focuses on components that are difficult to find and
typically require a high rate of replacement.

         OTHER. The Company also intends to leverage the capability of its
electronics remanufacturing and distribution business by introducing
remanufactured electronic components to some of its other OEM customers.

         ESTABLISHING NEW CUSTOMER RELATIONSHIPS

         OEM CUSTOMERS. The Company believes that opportunities for growth exist
with several foreign OEMs regarding their United States based remanufacturing
programs. The Company believes that this represents an opportunity for growth
and is currently working to develop programs with certain of these OEMs. Through
the March 1998 Autocraft Acquisition the Company expanded its OEM customer base
to include Ford and certain European OEMs.

         INDEPENDENT AFTERMARKET CUSTOMERS. The Company believes that its
product mix and distribution network position it to expand its Independent
Aftermarket customer base in three ways. First, although the Company's
distribution network is currently the most extensive in the drive train segment
of the automotive aftermarket, there are select opportunities for the Company to
expand to additional geographic markets. Second, through its telemarketing
capability, the Company expects to reach new Independent Aftermarket customers
in non-metropolitan areas. Third, the Company expects to attract additional
Independent Aftermarket customers with its extensive product offering and
technical support capability.

         OTHER. The Company believes that its logistics services should be
attractive to new customers who recognize that outsourcing this function will
enable them to both focus on their core competencies and have an efficient
product distribution system. The Company also believes that the cost savings and
environmental benefits provided by its material recovery business will be
attractive to other OEMs.

         ADDITIONAL REMANUFACTURING OPPORTUNITIES

         The Company has begun to look beyond the automotive aftermarket to
identify other aftermarket segments that utilize the Company's core competency
of remanufacturing. The Company believes that other markets may have similar
characteristics to those experienced by the Company in the automotive
aftermarket. If remanufacturing opportunities are identified in these other
markets, the Company will review them and may pursue those that are expected to
be consistent with its capabilities and investment objectives.

     The foregoing discussion of the Company's business strategy contains
forward looking statements. See "Forward Looking Statement Notice."

COMPETITION

         The Company competes in the highly fragmented automobile aftermarket
for transmissions, engines and other drive train components, in which the
majority of industry supply comes from small local or regional participants.
Competition is based primarily on product quality, service, delivery, technical
support and price. Many of the 

                                       8

<PAGE>

Company's competitors operate only in certain geographic regions with a 
limited product line. The Company is the largest participant in the 
aftermarket for remanufactured drive train components, offers a more complete 
line of products across a diverse customer base and has a much broader 
geographic presence than many of its competitors. As a result, the Company 
believes that it is well positioned to enhance its competitive position by 
expanding its product line through the development of new products or 
acquisition of new businesses as well as by expanding its distribution 
network into new geographic markets. Nevertheless, the aftermarket for 
remanufactured drive train components remains highly competitive, and certain 
of the Company's competitors are larger than the Company and have greater 
financial and other resources available to them than does the Company.

EMPLOYEES

         As of December 31, 1998, the Company had approximately 4,800 full-time
employees. The Company believes its employee and labor relations are good. The
Company has never experienced any work stoppage and none of its employees are
members of any labor union.

ENVIRONMENTAL

         The Company is subject to various evolving Federal, state, local and
foreign environmental laws and regulations governing, among other things,
emissions to air, discharge to waters and the generation, handling, storage,
transportation, treatment and disposal of a variety of hazardous and non-
hazardous substances and wastes. These laws and regulations provide for
substantial fines and criminal sanctions for violations and impose liability for
the costs of cleaning up, and certain damages resulting from, past spills,
disposals or other releases of hazardous substances.

         In connection with the Acquisitions, the Company conducted certain
investigations of the acquired companies' facilities and their compliance with
applicable environmental laws. The investigations, which included "Phase I"
assessments by independent consultants of all manufacturing and certain
distribution facilities, found that certain facilities have had or may have had
releases of hazardous materials that may require remediation and also may be
subject to potential liabilities for contamination from off-site disposal of
substances or wastes. These assessments also found that certain reporting and
other regulatory requirements, including certain waste management procedures,
were not or may not have been satisfied. Although there can be no assurance, the
Company believes that, based in part on the investigations conducted, in part on
certain remediation completed prior to the acquisitions, and in part on the
indemnification provisions of the agreements entered into in connection with the
Company's acquisitions, the Company will not incur any material liabilities
relating to these matters.

         The company from which RPM acquired its assets (the "Prior RPM
Company") has been identified by the United States Environmental Protection
Agency (the "EPA") as one of many potentially responsible parties for
environmental liabilities associated with a "Superfund" site located in the area
of RPM's former manufacturing facilities and current distribution facility in
Azusa, California. The Federal Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA" or "Superfund"),
provides for cleanup of sites from which there has been a release or threatened
release of hazardous substances, and authorizes recovery of related response
costs and certain other damages from potentially responsible parties ("PRPs").
PRPs are broadly defined under CERCLA, and generally include present owners and
operators of a site and certain past owners and operators. As a general rule,
courts have interpreted CERCLA to impose strict, joint and several liability
upon all persons liable for cleanup costs. As a practical matter, however, at
sites where there are multiple PRPs, the costs of cleanup typically are
allocated among the PRPs according to a volumetric or other standard. The EPA
has preliminarily estimated that it will cost approximately $47 million to
construct and approximately $4 million per year for an indefinite period to
operate an interim remedial groundwater pumping and treatment system for the
part of the Superfund site within which RPM's former manufacturing facilities
and current distribution facility, as well as those of many other potentially
responsible parties, are located. The actual cost of this remedial action could
vary substantially from this estimate, and additional costs associated with the
Superfund site are likely to be assessed. The Company has significantly reduced
its presence at the site and has moved all manufacturing operations off-site.
Since July 1995, the Company's only real property interest in this site has been
the lease of a 6,000 square foot storage and distribution facility. The RPM
acquisition agreement and the leases pursuant to which the Company leased RPM's
facilities after the Company acquired the assets of RPM (the "RPM Acquisition")
expressly provide that the Company did not assume any liabilities 

                                       9

<PAGE>

for environmental conditions existing on or before the RPM Acquisition, 
although the Company could become responsible for these liabilities under 
various legal theories. The Company is indemnified against any such 
liabilities by the seller of RPM as well as the Prior RPM Company 
shareholders. There can be no assurance, however, that the Company would be 
able to make any recovery under any indemnification provisions. Since the RPM 
Acquisition, the Company has been engaged in negotiations with the EPA to 
settle any liability that it may have for this site. Although there can be no 
assurance, the Company believes that it will not incur any material liability 
as a result of these environmental conditions.

CERTAIN FACTORS AFFECTING THE COMPANY

         Set forth below are certain factors that may affect the Company's
business:

         DEPENDENCE ON SIGNIFICANT CUSTOMERS

         The Company's largest customer, DaimlerChrysler, accounted for
approximately 37.2%, 32.0% and 18.2% of the Company's net sales for 1996, 1997
and 1998, respectively. As a result of the Autocraft Acquisition, Ford accounted
for 17.1% of net sales in 1998. No other customer accounted for more than 10% of
the Company's net sales during any of these years.

         DaimlerChrysler and Ford, like other North American OEMs, generally
require their dealers using remanufactured products to use only those from
approved suppliers. Although the Company is currently the only factory-approved
supplier of remanufactured transmissions for Chrysler vehicles and one of two
suppliers to Ford, DaimlerChrysler and Ford (like the Company's other OEM
customers) are not obligated to continue to purchase the Company's products and
there can be no assurance that the Company will be able to maintain or increase
the level of its sales to them or that they will not approve other suppliers in
the future. In addition, within the last three years the standard new vehicle
warranty for Chrysler vehicles was reduced from seven years/70,000 miles to
three years/36,000 miles and a shorter warranty could be implemented in the
future. Any such action could have the effect of reducing the amount of warranty
work performed by Chrysler dealers. An extended, substantial decrease in orders
from DaimlerChrysler would have a material adverse effect on the Company. See
"Customers--OEM Customers."

         SHORTAGE OF TRANSMISSION CORES AND COMPONENT PARTS

         In its remanufacturing operations, the Company obtains used
transmissions, hard parts, engines and related components, commonly known as
"cores," which are sorted and either placed into immediate production or stored
until needed. The majority of the cores remanufactured by the Company are
obtained from OEMs or from Independent Aftermarket customers as trade-ins. The
ability to obtain cores of the types and in the quantities required by the
Company is critical to the Company's ability to meet demand and expand
production. With the increased acceptance in the aftermarket of remanufactured
assemblies, the demand for cores has increased. The Company periodically has
experienced situations in which the inability to obtain sufficient cores has
limited its ability to accept all of the orders available to it. There can be no
assurance that the Company will not experience core shortages in the future. If
the Company were to experience such a shortage, it could have a material adverse
effect on the Company.

         Certain component parts required in the Company's OEM transmission
remanufacturing process are manufactured by the Company's OEM customers. The
Company has experienced shortages of such component parts from time to time in
the past, and future shortages could have a material adverse effect on the
Company.

         ABILITY TO ACHIEVE AND MANAGE GROWTH

         An important element in the Company's growth strategy is the
acquisition and integration of complementary businesses in order to broaden
product offerings, capture market share and improve profitability. There can be
no assurance that the Company will be able to identify or reach mutually
agreeable terms with acquisition candidates, or that the Company will be able to
manage additional businesses profitably or successfully integrate such
additional businesses into the Company without substantial costs, delays or
other problems. Acquisitions may involve a number of special risks, including:
initial reductions in the Company's reported operating results; diversion of
management's 

                                       10

<PAGE>

attention; unanticipated problems or legal liabilities; and a possible 
reduction in reported earnings due to amortization of acquired intangible 
assets in the event that such acquisitions are made at levels that exceed the 
fair market value of net tangible assets. Some or all of these items could 
have a material adverse effect on the Company. There can be no assurance that 
businesses acquired in the future will achieve sales and profitability that 
justify the investment therein. In addition, to the extent that consolidation 
becomes more prevalent in the industry, the prices for attractive acquisition 
candidates may increase to unacceptable levels. See "Business Strategy."

         The Company's Distribution Group, which serves the Independent
Aftermarket, is composed of what were nine separate businesses, each with its
own independent distribution, planning and accounting system that did not work
with the systems of the other Distribution Group businesses. In furtherance of
the Company's business strategy to integrate these nine businesses into the ATC
Distribution Group, the Company began replacing these systems with an
enterprise-wide information system. However, as a result of system complexities
and unanticipated issues relating to the conversion of data from the old systems
to the new system, the business disruption experienced by the Distribution Group
has been greater than originally anticipated. As a result, of these problems,
the cost and the timing of the system implementation has exceed the Company's
plan. The Company expects to resolve these problems by the middle of 1999, after
which it will commence the final phase of the system implementation. However, no
assurance can be given that implementation will be completed within this time
frame.

         The Company plans to expand its existing operations by broadening its
product lines and increasing the number of its distribution centers in the
United States. There can be no assurance that any new product lines introduced
by the Company will be successful, that the Company will manage successfully the
start-up and marketing of new products or that additional distribution centers
will be successfully integrated into the Company's existing operations or will
be profitable. See "Business Strategy."

     In addition, the Company is exploring possible additional markets for its
remanufacturing capabilities, but no assurance can be given that the Company
will pursue any such opportunity or be successful outside the automotive
aftermarket. See "Business Strategy--Additional Remanufacturing Opportunities."

         INDEBTEDNESS AND LIQUIDITY

         The Company had outstanding long-term indebtedness of $270.5 million at
December 31, 1998. The level of the Company's consolidated indebtedness could
have important consequences, including the following: (i) a substantial portion
of the Company's cash flow from operations must be dedicated to the payment of
principal of, and interest on, its indebtedness and will not be available for
other purposes; (ii) the ability of the Company to obtain financing in the
future for working capital needs, capital expenditures, acquisitions,
investments, general corporate purposes or other purposes may be materially
limited or impaired; (iii) the Company's level of indebtedness may reduce its
flexibility to respond to changing business and economic conditions or take
advantage of business opportunities that may arise; and (iv) the ability of the
Company to pay dividends is restricted. See Item 5. "Market for Registrant's
Common Equity and Related Stockholder Matters." In addition, the Company's bank
credit agreement contains covenants that (i) require the Company to meet certain
financial ratios and (ii) limit the Company's ability to, among other things,
incur indebtedness, make capital expenditures, make investments, engage in
mergers and dispose of assets. The indenture that governs the Company's Senior
Subordinated Notes contains, among other things, a covenant that limits the
Company's ability to incur additional indebtedness. Any default by the Company
with respect to such covenants, or any inability on the part of the Company to
obtain necessary liquidity, could have a material adverse effect on the Company.
See Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."

         ENVIRONMENTAL MATTERS

         The Company is subject to various evolving federal, state, local and
foreign environmental laws and regulations governing, among other things,
emissions to air, discharge to waters and the generation, handling, storage,
transportation, treatment and disposal of a variety of hazardous and
non-hazardous substances and wastes. These laws and regulations provide for
substantial fines and criminal sanctions for violations and impose liability for
the costs of cleaning up, and certain damages resulting from, past spills,
disposals or other releases of hazardous substances. In 

                                       11

<PAGE>

connection with the Acquisitions, the Company conducted certain 
investigations of the acquired companies' facilities and their compliance 
with applicable environmental laws. These investigations found various 
environmental matters and conditions that could, under certain circumstances, 
expose the Company to liability. Furthermore, the company from which RPM 
acquired its assets has been identified by the United States Environmental 
Protection Agency as one of the many potentially responsible parties for 
environmental liabilities associated with a "Superfund" site located in the 
area of RPM's former manufacturing facilities and one of its current 
distribution facilities. Although no assurances can be given, the Company 
believes that it will not incur any material liabilities relating to these 
matters. See "Environmental Matters."

         COMPETITION

         The automotive aftermarket for transmissions, engines and other drive
train products is highly fragmented and highly competitive. There can be no
assurance that the Company will compete successfully with other companies in its
industry segment, some of which are larger than the Company and have greater
financial and other resources available to them than does the Company. See
"Competition."

         CONTROL OF THE COMPANY; ANTI-TAKEOVER MATTERS

         The Company is controlled by Aurora Equity Partners L.P. and Aurora
Overseas Equity Partners I, L.P. (collectively, the "Aurora Partnerships"),
which hold approximately 55% of the voting power in the Company (through direct
ownership and certain voting arrangements). Therefore, the Aurora Partnerships
will be able to elect all of the directors of the Company and approve or
disapprove any matter submitted to a vote of the Company's stockholders. As a
result of the Aurora Partnerships' substantial ownership interest in the Common
Stock, it may be more difficult for a third party to acquire the Company. A
potential buyer would likely be deterred from any effort to acquire the Company
absent the consent of the Aurora Partnerships or their participation in the
transaction. The general partner of each of the Aurora Partnerships is
controlled by Richard R. Crowell, Gerald L. Parsky and Richard K. Roeder, each
of whom is a director of the Company. The Indentures governing the Company's 12%
Senior Subordinated Notes due 2004 (the "Senior Notes") contain provisions that
would allow a holder to require the Company to repurchase such holder's Senior
Notes at a cash price equal to 101% of the principal amount thereof, together
with accrued interest, upon the occurrence of a "change of control" of the
Company (as defined therein), which could also have the effect of discouraging a
third party from acquiring the Company. See Item 12. "Security Ownership of
Certain Beneficial Owners and Management."

         In addition, the Company's Board of Directors is authorized, subject to
certain limitations prescribed by law, to issue up to 2,000,000 shares of
preferred stock in one or more classes or series and to fix the designations,
powers, preferences, rights, qualifications, limitations or restrictions,
including voting rights, of those shares without any further vote or action by
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any preferred stock
that may be issued in the future. The issuance of preferred stock, while
providing flexibility in connection with possible acquisitions and other
corporate transactions, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company. The Company has no current plans to issue shares of preferred stock.

                                       12

<PAGE>

ITEM 2.  PROPERTIES

         The Company conducts its remanufacturing and other non-distribution
operations at the following facilities:

<TABLE>
<CAPTION>
                                                  LEASE
                               APPROXIMATE     EXPIRATION
          LOCATION               SQ. FEET         DATE       PRODUCTS PRODUCED/SERVICES PROVIDED
-----------------------        ----------      ----------    -----------------------------------
<S>                              <C>             <C>         <C>
Rancho Cucamonga, CA              153,000          2002      torque converters
Joplin, MO                        264,000          2008      transmissions
Springfield, MO                   280,800          2004      transmissions and engines
Springfield, MO                   200,000          2006      core return center
Springfield, MO                    30,000          (1)       torque converters
Springfield, MO                    34,000          (1)       cleaning and testing equipment
Gastonia, NC                      130,000          2000      transmissions and valve bodies
Mahwah, NJ                        160,000          2003      transmissions, transfer cases and assorted components
Dayton, OH                         42,000          2004      torque converters
Oklahoma City, OK                  13,400          1999      radios, instrument and display clusters, and
                                                             cellular products
Oklahoma City, OK                  90,000          (2)       transmissions
Oklahoma City, OK                  98,000         owned      material recovery
Oklahoma City, OK                 207,000         owned      transmissions
Carrollton, TX                     39,000          2006      radios and instrument and display clusters
Houston, TX                        50,000          2002      engine control modules and radios
Grantham, England                 120,000         owned      engines and related components
Mexicali, Mexico                   77,100          (3)       torque converters
</TABLE>
------------
(1)  Terminable by either party on 30 days' notice.

(2)  Terminable by either party on six months' notice.

(3)  During the second quarter of 1999 this operation will be moved to a new
     43,800 square foot facility with a lease term expiring in 2007.

         The Company distributes transmission repair kits, soft parts, torque
converters and drive train hard parts and/or engines to non-OEM customers
through 65 local and seven regional distribution centers in the United States
and Canada, all of which are leased. The local distribution centers generally
range in size from 5,000 to 20,000 square feet and are typically leased for
five-year terms with a portion of the leases expiring every year. The regional
distribution centers range in size from 14,000 to 168,000 square feet and have
lease expiration dates at various times through 2012. The Company leases a
220,000 square foot facility in Fort Worth, Texas from which it distributes
cellular telephones for AT&T Wireless. This lease expires in 2008. The Company
also leases assorted warehouses and space for its corporate offices and computer
services.

         The Company believes that its current manufacturing facilities and
distribution centers are adequate for the current level of the Company's
activities. The Company's manufacturing sites have the flexibility to add both
additional shifts and production workers needed to accommodate additional demand
for products and services. However, in the event the Company were to experience
a material increase in sales, the Company may require additional manufacturing
facilities. The Company believes such additional facilities are readily
available on a timely basis on commercially reasonable terms. Further, the
Company believes that the leased space housing its existing manufacturing and
distribution facilities is not unique and could be readily replaced, if
necessary, at the end of the terms of its existing leases on commercially
reasonable terms. Historically, the Company has been able to renew leases or
find alternate space upon the expiration of its leases without material
interruption in the subject facilities' operations. Many of the Company's leases
are renewable at the option of the Company.

ITEM 3.  LEGAL PROCEEDINGS

         From time to time, the Company has been and is involved in various
legal proceedings. Management believes that all of such litigation is routine in
nature and incidental to the conduct of its business, and that none of such

                                       13

<PAGE>

litigation, if determined adversely to the Company, would have a material
adverse effect, individually or in the aggregate, on the Company.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted to a vote of the stockholders of the Company
during the quarter ended December 31, 1998.

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The Company's Common Stock has been traded on the Nasdaq National
Market under the symbol "ATAC" since the IPO in December 1996. As of March 4,
1999, there were approximately 101 record holders of its Common Stock. The
following table sets forth for the periods indicated the range of high and low
sale prices of the Common Stock as reported by Nasdaq:

<TABLE>
<CAPTION>
                                                              HIGH      LOW
                                                              ----      ---
1997
  <S>                                                        <C>        <C>
   First quarter...........................................   19-5/8    14-3/8
   Second quarter..........................................   23        14-3/4
   Third quarter...........................................   27-1/4    18-1/2
   Fourth quarter..........................................   24-3/4    15-1/2

1998
   First quarter...........................................   27-1/4    17
   Second quarter..........................................   23-7/16   16-1/4
   Third quarter...........................................   18-1/2     9-1/8
   Fourth quarter..........................................   11-1/2     3-7/8
</TABLE>

     On March 4, 1999, the last sale price of the Common Stock, as reported by
Nasdaq, was $5-7/8 per share.

         The Company has not paid cash dividends on its Common Stock to date.
Because the Company currently intends to retain any earnings to provide funds
for the operation and expansion of its business and for the servicing and
repayment of indebtedness, the Company does not intend to pay cash dividends on
its Common Stock in the foreseeable future. Furthermore, as a holding company
with no independent operations, the ability of the Company to pay cash dividends
is dependent upon the receipt of dividends or other payments from its
subsidiaries. Under the terms of the Indentures governing the Senior Notes, the
Company is not permitted to pay any dividends on its Common Stock unless certain
financial ratio tests are satisfied. In addition, the Company's Credit Facility
contains certain covenants that, among other things, prohibit the payment of
dividends by the Company. See Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
Any determination to pay cash dividends on the Company's Common Stock in the
future will be at the sole discretion of the Company's Board of Directors.

         During 1998, the Company did not issue any securities that were not
registered under the Securities Act of 1933, as amended.

                                       14

<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

         The selected financial data presented below with respect to the
statements of income data for the years ended December 31, 1996, 1997 and 1998
and the balance sheet data at December 31, 1997 and 1998 are derived from the
Consolidated Financial Statements of the Company that have been audited by Ernst
& Young LLP, independent auditors, and are included elsewhere herein, and are
qualified by reference to such financial statements and notes related thereto.
The selected financial data with respect to the statement of income data for the
seven months ended July 31, 1994, the five months ended December 31, 1994 and
for the year ended December 31, 1995 and the balance sheet data at December 31,
1994, 1995 and 1996, are derived from the audited Combined Financial Statements
of the Predecessor Companies and the Consolidated Financial Statements of the
Company that have been audited by Ernst & Young LLP, independent auditors, but
are not included herein. The data provided should be read in conjunction with
the Consolidated Financial Statements, related notes and other financial
information included in this Annual Report.

<TABLE>
<CAPTION>
                                  COMBINED
                                  --------                                  CONSOLIDATED
                                   FOR THE     ------------------------------------------------------------------
                                SEVEN MONTHS    FOR THE FIVE
                                    ENDED       MONTHS ENDED             FOR THE YEAR ENDED DECEMBER 31,
                                  JULY  31,     DECEMBER 31,     ------------------------------------------------
                                   1994(1)          1994            1995         1996         1997          1998
                                  ----------     ----------     ----------    ----------   ----------   ---------
                                                           (IN THOUSANDS EXCEPT PER SHARE DATA)
<S>                                <C>           <C>             <C>           <C>           <C>         <C>
STATEMENT OF INCOME DATA:
Net sales...................         $90,056      $67,736         $190,659      $272,878     $346,110    $486,773
Cost of sales...............          52,245       40,112          115,499       166,810      212,416     348,443
                                      ------     --------        ---------      --------     --------    --------
Gross profit................          37,811       27,624           75,160       106,068      133,694     138,330
Selling, general and
  administrative expenses...          20,475       14,206           38,971        55,510       73,768     109,357
Amortization of intangible
  assets....................              16        1,210            3,308         3,738        4,501       6,806
Special charges.............              --           --               --            --           --       8,744
                                  ----------   ----------       ----------    ----------   ----------   ---------
Operating income............          17,320       12,208           32,881        46,820       55,425      13,423
Interest expense (income), net          (158)       6,032           16,915        19,106       16,910      23,714
Income tax expense 
(benefit)(2).................             (5)       2,565            6,467        11,415       15,512      (3,176)
                                  -----------    ---------       -----------     --------    ---------   ----------
Income (loss)  before                                                                   
 extraordinary items (3)(4)..     $   17,483        3,611            9,499        16,299       23,003      (7,115)
Preferred stock dividends...                          853            2,093         2,222           --          --
                                               ----------       -----------    ---------   ----------  ----------
Income (loss) before
  extraordinary items
  available to common
  stockholders..............                     $  2,758        $   7,406      $ 14,077     $ 23,003    $ (7,115)
                                                 ========        =========      ========     ========    =========
  

Earnings (loss) per share
  before extraordinary 
  items (5)..................                                      $  0.65       $  1.02      $  1.19    $  (0.36)
Shares used in computation
  of  earnings per share
  before extraordinary 
  items (5)..................                                       14,616        15,918       19,335      19,986

OTHER DATA:
Capital expenditures (6)....        $  1,850     $  1,336         $  5,187      $  7,843     $  8,682   $  23,525
</TABLE>

                                                             15

<PAGE>

<TABLE>
<CAPTION>
                                                                            CONSOLIDATED
                                                -------------------------------------------------------------------
                                                                             DECEMBER 31,
                                                -------------------------------------------------------------------
                                                   1994           1995          1996          1997          1998
                                                --------         --------      --------      --------      --------
                                                                            (IN THOUSANDS)
<S>                                             <C>              <C>           <C>           <C>           <C>
BALANCE SHEET DATA:
Working capital.............................    $ 40,499         $ 60,012      $103,371      $ 98,523      $ 87,934
Property, plant and equipment, net..........       6,196           10,784        17,482        24,414        63,903
Total assets................................     187,293          247,932       320,747       368,677       531,905
Long-term liabilities (7)...................     121,483          165,724       167,233       152,571       258,042
Preferred stock.............................      20,853           22,946            --            --            --
Common stockholders' equity.................      22,757           30,188       105,832       175,429       168,011
</TABLE>
---------------

(1)  The combined financial statements for the seven months ended July 31, 1994
     include the operations of the Predecessor Companies up to their respective
     acquisition dates. All material transactions between the Predecessor
     Companies have been eliminated.

(2)  Two of the Predecessor Companies elected to be taxed as S Corporations for
     all periods prior to the Initial Acquisitions; therefore, for federal and
     state income tax purposes, any income or loss generally was not taxed to
     these companies but was reported by their respective stockholders. A pro
     forma provision for taxes based on income reflecting the estimated
     provision for federal and state income taxes that would have been provided
     had these companies been C Corporations and included in consolidated
     returns with the Company was $7,004 for the seven months ended July 31,
     1994.

(3)  Income before extraordinary item for the year ended December 31, 1997
     excludes an extraordinary item in the amount of $3,749 ($6,269 less related
     income tax benefit of $2,520). This amount is comprised of (i) a $3,425
     charge resulting from the early redemption of $40,000 in principal amount
     of the Company's Senior Subordinated Notes in February 1997, which included
     the payment of a 12.0% early redemption premium and the write-off of
     related debt issuance costs and (ii) a charge of $324 for the write-off of
     previously capitalized debt issuance costs in connection with the
     termination of the Company's previous revolving credit facility.

(4)  Loss before extraordinary item for the year ended December 31, 1998
     excludes an extraordinary item in the amount of $703 ($1,172 less related
     income tax benefit of $469). This amount is comprised of (i) a $340 charge
     resulting from the early redemption of $9,615 in principal amount of the
     Company's Senior Subordinated Notes in September and October of 1998, which
     included the payment of a 4.0% early redemption premium and the write-off
     of related debt issuance costs, and (ii) a charge of $363 for the write-off
     of previously capitalized debt issuance costs in connection with the
     termination of the Company's previous revolving credit facility.

(5)  See Note 14 to Consolidated Financial Statements for a description of the
     computation of earnings per share.

(6)  Excludes capital expenditures made by certain of the Company's subsidiaries
     prior to such subsidiaries' respective acquisitions and any capital
     expenditures made in connection with such acquisitions.

(7)  Includes deferred tax liabilities of $1,438, $3,478, $5,252, $8,044 and
     $11,492 at December 31, 1994, 1995, 1996, 1997 and 1998, respectively.

                                        16
<PAGE>

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
          RESULTS OF OPERATIONS

     The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company and notes thereto included
elsewhere in this Annual Report. See Item 8. "Consolidated Financial Statements
and Supplementary Data."

     Readers are cautioned that the following discussion contains certain
forward-looking statements and should be read in conjunction with the
"Forward-Looking Statement Notice" appearing at the beginning of this Annual
Report.

OVERVIEW

         The Company's revenues are generated primarily through the sale of
drive train products used in the repair of vehicles in the automotive
aftermarket. Since its formation, the Company has benefited from a combination
of internal and acquisition-related revenue growth, achieving compounded annual
growth in revenue of approximately 32.5% from 1994 through 1998.

         From 1994 through 1998, the Company's revenues from sales to the OEM
segment increased by 31.2% compounded annually from $85.3 million to $253.0
million due to increased sales to existing customers, including DaimlerChrysler,
and the addition of Ford and General Motors as customers. During the same
period, revenues from sales to the Independent Aftermarket segment increased by
26.7% compounded annually from $72.5 million to $186.7 million. This growth was
due to acquisitions, geographic expansion through the addition of distribution
centers, a broadened product line, effective sales efforts, and the development
of new customers.

         The Company regularly evaluates strategic acquisition opportunities in
the automotive aftermarket and expects to continue to do so in the future. On
March 6, 1998, the Company completed the acquisition of substantially all the
assets of the OEM Division of Autocraft. See Item 1. "Business."

         The primary components of the Company's cost of goods sold are the cost
of cores and component parts, labor costs and overhead. While certain of these
costs have fluctuated as a percentage of sales over time, cost of goods sold as
a percentage of sales remained relatively constant from 1994 through 1997. The
increased costs during 1998 were in part related to non-recurring costs totaling
$12.7 million, which are described below. Excluding such non-recurring costs,
cost of goods sold in 1998 as a percentage of sales would have been 69.0% as
compared to 61.4% in 1997. The increase as a percentage of net sales was
primarily due to changes in mix within the OEM segment and costs relating to the
implementation of the Independent Aftermarket segment's enterprise-wide
information system.

         Selling, general and administrative ("SG&A") expenses consist primarily
of salaries, commissions, rent, marketing expenses and other management
infrastructure expenses. SG&A expenses as a percentage of sales declined from
22.0% in 1994 to 21.3% in 1997 principally due to the effect of spreading
certain fixed costs over a larger revenue base. During 1998, SG&A expense as a
percentage of sales increased to 22.5% primarily due to non-recurring costs of
$7.5 million as described below. Excluding such non-recurring costs, SG&A
expense in 1998 would have been 20.9% as a percentage of net sales.

                                       17

<PAGE>

         Income (loss) before income taxes and extraordinary items for 1998 was
negatively impacted by costs that management believes are non-recurring and
other special charges totaling $30.1 million before income taxes ($18.1 million,
net of income taxes). The table below sets out such costs and charges by each
reportable segment expressed in millions of dollars:

<TABLE>
<CAPTION>
                                                                   INDEPENDENT
                                                       OEM         AFTERMARKET     UNALLOCATED     TOTAL
                                                     -------       ------------    -----------    ------
<S>                                                  <C>           <C>             <C>            <C>
NON-RECURRING COSTS:
Core liability....................................    $ 5.2           $  -             $  -       $ 5.2 
Expenses related to start-up costs and
   internal use software..........................      0.4            2.4              0.3         3.1 
Changes in Company policies related to employee
   benefits and warranty..........................      0.8            1.1                -         1.9 
Changes in estimates of inventory and
   other reserves.................................      3.6            5.8              0.6        10.0 
Loss on sale of Mascot............................        -              -              1.2         1.2
                                                     -------        -------         -------      ------
                                                       10.0            9.3              2.1        21.4
SPECIAL CHARGES:
Restructuring.....................................      0.6            1.6              1.6         3.8 
Facility consolidation............................      2.0            0.5                -         2.5 
Non-income related taxes..........................      2.4              -                -         2.4
                                                     -------        -------         -------      ------
                                                        5.0            2.1              1.6         8.7
                                                     -------        -------         -------      ------
Total charges before income tax benefit...........     15.0           11.4              3.7        30.1 
Income tax benefit................................     (6.0)          (4.6)            (1.4)      (12.0)
                                                     -------        -------         -------      ------
Total charges, net................................    $ 9.0          $ 6.8           $  2.3       $18.1
                                                     =======        =======         ========     ======
</TABLE>

         NON-RECURRING COSTS. During 1998, the Company recorded charges for
non-recurring costs totaling $21.4 million. Of these charges, $10.0 million
related to changes in certain of its estimates. The Company's implementation of
an enterprise-wide information system in its Independent Aftermarket segment
provided for access to inventory information previously unavailable. Based in
part on this new information, the Company refined its methodologies for the
determination of inventory reserve requirements and, as a result, recorded a
charge of $6.7 million to increase its inventory reserves. Similarly, the
Company recorded increases of $3.3 million in certain of its other reserves. The
Company believes that these charges were one-time in nature due to the
application of new information and estimate methodologies and intends to
consistently apply them in the future. Additionally, the Company recorded
reserves of $5.2 million for a liability related to the purchase of excess
cores.

         SPECIAL CHARGES. In 1998, the Company recorded special charges of $8.7
million, primarily related to certain initiatives designed to improve operating
efficiencies and reduce costs. The special charges consisted of (i)
restructuring costs of $3.8 million consisting principally of employee severance
costs and certain other exit costs and (ii) facility consolidation costs of $2.5
million relating principally to idle plant capacity costs. The Company also
incurred a fourth quarter charge of $2.4 million for non-income related taxes
due to a state's 1998 interpretation of its tax law. The interpretation was
required to be applied retroactively to previous periods. The Company expects to
incur approximately $4 million of additional special charges during 1999.

         Excluding the 1998 costs and charges, income before income taxes and
extraordinary items would have been $19.8 million in 1998 as compared to $38.5
million in 1997. This decrease was primarily attributable to (i) a decline in
demand for remanufactured Chrysler transmissions and related reduction of
inventory at DaimlerChrysler and (ii) problems related to the Company's
implementation of the enterprise-wide information system in the Independent
Aftermarket segment.

                                        18
<PAGE>

RESULTS OF OPERATIONS

         The following table sets forth certain financial statement data
expressed in millions of dollars and as a percentage of net sales.

<TABLE>
<CAPTION>
                                                               For the Years Ended December 31,
                                                ---------------------------------------------------------
                                                      1996                  1997              1998
                                                ------- ------       -------  ------    -------   -------
<S>                                             <C>      <C>          <C>      <C>      <C>        <C>
Net sales..............................          $272.9  100.0%       $346.1   100.0%    $486.8    100.0%
Cost of sales..........................           166.8   61.1         212.4    61.4      348.5     71.6
                                                ------- ------       -------  ------    -------   -------
Gross profit...........................           106.1   38.9         133.7    38.6      138.3     28.4
SG&A expenses..........................            55.5   20.3          73.8    21.3      109.4     22.5
Amortization of intangible assets......             3.8    1.4           4.5     1.3        6.8      1.3
Special charges........................               -       -            -      -         8.7      1.8
                                                ------- ------       -------  ------    -------   -------
Operating income.......................            46.8   17.2          55.4    16.0       13.4      2.8
Interest expense, net and other........            19.1    7.0          16.9     4.9       23.7      4.9
                                                ------- ------       -------  ------    -------   -------
Income (loss) before income taxes
  and extraordinary items..............            27.7   10.2          38.5    11.1      (10.3)    (2.1)
Income tax expense (benefit)...........            11.4    4.2          15.5     4.5       (3.2)     (.7)
                                                ------- ------       -------  ------    -------   -------
Income (loss) before extraordinary items         $ 16.3    6.0%       $ 23.0     6.6%    $( 7.1)    (1.4)%
                                                 ====== ======        ======  ======     =======   ======
</TABLE>

         The Company has two reportable segments: the OEM segment and the
Independent Aftermarket segment. The OEM segment consists of four operating
units that sell remanufactured transmissions directly to automobile
manufacturers, principally DaimlerChrysler Corporation, Ford Motor Company,
General Motors Corporation and several foreign OEMs, for use as replacement
parts by their domestic dealers during the warranty and post-warranty periods
following the sale of a vehicle. In addition, the OEM segment sells select
remanufactured engines to DaimlerChrysler and certain European OEMs and a broad
range of remanufactured domestic and foreign engines to general repair shops and
retail automotive parts stores. The Company's Independent Aftermarket segment
primarily sells transmission repair kits, soft parts, remanufactured torque
converters and new and remanufactured hard parts used in drive train repairs to
independent transmission rebuilders for repairs generally during the period
following the expiration of the vehicle warranty. To a lesser extent, the
Independent Aftermarket segment also sells its products to general repair shops,
wholesale distributors and retail automotive parts stores. In addition to the
OEM and Independent Aftermarket segments, the Company has three operating units
reflected as "other" segments due to their relative size, all of which were
acquired in the Autocraft Acquisition: an electronic parts remanufacturing and
distribution business; warehouse and distribution services for AT&T Wireless
(the cellular telephone subsidiary of AT&T); and a material recovery processing
business for Ford. None of these operating units meet the quantitative
thresholds for determining reportable segments. See Item 8. "Financial
Statements and Supplementary Data--Note 17."

         YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

         Income (loss) before extraordinary items decreased $30.1 million from
$23.0 million in 1997 to a $7.1 million loss in 1998. Excluding the
non-recurring costs and other special charges, income before extraordinary items
would have been $11.0 million. This decrease was primarily attributable to (i) a
decline in demand for remanufactured Chrysler transmissions and related
reduction of inventory at DaimlerChrysler and (ii) problems related to the
Company's implementation of the enterprise-wide information system in the
Independent Aftermarket segment. On a per share basis, income (loss) before
extraordinary items decreased from $1.19 per diluted share in 1997 to a loss of
$0.36 per share in 1998.

         NET SALES. Net sales increased $140.7 million, or 40.7%, from $346.1
million in 1997 to $486.8 million in 1998. Of this increase, $131.8 million
related to the March 1998 Autocraft Acquisition 

                                       19

<PAGE>

and $32.3 million related to a full year's net sales for the 1997 
Acquisitions, partially offset by a $23.4 million decline in sales by the 
Company's other businesses.

         GROSS PROFIT. Gross profit increased $4.6 million, or 3.4%, from $133.7
in 1997 to $138.3 million in 1998. As a percentage of net sales, gross profit
decreased from 38.6% to 28.4% between the two periods. The decrease in gross
profit margins was primarily related to (1) changes in OEM segment sales mix and
(2) system complexities and problems with data conversion encountered during the
implementation of the Independent Aftermarket segment's enterprise-wide
information system, which resulted in an internalization of management's focus
and hampered inventory management functions, pricing initiatives and sales
growth efforts. In addition, the Company incurred $12.7 million of non-recurring
costs primarily consisting of (i) $6.7 million for increased inventory reserves
and (ii) $5.2 million for a liability related to the purchase of excess cores.
Excluding these costs, gross profit in 1998 would have been $151.0 million or
31.0% of net sales.

         SG&A EXPENSES. SG&A expenses increased $35.6 million, or 48.2%, from
$73.8 million in 1997 to $109.4 million in 1998. As a percentage of net sales,
SG&A expenses increased from 21.3% to 22.5% between the two periods. During
1998, the Company incurred $7.5 million of non-recurring costs including (i)
$3.0 million in increased changes in estimates and other reserves, (ii) $2.7
million related to start-up costs and internal use software and (iii) $1.8
million related to changes in employee benefits and warranty policies. Excluding
these costs, SG&A expenses in 1998 would have been $101.9 million or 20.9% of
net sales as compared to 21.3% in 1997. On an absolute dollar basis, the
increase is primarily attributable to additional SG&A expenses for the Autocraft
businesses acquired in March 1998 and a full year's expense for the 1997
Acquisitions.

         AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets
increased $2.3 million, or 51.1%, from $4.5 million in 1997 to $6.8 million in
1998. The increase was primarily attributable to the March 1998 Autocraft
Acquisition.

         SPECIAL CHARGES. During 1998, the Company incurred $8.7 million of
special charges. These charges consisted of (i) $3.6 million of charges during
the second quarter in connection with the consolidation of certain manufacturing
plants and restructuring charges and (ii) $5.1 million incurred primarily
relating to restructuring costs and a state's interpretation of its tax law that
subjected a portion of the OEM segment's operations over the past four years to
a state tax for the first time.

         INCOME FROM OPERATIONS. Principally as a result of the factors
described above, income from operations decreased $42.0 million, or 75.8%, from
$55.4 million in 1997 to $13.4 million in 1998.

         INTEREST EXPENSE, NET AND OTHER. Interest expense, net and other
increased $6.8 million, or 40.2%, from $16.9 million in 1997 to $23.7 million in
1998. The increase primarily resulted from borrowing under the Company's $120.0
million term loan credit facility in March 1998 to finance the Autocraft
Acquisition and increased borrowings under the Company's $100.0 million
revolving credit facility (such term loan and revolving facilities are referred
to as the "Credit Facility") partially offset by the early redemption in
September and October 1998 of $9.6 million in principal amount of Senior Notes.
In addition, the Company recognized a $1.2 million loss on the sale of Mascot.

         EXTRAORDINARY ITEMS. In 1997, an extraordinary item in the amount of
$3.8 million ($6.3 million before related income tax benefit of $2.5 million)
was recorded. This amount is comprised of (i) a $3.4 million charge resulting
from the early redemption of $40.0 million of the Senior Notes in February 1997,
which included the payment of a 12.0% early redemption premium and the write-off
of related debt issuance costs and (ii) a charge of approximately $0.4 million
for the write-off of previously capitalized debt issuance costs in connection
with the termination of the Company's previous revolving credit facility.

         In 1998, an extraordinary item in the amount of $0.7 million ($1.2
million before related income tax benefit of $0.5 million) was recorded. This
amount was comprised of (i) a $0.4 million charge for the write-

                                       20

<PAGE>

off of deferred financing fees in connection with the Company's new Credit 
Facility and (ii) a $0.3 million charge resulting from the repurchase of $9.6 
million in principal amount of the Senior Notes in open market transactions.

         OEM SEGMENT

         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 Years Ended December 31,
                                                 ----------------------------------------
                                                         1997                   1998
                                                 -------------------     ----------------
    <S>                                          <C>          <C>        <C>        <C>
    Net sales........................            $ 180.3      100.0%     $ 253.0    100.0%
                                                 =======      =====      =======    =====
    Special charges..................            $    --         --%     $   5.0      2.0%
                                                 =======      =====      =======    =====
    Segment profit...................            $  32.7       18.1%     $   5.5      2.2%
                                                 =======      =====      =======    =====
</TABLE>

         NET SALES. Net sales increased $72.7 million, or 40.3%, from $180.3
million in 1997 to $253.0 million in 1998. This increase was due to the March
1998 Autocraft Acquisition, which accounted for approximately $91.5 million in
incremental net sales, partially offset by an $18.8 million decline in sales to
existing customers, particularly DaimlerChrysler. As previously reported, the
demand for Chrysler transmissions declined in 1998 primarily due to (i) moderate
weather during the winter of 1997-1998 and (ii) improved quality of late model
original equipment front wheel drive transmissions. The decline in demand led to
reduced inventory requirements at DaimlerChrysler. In order to assist
DaimlerChrysler in meeting these inventory requirements by the end of 1998, the
Company significantly reduced its shipments to DaimlerChrysler during the second
half of the year. The Company believes that the reduction in inventory levels is
complete. The Company also believes that reduced demand for Chrysler front wheel
drive transmissions due to improved quality will be mostly offset by demand for
Chrysler rear wheel drive transmissions, which the Company began remanufacturing
during the third quarter of 1998. Sales to DaimlerChrysler accounted for 32.0%
and 18.2% of the Company's revenues (61.4% and 34.9% of segment revenues) in
1997 and 1998, respectively. Sales to Ford, (which became a customer in March
1998) accounted for 17.1% of the Company's revenues (32.9% of segment revenues)
in 1998.

         SPECIAL CHARGES. The OEM segment incurred $5.0 million of special
charges in 1998. These charges consisted of (i) $2.6 million incurred during the
second quarter of the year in connection with the consolidation of certain
manufacturing plants and (ii) $2.4 million incurred in the fourth quarter
relating to a state's interpretation of its tax law that subjected a portion of
the segment's operations over the past four years to a state tax for the first
time.

         SEGMENT PROFIT. Segment profit decreased $26.9 million, or 82.3%, from
$32.7 million (18.1% of OEM net sales) in 1997 to $5.5 million (2.2% of OEM net
sales) in 1998. Excluding the special charges of $5.0 million and the
non-recurring costs of $10.0 million discussed above, segment profit in 1998
would have been $20.5 million (8.1% of segment net sales). The decline was
primarily the result of changes in the sales mix in the OEM segment and to the
lower fixed cost absorption as a result of decreased DaimlerChrysler sales in
1998.

                                           21

<PAGE>



         INDEPENDENT AFTERMARKET SEGMENT

         The following table presents net sales, special charges and segment
profit (loss) expressed in millions of dollars and as a percentage of net sales:

<TABLE>
<CAPTION>
                                                      For the Years Ended December 31,
                                                 ----------------------------------------
                                                         1997                   1998
                                                 -------------------     ----------------
    <S>                                          <C>          <C>        <C>        <C>
    Net sales........................            $ 158.4      100.0%     $ 186.7    100.0%
                                                 =======      =====      =======    =====
    Special charges..................            $    --         --%     $   2.1      1.1%
                                                 =======      =====      =======    =====
    Segment profit (loss) ...........            $   3.6        2.3%     $ (22.1)   (11.8)%
                                                 =======      =====      =======    =====
</TABLE>

         NET SALES. Net sales increased $28.3 million, or 17.9%, from $158.4
million in 1997 to $186.7 million in 1998. The increase related to a full year's
net sales from the three Independent Aftermarket companies acquired in 1997 of
$32.3 million.
Sales for the remainder of the segment's units were relatively flat year over
year.

         SPECIAL CHARGES. The Independent Aftermarket segment incurred $2.1
million of special charges in 1998. These charges consisted of (i) $1.6 million
for restructuring charges ($0.3 million in the second quarter and $1.3 million
in the fourth quarter), which included severance and certain other exit costs,
and (ii) $0.5 million incurred in the fourth quarter relating to facility
consolidation.

         SEGMENT PROFIT (LOSS). Segment profit decreased $25.7 million from $3.6
million (2.3% of segment net sales) in 1997 to a $22.1 million loss in 1998.
Excluding the special charges of $2.1 million and the non-recurring costs of
$9.3 million discussed above, segment loss would have been $10.7 million in
1998. The decline was primarily the result of problems relating to the
enterprise-wide information systems implementation and the continued operational
consolidation from nine separate entities into one during 1998.

         OTHER OPERATING UNITS

         The following table presents net sales and segment profit (loss)
expressed in millions of dollars and as a percentage of net sales:

<TABLE>
<CAPTION>
                                                      For the Years Ended December 31,
                                                 ----------------------------------------
                                                         1997                   1998
                                                 -------------------     ----------------
    <S>                                          <C>          <C>        <C>        <C>
    Net sales........................              $ 7.4      100.0%      $ 47.1    100.0%
                                                 =======      =====      =======    =====
    Segment profit (loss)............            $  (0.2)     (2.7)%      $  2.3      4.9%
                                                 =======      =====      =======    =====
</TABLE>


         NET SALES. Net sales increased $39.7 million, or 536.5%, from $7.4 
million in 1997 to $47.1 million in 1998. The increase was attributable to 
sales by the electronic components, logistics services and material recovery 
business units, which were acquired in March 1998 as part of the Autocraft 
Acquisition. See Item 1. "Business--Other Operating Units" for a description 
of these business units. Prior to the Autocraft Acquisition, revenue in this 
segment was entirely attributable to Mascot, the Company's Canadian 
heavy-duty truck remanufacturing operation, which was sold in February 1999.

         SEGMENT PROFIT (LOSS). Segment profit increased $2.5 million from a
loss of $0.2 million in 1997 to $2.3 million in 1998. The increase was primarily
the result of sales volume from the Autocraft Acquisition.

                                       22

<PAGE>

         YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

         Income before extraordinary items increased $6.7 million, or 41.1%,
from $16.3 million in 1996 to $23.0 million in 1997. Net sales increased 26.8%,
from $272.9 million in 1996 to $346.1 million in 1997, primarily due to sales
generated by the 1997 Acquisitions as well as increased sales volumes to OEM
customers. In general, cost of goods sold and SG&A expenses increased
proportionally.

         On a per share basis, income before extraordinary items increased from
$1.02 per diluted share in 1996 to $1.19 per diluted share in 1997. The number
of shares used in the per share calculations were 15.9 million in 1996 and 19.3
million in 1997. The increase in shares resulted primarily from the Company's
public offering of Common Stock in October 1997.

         NET SALES. Net sales increased $73.2 million, or 26.8%, from $272.9
million in 1996 to $346.1 million in 1997. Of this increase, $23.2 million was
due to internal growth and $50.0 million was due to the incremental net sales
generated by the 1997 Acquisitions. Net sales to DaimlerChrysler represented
37.2% of total net sales in 1996, as compared to 32.0% in 1997.

         GROSS PROFIT. Gross profit as a percentage of net sales remained
relatively constant at 38.6% in 1997 as compared to 38.9% in 1996.

         SG&A EXPENSES. SG&A expenses increased $18.3 million, or 33.0%, from
$55.5 million in 1996 to $73.8 million in 1997. As a percentage of net sales,
SG&A expenses increased from 20.3% to 21.3% between the two periods. The
increase in SG&A expenses was primarily due to the ongoing incremental expenses
of the 1996 and 1997 Acquisitions, certain enhancements to the Company's
infrastructure (including additional management and information systems) and
additional selling and other variable overhead costs associated with the higher
sales volume (including increased production capacity). The increase in SG&A
expenses as a percentage of net sales was primarily attributable to (i) the
deferred compensation expense described below, (ii) certain enhancements to the
Company's infrastructure (including additional management and information
systems) and (iii) the additional ongoing expenses associated with being a
publicly held company.

         Included in SG&A expenses were non-cash charges totaling $0.5 million
in 1996 and $1.8 million in 1997, representing the pro rata portion for each
year of deferred compensation expense relating to stock options.

         AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets
increased $0.7 million, or 18.4%, from $3.8 million in 1996 to $4.5 million in
1997. The increase resulted from the additional intangible assets arising from
the 1996 and 1997 Acquisitions.

         INCOME FROM OPERATIONS. Principally as a result of the factors
described above, income from operations increased $8.6 million, or 18.4%, from
$46.8 million in 1996 to $55.4 million in 1997.

         INTEREST EXPENSE, NET AND OTHER. Interest expense, net and other
decreased $2.2 million, or 11.5%, from $19.1 million in 1996 to $16.9 million in
1997. The lower interest resulted from the net effect of the early redemption in
February 1997 of $40.0 million of the Senior Notes offset to some extent by
increased borrowings under the Credit Facility. The Credit Facility carries a
significantly lower effective interest rate than did the Senior Notes.

         EXTRAORDINARY ITEMS. An extraordinary item in the amount of $3.8
million ($6.3 million before related income tax benefit of $2.5 million) was
recorded in 1997. This amount was comprised of (i) a $3.4 million charge
resulting from the early redemption of $40.0 million of the Senior Notes in
February 1997, which included the payment of a 12.0% early redemption premium
and the write-off of related debt issuance costs and (ii) a charge of $0.4
million for the write-off of previously capitalized debt issuance costs in
connection with the termination of the Company's previous revolving credit
facility.

                                        23

<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 Years Ended December 31,
                                                 ----------------------------------------
                                                         1996                   1997
                                                 -------------------     ----------------
    <S>                                          <C>          <C>        <C>        <C>
    Net sales........................            $ 159.5      100.0%     $ 180.3    100.0%
                                                 =======      =====      =======    =====
    Segment profit...................            $  26.9       16.9%     $ 32.7      18.1%
                                                 =======      =====      =======    =====
</TABLE>

         NET SALES. OEM segment net sales increased $20.8 million, or 13.0%,
from $159.5 million in 1996 to $180.3 million in 1997. The increase primarily
related to internal sales growth within the OEM segment with sales to
DaimlerChrysler representing 37.2% and 32.0% of the Company's revenues (63.6%
and 61.4% of segment revenues) in 1996 and 1997, respectively.

         SEGMENT PROFIT. OEM segment profit as a percentage of OEM net sales
improved slightly from 16.9% to 18.1% between the two periods. The increase was
the result of increased segment net sales with slight improvement in gross
profit margins, as a percentage of segment net sales, due to the improvement of
fixed cost absorption driven by increased sales volume.

         INDEPENDENT AFTERMARKET 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 Years Ended December 31,
                                                 ----------------------------------------
                                                         1996                   1997
                                                 -------------------     ----------------
    <S>                                          <C>          <C>        <C>        <C>
    Net sales........................            $ 107.0      100.0%     $ 158.4    100.0%
                                                 =======      =====      =======    =====
    Segment profit...................            $   2.0        1.9%     $   3.6      2.3%
                                                 =======      =====      =======    =====
</TABLE>

         NET SALES. Independent Aftermarket segment net sales increased $51.4
million, or 48.0%, from $107.0 million in 1996 to $158.4 million in 1997. The
increase was primarily due to (i) $13.0 million from internal growth and (ii)
$35.1 million from incremental net sales generated by the Independent
Aftermarket segment companies acquired in 1996 and 1997.

         SEGMENT PROFIT. Independent Aftermarket segment profit increased $1.6
million from $2.0 million in 1996 to $3.6 million in 1997. The increase was
primarily the result of increased sales volume.

                                       24

<PAGE>

         OTHER OPERATING UNITS

         The following table presents net sales and segment profit (loss)
expressed in millions of dollars and as a percentage of net sales:

<TABLE>
<CAPTION>
                                                      For the Years Ended December 31,
                                                 ----------------------------------------
                                                         1996                   1997
                                                 -------------------     ----------------
    <S>                                          <C>          <C>        <C>        <C>
    Net sales........................            $   6.4      100.0%     $   7.4    100.0%
                                                 =======      =====      =======    =====
    Segment profit (loss)............            $  (0.3)      (4.7)%    $  (0.2)    (2.7)%
                                                 =======      =====      =======    =====
</TABLE>

         NET SALES. Other operating units' net sales increased $1.0 million, or
15.6%, from $6.4 million in 1996 to $7.4 million in 1997. The increase was due
to increased sales by Mascot.

         SEGMENT PROFIT (LOSS). Other operating units profit remained relatively
constant between years.

LIQUIDITY AND CAPITAL RESOURCES

         CASH FLOW & CAPITAL EXPENDITURES

         The Company had total cash and cash equivalents on hand of $0.6 million
at December 31, 1998, representing an increase in net cash of $0.5 million in
1998. Net cash provided by operating activities was $26.9 million for 1998. Net
cash used in investing activities was $137.8 million for the period, including
$115.0 million for the Autocraft Acquisition and $23.5 million in capital
expenditures, primarily for equipment purchases, software and implementation
costs and leasehold improvements. Net cash provided by financing activities was
$111.3 million, including net borrowings of $127.3 million under the Credit
Facility partially offset by $10.0 million used to redeem Senior Notes.

         The Company's capital expenditures in 1998 were $23.5 million. This
included (i) $9.3 million of expenditures in connection with the ongoing
implementation of the Distribution Group's enterprise-wide information system,
(ii) $6.0 million for various improvements to businesses and facilities
associated with the Autocraft Acquisition and (iii) $4.9 million for additional
transmission and engine remanufacturing equipment and other improvements to
support planned increases in production capacity and efficiencies in certain of
the Company's remanufacturing plants.

         The Company has budgeted $19.8 million for capital expenditures during
1999. This amount includes (i) $13.8 million for replacement and additional
remanufacturing equipment to support planned increases in production capacity
and efficiencies in the Company's various facilities and (ii) $6.0 million for
the implementation of the Distribution Group's enterprise-wide information
system.

         As part of the acquisition of ATS, the Company is required to make
additional payments on each of the first eight anniversaries of the closing
date. As of December 31, 1998, the Company had paid $1.0 million of these
additional payments. Substantially all of the additional payments to be made in
the future, which will aggregate to approximately $18.0 million (present value
of $13.7 million as of December 31, 1998), are contingent upon the attainment of
certain sales levels by ATS, which the Company believes are more likely than not
to be attained.

         FINANCING

         The Company raised total net proceeds of $61.6 million in the IPO and
concurrent private placement of Common Stock in December 1996 and an additional
$47.9 million in the secondary offering in October 1997. From the Company's
inception in July 1994 to December 1996, the Company funded its 

                                       25

<PAGE>

operations and investments in property and equipment, including acquisitions, 
through the issuance of Senior Notes totaling $162.4 million, the private 
sale of preferred stock of $20.0 million and Common Stock of $20.0 million, 
and to a lesser extent through cash provided by operating activities and 
revolving bank lines. In December 1996, the preferred stock and $40.0 million 
in principal amount of the Senior Notes were redeemed with proceeds from the 
IPO. In September and October 1998, the Company redeemed $2.2 million and 
$7.4 million, respectively, in principal amount of the Senior Notes, with 
borrowings under the Credit Facility. The net proceeds from the secondary 
offering were used to repay borrowings under the Credit Facility.

         The Company has an agreement with Bank of Montreal for a revolving
credit facility to accommodate the working capital needs of the Company's
Canadian subsidiaries. Borrowings under the agreement are limited to certain
advance rates based upon the eligible accounts receivable and inventory of the
Canadian subsidiaries up to an aggregate maximum of C$3.5 million.

         In February 1997, the Company terminated its $30.0 million revolving
credit facility with The Chase Manhattan Bank (the "Bank") that had been
scheduled to mature in July 1999 and replaced it with the $100.0 million
revolving portion of the Credit Facility, which is also with the Bank. The
Credit Facility is available to finance the Company's working capital
requirements, future acquisitions and other general corporate needs, and will
expire in December 2003. Amounts advanced under the Credit Facility are secured
by substantially all assets of the Company.

         In March 1998, the credit agreement for the Credit Facility was amended
and restated to also provide a $120.0 million term loan facility in addition to
the existing revolving facility. The Company borrowed $120.0 million under the
term loan facility on March 6, 1998 to purchase Autocraft and pay related
transaction expenses. The term loan is payable in quarterly installments through
December 31, 2003 and bears interest at a rate of at either (i) the Alternate
Base Rate plus a specified margin or (ii) the Eurodollar Rate plus a specified
margin. The "Alternate Base Rate" is equal to the highest of (a) the Bank's
prime rate, (b) the secondary market rate for three-month certificates of
deposit plus 1.0% and (c) the federal funds rate plus 0.5%, in each case as in
effect from time to time. The "Eurodollar Rate" is the rate offered by the Bank
for eurodollar deposits for one, two, three, six or, if available by all
lenders, nine months (as selected by the Company) in the interbank eurodollar
market. The applicable margins for both Alternate Base Rate and Eurodollar Rate
loans are subject to a quarterly adjustment based on the Company's leverage
ratio as of the end of the four fiscal quarters then completed. At December 31,
1998 the Alternate Base Rate margin was zero and the Eurodollar margin was 1.0%.
As of the effective date of the Credit Facility waivers and amendments described
below (March 26, 1999), the Alternate Base Rate margin was 1.25% and the
Eurodollar margin was 2.25%.

         The Credit Facility contains several covenants, including ones that
require the Company to maintain certain levels of net worth, leverage, and, cash
flow coverage and others that limit the Company's ability to incur indebtedness,
make capital expenditures, create liens, engage in mergers and consolidations,
make restricted payments (including dividends), sell assets, make investments,
issue stock and engage in transactions with affiliates of the Company and its
subsidiaries.

         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 the 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.

         As of December 31, 1998, the Company's borrowing capacity under the
Credit Facility and the Canadian line of credit would have been $70.5 million
and $0.2 million, respectively, but for the defaults described above. As a
result of the bank waivers, the Company is again able to borrow under these
facilities.

                                       26
<PAGE>

         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 that any such acquisition costs may
have on its liquidity. In order to consummate such acquisitions, the Company may
need to seek additional capital through additional borrowings or equity
financing.

IMPACT OF NEW ACCOUNTING STANDARDS

         In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated a part of a hedge and, if it is, the type of hedge
transaction. The Company anticipates that, due to its limited use of derivative
instruments, the adoption of SFAS No. 133 will not have a significant effect on
the Company's results of operations of its financial position. This statement is
effective for fiscal years beginning after June 15, 1999.

YEAR 2000 COMPLIANCE

         The Company has assembled an internal project team that is addressing
the issue of computer programs and embedded computer chips being unable to
distinguish between the Year 1900 and the Year 2000. The project team has
developed and is in the process of implementing a three-step plan intended to
result in the Company's operations continuing with no or minimal interruption
through the Year 2000. The plan has been designed to comply with guidelines
established by the Automotive Industry Action Group (an industry association
supported by several of the major OEMs).

         For purposes of this discussion, "Year 2000 compatible" means that the
computer hardware, software or device in question will function in 2000 without
modification or adjustment or will function in 2000 with a one-time manual
adjustment. However, there can be no assurance that any such Year 2000
compatible hardware, software or device will function properly when interacting
with any Year 2000 noncompatible hardware, software or device.

         PROCESS OVERVIEW

         The first step in the Company's plan is to inventory all of its
computer hardware and software and all of its devices having imbedded computer
technology. The Year 2000 project team is focusing on five areas: (i) business
systems; (ii) production (E.G., desk top computers and remanufacturing
machinery); (iii) financial management (E.G., banking software, postage
equipment and time clocks); (iv) facilities (E.G., heating and air conditioning
systems, elevators, telephones, and fire and security systems); and (v)
significant vendors and customers. As of March 1, 1999, the inventory is
approximately 95% complete and is expected to be finished by the end of March
1999.

         In the second step, the project team is determining whether each
inventoried system, device, customer or vendor is Year 2000 compatible. In the
third step, those that are not compatible will be upgraded or replaced.

         BUSINESS SYSTEMS. The business systems used by the Company's
electronics operation and the subsidiary that remanufactures transmissions for
Chrysler are both Year 2000 compatible. The systems used by the Distribution
Group, the logistical services operation and the subsidiaries that remanufacture
transmissions for Ford and General Motors are not currently Year 2000 compatible
but are in the process of being upgraded and are expected to be compatible by
the end of the first quarter of 1999. The subsidiary that remanufactures
transmissions for the Company's foreign OEM customers is beginning the
implementation of a new business system that is Year 2000 compatible and expects
to have the implementation completed by the end of the third quarter of 1999.
The business system used by the Company's European operation is not Year 2000
compatible and will be replaced with a compatible

                                        27
<PAGE>

system. The upgrade or replacement of this system is expected to be completed 
by the end of the third quarter of 1999.

         PRODUCTION, FINANCIAL MANAGEMENT AND FACILITIES. Once they have been
inventoried, each device and each piece of hardware and non-business system
software (a "Non-System Item") that can be tested by the Company is being tested
for Year 2000 compatibility. In the case of any Non-System Item that cannot be
tested, the vendor is being asked for a certification regarding compatibility.
Each Non-System Item that is noncompatible will be either upgraded or replaced.
Approximately 95% of the Non-System Items that have been inventoried to date
have been tested or certified by the vendor. The Company expects substantially
all of its Non-System Items will have been tested or certified and upgraded or
replaced by the end of the second quarter of 1999.

         CUSTOMERS AND VENDORS. The project team is in the process of contacting
each of the Company's significant customers and vendors and requesting that they
apprise the Company of the status of their Year 2000 compliance programs. The
Company had originally targeted the end of the first quarter of 1999 as the date
for receiving substantially all customer and vendor responses, but has now moved
the target to the end of the second quarter of 1999. There can be no assurance
as to when this process will be completed.

         COSTS

         The total cost associated with the Company becoming Year 2000
compatible is not expected to be material to its financial position. As of March
1, 1999, the Company had spent approximately $0.2 million in connection with the
project, consisting primarily of costs to upgrade noncompatible business
systems. Over the next nine months, the Company expects to spend approximately
$0.6 million to upgrade its business systems and less than $0.2 million to
upgrade or replace Non-System Items. The estimated cost to upgrade business
systems includes $0.2 million to replace the system used by the Company's
European operation.

         The estimate of the cost to upgrade or replace Non-System Items is
subject to change once the inventory and the testing/certification processes are
completed. As a result, the actual amount that is ultimately expended to upgrade
or replace Non-System Items could be substantially higher or lower than the
above estimate.

         Excluded from the above cost estimates are the costs associated with
the Distribution Group's enterprise-wide computer system to the extent that such
costs relate to implementation of the system as opposed to making it than Year
2000 compatible.

         RISKS

         The failure to correct a material Year 2000 problem could result in an
interruption in or failure of certain normal business activities or operations
of the Company. Such failures could have a material adverse effect on the
Company. Due to the general uncertainty inherent in the Year 2000 problem,
resulting in part from the uncertainty of Year 2000 compliance by the Company's
significant customers and vendors, the Company is unable to determine at this
time whether the consequences of Year 2000 noncompliance will have a material
adverse effect on the Company, although its Year 2000 project is expected to
significantly reduce that uncertainty.

         The Company believes that the areas that present the greatest risk to
the Company are (i) disruption of the Company's business due to Year 2000
noncompatibility of one of its critical business systems and (ii) disruption of
the business of certain of its significant customers and vendors due to their
noncompliance. At this time, the Company believes that all of its business
systems will be Year 2000 compatible before the end of 1999. Whether disruption
of a customer's or vendor's business due to noncompliance will have a material
adverse effect on the Company will depend on several factors including the
nature and duration of the disruption, the significance of the customer or
vendor and, in the case of vendors, the availability of alternate sources for
the vendor's products.

                                         28
<PAGE>


         The Company is in the process of developing a contingency plan to
address any material Year 2000 noncompliance issues. Originally, it expected to
have the plan completed by the end of 1998 but now expects to have the plan
completed by the end of May 1999.

         FORWARD-LOOKING STATEMENT NOTICE

         Readers are cautioned that the preceding discussion contains numerous
forward-looking statements and should be read in conjunction with the
"Forward-Looking Statement Notice" appearing at the beginning of this Annual
Report. Expectations about future Year 2000-related costs and the progress of
the Company's Year 2000 program are subject to various uncertainties that could
cause the actual results to differ materially from the Company's expectations,
including the success of the Company in identifying hardware, software and
devices that are not Year 2000 compatible, the nature and amount of remediation
required to make them compatible, the availability, rate and amount of related
labor and consulting costs and the success of the Company's significant vendors
and customers in addressing their Year 2000 issues.

INFLATION; LACK OF SEASONALITY

         Although the Company is subject to the effects of changing prices, the
impact of inflation has not been a significant factor in results of operations
for the periods presented. In some circumstances, market conditions or customer
expectations may prevent the Company from increasing the prices of its products
to offset the inflationary pressures that may increase its costs in the future.
Historically, there has been little seasonal fluctuation in the Company's
business.

ENVIRONMENTAL MATTERS

         See Item 1. "Business--Environmental" for a discussion of certain
environmental matters relating to the Company.


ITEM 7A. 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 8.
"Consolidated Financial Statements and Supplemental Data--Note 2."

INTEREST RATE EXPOSURE

         Based on the Company's overall interest rate exposure during the year
ended December 31, 1998, 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. Interest rate movements of 10% would not have a material effect on
the Company's financial position, results of operation or cash flows.

FOREIGN EXCHANGE EXPOSURE

         The Company has three 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% movement in foreign exchange would not have a
material effect on the Company's financial position, results of operation or
cash flows.


                                      29
<PAGE>


ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          Aftermarket Technology Corp.

                        Consolidated Financial Statements

              For the years ended December 31, 1996, 1997 and 1998



<TABLE>
<CAPTION>

                                    CONTENTS


<S>                                                                        <C>
Report of Ernst & Young LLP, Independent Auditors...........................31
Consolidated Balance Sheets.................................................32
Consolidated Statements of Operations.......................................33
Consolidated Statements of Stockholders' Equity.............................34
Consolidated Statements of Cash Flows.......................................35
Notes to Consolidated Financial Statements..................................36
</TABLE>





                                      30
<PAGE>


                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Stockholders and Board of Directors
Aftermarket Technology Corp.

         We have audited the accompanying consolidated balance sheets of
Aftermarket Technology Corp. and subsidiaries (the Company) as of December 31,
1997 and 1998, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1998. Our audits also included the financial statement
schedule listed in the Index of Item 14 (a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.

         We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Aftermarket Technology Corp. and subsidiaries at December 31, 1997 and 1998, and
the consolidated results of their operations and their consolidated cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

ERNST & YOUNG LLP

Chicago, Illinois
February 22, 1999,
(Except for Note 22, as to which the date is March 26, 1999)




                                      31
<PAGE>

<TABLE>
<CAPTION>
                               AFTERMARKET TECHNOLOGY CORP.
                               CONSOLIDATED BALANCE SHEETS
                     (In thousands, except share and per share data)

                                                                                         December 31,
                                                                                 1997                   1998
                                                                           ------------------     ------------------
<S>                                                                        <C>                    <C>
ASSETS
Current Assets:
 Cash and cash equivalents                                                              $ 78                  $ 580
 Accounts receivable, net                                                             53,761                 71,357
 Inventories                                                                          76,166                 98,696
 Prepaid and other assets                                                              4,706                  3,959
 Refundable income taxes                                                               1,011                 10,954
 Deferred income taxes                                                                 3,478                  8,240
                                                                           ------------------     ------------------
Total current assets                                                                 139,200                193,786

Property, plant and equipment, net                                                    24,414                 63,903
Debt issuance costs, net                                                               4,260                  5,044
Cost in excess of net assets acquired, net                                           200,393                267,947
Other assets                                                                             410                  1,225
                                                                           ------------------     ------------------
Total assets                                                                       $ 368,677              $ 531,905
                                                                           ==================     ==================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
 Accounts payable                                                                   $ 16,055               $ 35,945
 Accrued expenses                                                                     16,977                 42,643
 Amounts due to acquired companies                                                     3,049                 10,204
 Bank line of credit                                                                   4,596                  2,060
 Current portion of credit facility                                                        -                 15,000
                                                                          ------------------     ------------------
Total current liabilities                                                             40,677                105,852

12% Series B and D Senior Subordinated Notes                                         121,288                111,394
Amount drawn on credit facility, less current portion                                 11,100                123,350
Amounts due to acquired companies                                                      9,097                  8,483
Deferred compensation                                                                  3,042                  3,323
Deferred income taxes                                                                  8,044                 11,492

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 - 19,577,274 and 20,411,768 (including shares 
     held in treasury)                                                                   195                    204
   Additional paid-in capital                                                        131,604                135,104
   Retained earnings                                                                  43,494                 35,676
   Accumulated other comprehensive income (loss)                                         136                   (979)
   Common stock held in treasury, at cost (172,000 shares)                                 -                 (1,994)
                                                                           ------------------     ------------------
Total stockholders' equity                                                           175,429                168,011
                                                                           ------------------     ------------------
Total liabilities and stockholders' equity                                         $ 368,677              $ 531,905
                                                                           ==================     ==================
</TABLE>

SEE ACCOMPANYING NOTES

                                       32
<PAGE>

<TABLE>
<CAPTION>

                                          AFTERMARKET TECHNOLOGY CORP.
                                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                      (In thousands, except per share data)

                                                                       For the years ended December 31,
                                                             1996                1997                 1998
                                                       -----------------    ----------------     ----------------
<S>                                                    <C>                  <C>                  <C>
Net sales                                                     $ 272,878           $ 346,110            $ 486,773
Cost of sales                                                   166,810             212,416              348,443
                                                       -----------------    ----------------     ----------------
Gross profit                                                    106,068             133,694              138,330

Selling, general and
    administrative expense                                       55,510              73,768              109,357
Amortization of intangible assets                                 3,738               4,501                6,806
Special charges                                                       -                   -                8,744
                                                       -----------------    ----------------     ----------------

Income from operations                                           46,820              55,425               13,423

Other income (expense), net                                       1,181               1,912                  (41)
Interest expense                                                 20,287              18,822               23,673
                                                       -----------------    ----------------     ----------------

Income (loss) before income taxes
    and extraordinary items                                      27,714              38,515              (10,291)

Income tax expense (benefit)                                     11,415              15,512               (3,176)
                                                       -----------------    ----------------     ----------------

Income (loss) before extraordinary items                         16,299              23,003               (7,115)

Extraordinary items, net of income taxes                              -              (3,749)                (703)
                                                       -----------------    ----------------     ----------------

Net income (loss)                                                16,299              19,254               (7,818)

Dividends accrued on preferred stock                              2,222                   -                    -
                                                       -----------------    ----------------     ----------------

Net income (loss) available to common
    stockholders                                               $ 14,077            $ 19,254             $ (7,818)
                                                       =================    ================     ================


Per common share - basic:
    Income (loss) before extraordinary items                     $ 1.15              $ 1.31              $ (0.36)
    Extraordinary items                                               -               (0.21)               (0.03)
                                                       -----------------    ----------------     ----------------
   Net income (loss)                                             $ 1.15              $ 1.10              $ (0.39)
                                                       =================    ================     ================

Per common share - diluted:
    Income (loss) before extraordinary items                     $ 1.02              $ 1.19              $ (0.36)
    Extraordinary items                                               -               (0.20)               (0.03)
                                                       -----------------    ----------------     ----------------
   Net income (loss)                                             $ 1.02              $ 0.99              $ (0.39)
                                                       =================    ================     ================
</TABLE>

SEE ACCOMPANYING NOTES

                                       33
<PAGE>

<TABLE>
<CAPTION>
                                           AFTERMARKET TECHNOLOGY CORP.
                                  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                  (In thousands, except share and per share data)

                                                                                                 Accumulated
                                                                                                   Other
                                          Preferred    Common      Additional       Retained    Comprehensive    Treasury
                                            Stock      Stock     Paid-In Capital    Earnings    Income (Loss)      Stock    Total
                                         ----------    -------   ---------------    --------    -------------    --------  -------
<S>                                       <C>          <C>          <C>             <C>              <C>           <C>     <C>
Balance at December 31, 1995              $ 22,946     $ 120        $ 19,880        $ 10,163         $ 25          $ -     $ 53,134

Issuance of 4,980,794 shares of common
   stock for cash at $13.50 per share,
   net of offering costs of $4,788               -        49          61,500               -            -            -       61,549

Redemption of preferred stock              (25,168)        -               -               -            -            -      (25,168)

Accrued dividends on preferred stock         2,222         -               -          (2,222)           -            -            -

Net income                                       -         -               -          16,299            -            -       16,299

Translation adjustment                           -         -               -               -           18            -           18

                                                                                                                            -------
     Comprehensive income                                                                                                    16,317

                                       --------------------------------------------------------------------------------------------
Balance at December 31, 1996                     -       169          81,380          24,240           43            -      105,832

Issuance of 2,200,000 shares of common
   stock for cash at $22.03 per share,
   net of offering costs of $530                 -        22          47,915               -            -            -       47,937

Issuance of 396,480 shares of common
   stock from exercise of stock options          -         4           2,309               -            -            -        2,313

Net income                                       -         -               -          19,254            -            -       19,254

Translation adjustment                           -         -               -               -           93            -           93

                                                                                                                             ------
     Comprehensive income                                                                                                    19,347

                                       --------------------------------------------------------------------------------------------
Balance at December 31, 1997                     -       195         131,604          43,494          136            -      175,429

Issuance of 834,494 shares of common
   stock from exercise of stock options          -         9           3,500               -            -            -        3,509

Purchase of 172,000 shares of common
   stock for treasury                            -         -               -               -            -       (1,994)      (1,994)

Net loss                                         -         -               -          (7,818)           -            -       (7,818)

Translation adjustment                           -         -               -               -       (1,115)           -       (1,115)

                                                                                                                            -------
     Comprehensive loss                                                                                                      (8,933)

                                       --------------------------------------------------------------------------------------------
Balance at December 31, 1998                   $ -     $ 204       $ 135,104        $ 35,676       $ (979)    $ (1,994)    $168,011
                                       ============================================================================================
</TABLE>

SEE ACCOMPANYING NOTES

                                       34
<PAGE>

<TABLE>
<CAPTION>
                                   AFTERMARKET TECHNOLOGY CORP.
                               CONSOLIDATED STATEMENTS OF CASH FLOWS
                                         (In thousands)

                                                                          For the years ended December 31,
                                                                  1996                    1997                  1998
                                                           --------------------    --------------------   -----------------
<S>                                                        <C>                     <C>                    <C>
OPERATING ACTIVITIES:
Net income (loss)                                                     $ 16,299                $ 19,254            $ (7,818)
Adjustments to reconcile net income (loss) to
  net cash provided by operating activities:
      Extraordinary items                                                    -                   6,269               1,172
      Depreciation and amortization                                      5,773                   7,890              15,351
      Amortization of debt issuance costs                                  842                     905                 766
      Provision for losses on accounts receivable                          668                     921               1,877
      Capitalized interest                                                   -                       -                (461)
      Loss on sale of equipment                                             22                       8                 101
      Deferred income taxes                                              1,769                   1,586              (1,314)
      Changes in operating assets and liabilities 
       (net of acquired businesses):
           Accounts receivable                                          (4,537)                (10,258)                388
           Inventories                                                 (12,574)                    544              (3,530)
           Prepaid and other assets                                       (988)                 (1,583)              1,780
           Accounts payable and accrued expenses                        10,521                 (13,803)             18,634
                                                           --------------------    --------------------   -----------------
Net cash provided by operating activities                               17,795                  11,733              26,946

INVESTING ACTIVITIES:
Purchases of property, plant and equipment                              (7,843)                 (8,682)            (23,525)
Acquisition of companies, net of cash received                         (12,199)                (62,871)           (114,995)
Proceeds from sale of equipment                                             85                      77                 762
                                                           --------------------    --------------------   -----------------
Net cash used in investing activities                                  (19,957)                (71,476)           (137,758)

FINANCING ACTIVITIES:
Borrowings on credit facility, net                                           -                  11,100             127,250
Borrowings (payments) on bank line of credit, net                        3,523                     171              (2,261)
Payment of debt issuance costs                                               -                    (786)             (2,425)
Redemption of senior subordinated notes                                      -                 (44,800)            (10,000)
Sale of common stock, net of offering costs                             61,549                  47,937                   -
Redemption of preferred stock                                          (25,168)                      -                   -
Proceeds from exercise of stock options                                      -                     662               1,394
Purchase of common stock for treasury                                        -                       -              (1,994)
Payments on amounts due to acquired companies                                -                    (961)               (650)
                                                           --------------------    --------------------   -----------------
Net cash provided by financing activities                               39,904                  13,323             111,314
                                                           --------------------    --------------------   -----------------

Increase (decrease) in cash and cash equivalents                        37,742                 (46,420)                502

Cash and cash equivalents at beginning of year                           8,756                  46,498                  78
                                                           --------------------    --------------------   -----------------
Cash and cash equivalents at end of year                              $ 46,498                    $ 78               $ 580
                                                           ====================    ====================   =================

Cash paid during the year for:
      Interest                                                        $ 19,412                $ 19,094            $ 21,335
      Income taxes                                                      10,970                  10,880               4,420
</TABLE>

SEE ACCOMPANYING NOTES

                                       35
<PAGE>

                          AFTERMARKET TECHNOLOGY CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


NOTE 1.  THE COMPANY

         Aftermarket Technology Corp. and its subsidiaries ("ATC" or the
"Company") is primarily a remanufacturer and distributor of drive train products
used in the repair of vehicles in the automotive aftermarket. The Company's
principal products include remanufactured transmissions, torque converters,
engines, electronic control modules, instrument and display clusters, radios and
remanufactured and new parts for the repair of automotive drive train
assemblies. In addition, the Company provides value-added, third-party
distribution and material logistical services. The Company also provides reverse
logistics and material recovery services. The Company's automotive customers
include original equipment manufacturers, independent transmission rebuilders,
general repair shops, wholesale distributors and retail automotive parts stores.
Established in 1994, the Company maintains manufacturing facilities and/or
distribution centers in the United States, Canada, Mexico and the United
Kingdom.

NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

         The accompanying consolidated financial statements include the accounts
of the Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated.

USE OF ESTIMATES

         The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

         The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.

INVENTORIES

         Inventories are stated at the lower of cost (first-in, first-out
method) or market and consist primarily of new and used engine and transmission
parts, cores and finished goods. Consideration is given to deterioration,
obsolescence, and other factors in evaluating the estimated market value of
inventory based upon management's judgement and available information.

PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment are stated at cost, less accumulated
depreciation. Depreciation is computed using accelerated and straight-line
methods over the estimated useful lives of the assets for financial reporting
purposes, as follows: five to twelve years for machinery and equipment, three to
six years for autos and trucks, three to ten years for furniture and fixtures
and up to forty years for buildings and leasehold improvements. Depreciation
expense was $2,035, $3,394 and $8,545 for the years ended December 31, 1996,
1997 and 1998, respectively.

INTERNAL USE COMPUTER SOFTWARE

         In 1998, the Company early adopted the provisions of SOP 98-1,
ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL
USE. Historically, the Company had capitalized all costs related to software and
implementation services in connection with its internal use software systems,
which were not material prior to 1998, and classified them as part of property,
plant and equipment. During


                                     36
<PAGE>


1998, in accordance with SOP 98-1, the Company expensed software development 
costs principally related to training and data conversion. The effects of the 
change in accounting principle were immaterial to prior periods. As of 
December 31, 1998, capitalized internal use software costs were $10,494, 
including capitalized interest of $461.

START-UP COSTS

         In 1998, the Company early adopted the provisions of SOP 98-5,
REPORTING THE COSTS OF START-UP ACTIVITIES. Prior to the adoption of SOP 98-5,
the Company capitalized certain costs related to start-up activities. As
required by the provisions of SOP 98-5, the Company has expensed these costs.
The effects of the change in accounting principle were immaterial to prior
periods.

FOREIGN CURRENCY TRANSLATION

         The functional currency for the Company's foreign operations is the
applicable local currency. Accordingly, all balance sheet accounts have been
translated using the exchange rates in effect at the balance sheet date and
income statement amounts have been translated using the average exchange rate
for the year. The translation adjustments resulting from the changes in exchange
rates have been reported separately as a component of stockholders' equity. The
effects of transaction gains and losses were not material for the periods
presented.

DEBT ISSUANCE COSTS

         Debt issuance costs incurred in connection with the sale of the Senior
Notes (see Note 10) and the Credit Facility (see Note 9) are being amortized
over the life of the debt using a method which approximates the interest method.
Debt issuance costs are reflected net of accumulated amortization of $2,018 and
$2,433 at December 31, 1997 and 1998, respectively.

COST IN EXCESS OF NET ASSETS ACQUIRED

         The excess of cost over the fair market value of the net assets of
businesses acquired (goodwill) is amortized on a straight-line basis over 40
years. Cost in excess of net assets acquired is reflected net of accumulated
amortization of $12,758 and $19,561 at December 31, 1997 and 1998, respectively.
The Company assesses the recoverability of cost in excess of net assets acquired
by determining whether the amortization of the asset balance over its remaining
life can be recovered through the undiscounted future operating cash flows of
the acquired operation. The amount of the impairment, if any, is measured based
on projected discounted future operating cash flows.

 LONG-LIVED ASSETS

         The Company evaluates its long-lived assets (including related Cost in
excess of net assets acquired) on an ongoing basis. Identifiable intangibles are
reviewed for impairment wherever events or changes in circumstances indicate
that the carrying amount of the related asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of the asset to future undiscounted cash flows expected to be
generated by the asset. If the asset is determined to be impaired, the
impairment recognized is measured by the amount by which the carrying value of
the asset exceeds its fair value.

CONCENTRATION OF CREDIT RISK

         Financial instruments that potentially subject the Company to a
significant concentration of credit risk consist of accounts receivable from its
customers, which are primarily in the automotive aftermarket industry throughout
the United States, and to a lesser extent Canada and the United Kingdom. The
credit risk associated with the Company's accounts receivable is mitigated by
its credit evaluation process and the geographical dispersion of sales
transactions. The Company grants credit to certain customers who meet
pre-established credit requirements. Customers who do not meet those
requirements are required to pay for products upon delivery.

         Accounts  receivable is reflected net of an allowance for doubtful  
accounts of $1,146 and $2,404 at December 31,  1997 and 1998, respectively.


                                      37
<PAGE>


OFF BALANCE SHEET DERIVATIVE INSTRUMENTS

         During 1998 the Company entered into an interest rate swap agreement.
The interest rate swap agreement is used by the Company to manage interest rate
risk on a portion of its floating rate credit facility. The interest rate swap
is matched as a hedge against and has the same maturity date as the Credit
Facility. The interest rate swap agreement converts the floating interest rate
on a portion of the Credit Facility to a fixed rate. The cost of the interest
rate swap is recorded as part of interest expense and accrued expenses. Fair
value of these instruments is based on estimated current settlement cost.

WARRANTY POLICY

         The Company estimates warranty cost as sales are made.

STOCK- BASED COMPENSATION

         The Company has elected to follow APB Opinion No. 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES, and related interpretations in accounting for the
stock options awarded under the Company's 1996 and 1998 stock option plans.
Accordingly, compensation expense is recognized only for those options whose
price is less than fair market value at the measurement date. The Company has
adopted the disclosure only provisions of SFAS 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION.

NEW ACCOUNTING STANDARDS

         In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on the type
of hedge transaction. The Company anticipates that, due to its limited use of
derivative instruments, the adoption of SFAS No. 133 will not have a significant
effect on the Company's results of operations or its financial position. The
Company is required to adopt SFAS No. 133 on January 1, 2000.

RECLASSIFICATIONS

         Certain prior-year amounts have been reclassified to conform to the
1998 presentation.

NOTE 3.  ACQUISITIONS

         The Company acquired Tranzparts, Inc. ("Tranzparts") for $4.2 million
and Diverco, Inc. ("Diverco") for $10.9 million, including transaction fees and
related expenses, in April 1996 and October 1996, respectively. Goodwill
recorded for Tranzparts and Diverco approximated $2.4 million and $6.6 million,
respectively. The operations of Tranzparts and Diverco were not material to the
Company's consolidated operations.

         In January 1997, the Company acquired Replacement & Exchange Parts Co.,
Inc. ("REPCO"); a Texas based distributor of transmission repair parts, for a
purchase price of approximately $12.3 million, including transaction fees and
related expenses. Goodwill recorded approximated $6.8 million. The operations of
REPCO were not material to the Company's consolidated operations.

         In July 1997, the Company acquired substantially all of the assets of
ATS Remanufacturing ("ATS"), a remanufacturer of automatic transmissions and
related components located in Gastonia, North Carolina. To complete this
acquisition, the Company made cash payments totaling $12.9 million, including
transaction fees and related expenses. In addition, the ATS acquisition requires
subsequent payments due on each of the first eight anniversaries of the closing
date. As of December 31, 1998, the Company had made $1.0 million of additional
payments related to the ATS acquisition. Substantially all of the additional
payments to be made in the future, which will aggregate to approximately $18.0
million (present value $13.7 million as of December 31, 1998), are contingent
upon the attainment of certain sales levels by ATS, which the Company believes
are more likely than not to be attained. Goodwill recorded for ATS approximated
$26.1 million. The operations of ATS were not material to the Company's
consolidated operations.


                                      38
<PAGE>


         In August 1997, the Company acquired Trans Mart, Inc. ("Trans Mart"), a
distributor of automatic and standard transmission parts and related drive train
components based in Florence, Alabama. To complete this acquisition, the Company
made cash payments of $27.9 million, including transaction fees and related
expenses. Goodwill recorded for Trans Mart approximated $20.9 million. The
operations of Trans Mart were not material to the Company's consolidated
operations.

         In November 1997, the Company acquired Metran Automatic Transmission
Parts Corp. ("Metran"), a New York based distributor of automatic and manual
transmission parts and related drive train components, for a purchase price of
approximately $8.1 million, including transaction fees and related expenses.
Goodwill recorded approximated $5.3 million. The operations of Metran were not
material to the Company's consolidated operations.

         In January 1998, the Company acquired the inventory, accounts
receivable and related customer lists of Automatic Parts & Equipment, Inc., a
Minnesota based distributor of automatic and manual transmission parts and
related drive train components, for a purchase price of approximately $0.2
million, including transaction fees and related expenses. Goodwill recorded
approximated $0.1 million. The operations of Automatic Parts & Equipment, Inc.
were not material to the Company's consolidated operations.

         In March 1998, the Company acquired substantially all the assets of the
OEM Division of Autocraft Industries, Inc. ("Autocraft"), a remanufacturer and
distributor of drive train and electronic parts used in the warranty and
aftermarket repair of passenger cars and light trucks. The purchase price was
approximately $115.9 million, including transaction fees and related expenses.
The Company has estimated an additional payment of approximately $5.9 million to
be paid in 1999 based on the performance of the OEM Division's European
operations during 1998. Goodwill recorded of approximately $73.2 million
includes the additional payment. 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 company's property, plant
and equipment and certain other information.

         These acquisitions have 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. The
consolidated financial statements include the operating results of each business
from the date of acquisition.

         On a pro forma basis, had the Autocraft acquisition occurred as of the
beginning of the following fiscal years, the Company would have reported:

<TABLE>
<CAPTION>
                                                     FOR THE YEARS ENDED DECEMBER 31,
                                                          1997           1998
                                                       --------------------------
                                                                 (UNAUDITED)
                                                       --------------------------
<S>                                                    <C>            <C>
     Net sales........................................ $  480,203     $  513,844
     Income (loss) before extraordinary items.........     24,281         (7,154)
     Net income (loss)................................     20,169         (7,857)
     Earnings (loss) per share:
          Basic....................................... $     1.15     $    (0.39)
          Diluted.....................................       1.04          (0.39)
</TABLE>

         The proforma information is not necessarily indicative of the results
of operations as they would have been had the transaction been effected on the
assumed date.

NOTE 4.  RELATED-PARTY TRANSACTIONS

         The Company believes the following transactions were on terms at least
as favorable to the Company as could have been obtained from unaffiliated third
parties pursuant to arms-length negotiations.

         Amounts due to acquired companies are comprised primarily of additional
purchase price payable to former owners and certain officers of companies
acquired in 1996, 1997 and 1998. Amounts are payable through 2005.


                                      39
<PAGE>


         During 1998, the Company received fees totaling $1,062 from The Fred
Jones Companies, Inc. for computer systems support services provided by the
Company. In addition, the Company sold $95 of products to certain automobile
dealerships owned by a limited liability company in which The Fred Jones
Companies has a significant equity interest. Fred Hall, a director of the
Company, is Chairman, President, Chief Executive Officer and a significant
stockholder of The Fred Jones Companies.

         Rent expense includes amounts paid to related parties, including The
Fred Jones Companies and certain former officers of the Company, of $940, $1,574
and $1,863 for the years ended December 31, 1996, 1997 and 1998, respectively.

         The Company paid Aurora Capital Partners ("ACP"), which controls the
Company's largest stockholders, $299, $1,395 and $1,875 in fees for investment
banking services provided in connection with companies acquired in 1996, 1997
and 1998, respectively. In addition, ACP was paid management fees of $513, $534
and $541 in 1996, 1997 and 1998, respectively. The Company reimburses ACP for
out of pocket expenses incurred in connection with providing management
services. ACP is also entitled to various additional fees depending on the
Company's profitability or certain significant corporate transactions. No such
additional fees were paid in 1996, 1997 or 1998.

NOTE 5.  INVENTORIES

         Inventories consist of the following:

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                           1997                1998
                                                     ------------------------------------
<S>                                                      <C>                 <C>
    Raw materials, including core inventories......      $  24,788           $  46,102
    Work-in-process................................          3,125               3,051
    Finished goods.................................         48,253              49,543
                                                     ------------------------------------
                                                         $  76,166           $  98,696
                                                     ====================================
</TABLE>

         Finished goods include purchased parts which are available for sale.

NOTE 6.  PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment are summarized as follows:

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                                1997             1998
                                                         ------------------------------------
<S>                                                         <C>              <C>
    Land....................................                $        --      $     1,982
    Buildings...............................                         --           10,031
    Machinery and equipment.................                     19,335           54,165
    Autos and trucks........................                      2,712            4,045
    Furniture and fixtures..................                      3,139            3,997
    Leasehold improvements..................                      6,058           11,751
                                                         ------------------------------------
                                                                 31,244           85,971
    Less:  Accumulated depreciation and amortization             (6,830)         (22,068)
                                                         ------------------------------------
                                                             $   24,414       $   63,903
                                                         ====================================
</TABLE>


                                       40
<PAGE>


NOTE 7.  ACCRUED EXPENSES

         Accrued expenses are summarized as follows:

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                               1997             1998
                                                        -------------------------------------
<S>                                                          <C>              <C>
    Payroll and related costs.........................       $  5,820         $  11,478
    Interest payable..................................          6,253             6,885
    Core liability ...................................             --             5,170
    Warranty..........................................          1,682             3,364
    Non-income related taxes..........................            438             3,220
    Restructuring and other costs.....................             --             2,994
    Other.............................................          2,784             9,532
                                                        -------------------------------------
                                                             $ 16,977         $  42,643
                                                        =====================================
</TABLE>

NOTE 8.  BANK LINE OF CREDIT

         In September 1998, the Company's Canadian subsidiaries renewed their
revolving credit agreement with the Bank of Montreal (the "BOM Revolving Credit
Agreement"), providing for a C$3.5 million revolving credit facility to
accommodate the working capital needs of the Canadian subsidiaries. The funds
available to be advanced may not exceed the aggregate of 75% of the eligible
accounts receivable and 50% of the eligible inventory of the Canadian
subsidiaries. Amounts advanced are secured by substantially all assets of the
Canadian subsidiaries and are guaranteed by the Company. Interest is payable
monthly at the Bank of Montreal's prime lending rate (7.75% at December 31,
1998) plus 0.25%. At December 31, 1998, $2.1 million was outstanding under this
line of credit.

         The BOM Revolving Credit Agreement contains certain covenants,
including a tangible net worth covenant for the combined results of the
Company's Canadian subsidiaries, and provides for cross-default in the event of
a default under the Company's Credit Facility (see Note 9.) As of December 31,
1998, the Company was in technical default of the BOM Revolving Credit Agreement
due to the cross-default provision and was restricted from making further
borrowings. In March 1999, the Company obtained the necessary amendments and
waivers to cure the default on its Credit Facility as well as the cross-default
provisions of the BOM Revolving Credit Agreement (See Note 22.)

NOTE 9.  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 and a $120.0 million term loan (the "Credit Facility") to
finance the Company's working capital requirements, future acquisitions and the
acquisition of Autocraft (see Note 3). Amounts advanced under the Credit
Facility are secured by substantially all the assets of the Company. Amounts
advanced under the revolving portion of the Credit Facility will become due on
December 31, 2003. The balance outstanding on the term loan as of December 31,
1998 was $110.0 million. The Company may prepay outstanding advances under the
line of credit or the term loan portion of the Credit Facility in whole or in
part without incurring any premium or penalty. At December 31, 1998, $28.4
million was outstanding under the line of credit.

         At the Company's election, amounts advanced under the revolving portion
of the Credit Facility will bear interest at either (i) the Alternate Base Rate
plus a specified margin, or (ii) the Eurodollar Rate plus a specified margin.
The "Alternate Base Rate" is equal to the highest of (a) the Bank's prime rate,
(b) the secondary market rate for three-month certificates of deposit plus 1.0%
and (c) the federal funds rate plus 0.5%, in each case as in effect from time to
time. The "Eurodollar Rate" is the rate offered by the Bank for eurodollar
deposits for one, two, three, six or, if available by all lenders, nine months
(as selected by the Company). The applicable margins for both Alternate Base
Rate and Eurodollar Rate loans are subject to a quarterly adjustment based on
the Company's leverage ratio as of the end of the four fiscal quarters then
completed. At December 31, 1998, the Alternate Base Rate and the Eurodollar Rate
margins are 0.0% and 


                                     41
<PAGE>


1.0%, respectively. Interest payments on advances that bear interest based 
upon the Alternate Base Rate are due quarterly in arrears and on the 
termination date, and interest payments on advances that bear interest based 
upon the Eurodollar Rate are due on the last day of each relevant interest 
period (or, if such period exceeds three months, quarterly after the first 
day of such period). The blended interest rate on the credit facility for the 
year ended December 31, 1998 was 6.72%.

         The Company paid the Bank a one-time facility and commitment fee upon
the effective date of the Credit Facility and is required to pay the Bank
quarterly in arrears a commitment fee equal to a per annum percentage of the
average daily unused portion of the Credit Facility during such quarter. The
commitment is subject to a quarterly adjustment based on the Company's leverage
ratio as of the end of the four fiscal quarters then completed. The quarterly
commitment fee percentage is 0.375%. The Company must also reimburse the Bank
for certain legal and other costs of the Bank and pay a fee on outstanding
letters of credit at a rate per annum equal to the applicable margin then in
effect for advances bearing interest at the Eurodollar Rate.

         During  1998, in order to convert $50.0 million of its Credit  
Facility to a fixed rate, the Company entered into an interest rate swap 
agreement.

         The Credit Facility contains several covenants, including ones that
require the Company to maintain certain levels of net worth, leverage and cash
flow coverage, and others that limit the Company's ability to incur
indebtedness, make capital expenditures, create liens, engage in mergers and
consolidations, make restricted payments (including dividends), sell assets,
make investments, issue stock and engage in transactions with affiliates of the
Company and its subsidiaries.

         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. Due to
the defaults, the Company was not able to borrow under the Credit Facility. 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.

          Annual maturities of the Company's Credit Facility are as follows as
of December 31, 1998:

<TABLE>
<CAPTION>
<S>                                                 <C>
    1999........................................    $ 15,000
    2000........................................      20,000
    2001........................................      25,000
    2002........................................      25,000
    2003........................................      53,350
                                                    ---------
                                                    $138,350
                                                    =========
</TABLE>

NOTE 10.  12% SERIES B AND D SENIOR SUBORDINATED NOTES

         On August 2, 1994, the Company completed a private placement issuance
of $120.0 million of 12% Series A Senior Subordinated Notes due in 2004.
Proceeds from the issuance were used to partially finance the acquisitions made
by the Company in 1994. The privately placed debt was subsequently exchanged for
public debt (Series B).

         On June 1, 1995, the Company completed another private placement
issuance of $40.0 million of 12% Series C Senior Subordinated Notes due in 2004.
Proceeds of $42.4 million from the issuance were used to finance acquisitions
made by the Company during 1995. These notes have an effective interest rate of
10.95%. The privately placed debt was subsequently exchanged for public debt
(Series D).

         Interest on the 12% Series B and Series D Senior Subordinated Notes
(the "Senior Notes") is payable semiannually on February 1 and August 1 of each
year. The Senior Notes will mature on August 1, 2004. On or after August 1,
1999, the Senior Notes may be redeemed at the option of the Company, in whole or
in part, at specified redemption prices plus accrued and unpaid interest:


                                     42
<PAGE>

<TABLE>
<CAPTION>

       YEAR                                                REDEMPTION PRICE
       ----                                                ----------------
<S>                                                             <C>
       1999...............................................       106%
       2000...............................................       104
       2001...............................................       102
       2002 and thereafter................................       100
</TABLE>

         In addition, at any time on or prior to August 1, 1997, the Company
could have, subject to certain requirements, redeemed up to $30.0 million of the
Series B Senior Notes and $10.0 million of the Series D Senior Notes with the
net cash proceeds of one or more public equity offerings, at a price equal to
112% of the principal amount to be redeemed plus accrued and unpaid interest. On
February 16, 1997, the Company exercised its right and redeemed $30.0 million in
principal amount of the Series B Senior Notes and $10.0 million in principal
amount of the Series D Senior Notes. In connection with these redemptions, the
Company recorded an extraordinary loss of $3.8 million, net of tax.

         During 1998, the Company purchased and retired a total of $2.2 million
in principal amount of the Series D Senior Notes and $7.4 million in principal
amount of the Series B Senior Notes in open market transactions. In connection
with these purchases, the Company recorded an extraordinary loss of $0.3
million, net of tax.

         In the event of a change in control, the Company would be required to
offer to repurchase the Senior Notes at a price equal to 101% of the principal
amount plus accrued and unpaid interest.

         The Senior Notes are general obligations of the Company, subordinated
in right of payment to all existing and future senior debt (including the
Company's Credit Facility). The Senior Notes are guaranteed by each of the
Company's existing and future subsidiaries other than any subsidiary designated
as an unrestricted subsidiary (as defined). As of December 31, 1998, the Company
had no unrestricted subsidiaries. The Company may incur additional indebtedness,
including borrowings under its Credit Facility (See Note 9), subject to certain
limitations.

         The indentures under which the Senior Notes were issued contain certain
covenants that, among other things, limit the Company's ability to incur
additional indebtedness under certain conditions, issue disqualified capital
stock, engage in transactions with affiliates, incur liens, make certain
restricted payments (including dividends), make certain asset sales and permit
certain restrictions on the ability of its subsidiaries to make distributions.
As of December 31, 1998, the Company was in compliance with such covenants.


NOTE 11.  INCOME TAXES

         The Company uses an asset and liability approach to financial
accounting and reporting for income taxes. Income tax expense (benefit) consist
of the following:

<TABLE>
<CAPTION>
                                               FOR THE YEARS ENDED DECEMBER 31,
                                              1996          1997          1998
                                          ----------------------------------------
<S>                                       <C>             <C>           <C>
Current:
   Federal............................... $   8,350       $  11,902     $  (1,938)
   State.................................     1,147           1,919          (277)
   Foreign...............................       149             105           353
                                          ----------------------------------------
Total current............................     9,646          13,926        (1,862)
Deferred:
   Federal...............................     1,621           1,366        (1,150)
   State.................................       148             220          (164)
                                          -----------------------------------------
Total deferred...........................     1,769           1,586        (1,314)

Extraordinary items......................        --         ( 2,520)         (469)
                                          -----------------------------------------
                                          $  11,415       $  12,992     $  (3,645)
                                          =========================================
</TABLE>


                                      43
<PAGE>


         In addition, the Company has recognized tax benefits related to the
exercise of certain non-qualified stock options as an increase in stockholders'
equity of $1,696 and $2,196 for the years ended December 31, 1997 and 1998,
respectively.

         The reconciliation of income tax expense (benefit) computed at the U.S.
federal statutory tax rates to income tax expense (benefit) is as follows:

<TABLE>
<CAPTION>
                                                      FOR THE YEARS ENDED DECEMBER 31,
                                       1996                         1997                         1998
                            -----------------------------------------------------------------------------------
                               AMOUNT       PERCENT        AMOUNT        PERCENT         AMOUNT      PERCENT
                            -----------------------------------------------------------------------------------
<S>                         <C>               <C>         <C>              <C>          <C>           <C>
Tax at U.S. statutory rates $   9,700         35.0%       $  11,286        35.0%        $ (4,012)     35.0%
State income taxes, net of
 federal tax benefit......        842          3.0            1,167         3.6             (573)      5.0
Foreign income taxes......         --           --               --          --              516      (4.5)
Other.....................        873          3.2              539         1.7              424      (3.7)
                            -----------------------------------------------------------------------------------
                            $  11,415         41.2%       $  12,992        40.3%        $ (3,645)     31.8%
                            ===================================================================================
</TABLE>

         Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax liabilities and assets are as follows:

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                             1997        1998
                                                          ------------------------
<S>                                                       <C>         <C>
Deferred tax assets:
   Inventory obsolescence reserve........................ $    854    $   3,774
   Allowance for doubtful accounts.......................      378          566
   Product warranty accruals.............................      506        1,117
   Other accruals and deferrals..........................    1,740        2,783
                                                          ------------------------
Total deferred tax assets................................    3,478        8,240
                                                          ------------------------
Deferred tax liabilities:
   Amortization of intangible assets ....................    6,987       10,123
   Accelerated depreciation..............................    1,057        1,217
   Other accruals and deferrals..........................       --          152
                                                          ------------------------
Total deferred tax liabilities...........................    8,044       11,492
                                                          ------------------------
Net deferred tax liability............................... $  4,566    $   3,252
                                                          ========================
</TABLE>

NOTE 12.  STOCK OPTIONS AND WARRANTS

         The Company provides stock options to employees, non-employee
directors, and independent contractors under its 1996 Stock Incentive Plan (the
"1996 Plan") and its 1998 Stock Incentive Plan (the "1998 Plan"). The Plans
provide for granting of non-qualified and incentive stock option awards. Options
under the Plans are generally granted at fair value and vest over a period of
time to be determined by the Board of Directors, generally from three to five
years. Options under the Plans expire 10 years from the date of grant. The
Company has reserved 2.4 million and 1.2 million shares of common stock under
the 1996 and 1998 Plans, respectively. Options available for grant under the
Plans were 9,606 and 525,106 as of December 31, 1997 and 1998, respectively.


                                      44
<PAGE>


         A summary of the status of the Company's option plans are presented
below:

<TABLE>
<CAPTION>
                                               1996                      1997                      1998
                                     ------------------------   -----------------------   --------------------------
                                                    WEIGHTED-                 WEIGHTED-                  WEIGHTED-
                                                    AVERAGE                    AVERAGE                    AVERAGE
                                                    EXERCISE                  EXERCISE                    EXERCISE
                                       SHARES        PRICE       SHARES        PRICE        SHARES        PRICE
                                     ---------     ---------    ---------     --------    ----------    ------------
<S>                                  <C>             <C>        <C>           <C>         <C>             <C>
Outstanding at beginning of year...  1,526,778       $1.67      2,272,218     $ 2.65       1,993,914      $ 3.82
Granted............................    745,440       $4.67        130,176     $17.64       1,336,000      $ 9.54
Exercised..........................         --          --       (396,480)    $ 1.67        (834,494)     $ 1.67
Canceled...........................         --          --       (12,000)     $ 4.67        (651,500)     $ 7.97
                                     ---------     ---------    ---------     --------    ----------    ------------
Outstanding at end of year.........  2,272,218       $2.65      1,993,914     $ 3.82       1,843,920      $ 7.46
                                     ---------                  ---------                  ---------
Exercisable at end of year.........  1,117,113       $1.67      1,163,944     $ 2.27         600,234      $ 4.71
                                     =========                  =========                  =========

Weighted-average fair value of 
  options granted during the 
  year.............................                  $7.10                     $12.11                     $ 5.98
</TABLE>


         The following summarizes information about options outstanding as of
December 31, 1998:

<TABLE>
<CAPTION>
                                   OPTIONS OUTSTANDING                             OPTIONS EXERCISABLE
                    ---------------------------------------------------      ---------------------------------
                                             AVERAGE          WEIGHTED-                             WEIGHTED-
      RANGE OF                              REMAINING         AVERAGE                               AVERAGE
      EXERCISE                             CONTRACTUAL        EXERCISE                              EXERCISE
       PRICES              SHARES             LIFE             PRICES            SHARES              PRICES
                    -------------------   -------------      ----------      ------------------   ------------
<S>                 <C>                    <C>                 <C>           <C>                      <C>
      $1.67               295,804           5.9 years           $1.67             126,060             $ 1.67
   $4.60-$6.90            990,440           7.4 years           $4.96             450,783             $ 4.97
   $6.91-$11.50           206,000          10.0 years          $10.03                --                --
  $11.51-$16.10            35,088           8.2 years          $14.75              11,695             $14.75
  $16.11-$20.50           316,588           9.3 years          $18.02              11,696             $17.25
                    -------------------                                      -----------------
                        1,843,920           7.8 years           $7.46             600,234             $ 4.71
                    ===================                                      ==================
</TABLE>

         In connection with the Company's initial acquisitions in July of 1994,
warrants to purchase 350,880 shares of Common Stock at $1.67 per share were
issued to two individuals. The warrants are exercisable through 2004. The
Company has also issued a warrant to one member of the Board of Directors to
purchase 70,176 shares of Common Stock at $1.67 per share, the fair value of the
Common Stock on the date of grant.

         Had compensation cost for the Company's Plans been determined in
accordance with SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, the
Company's net income (loss) and earnings (loss) per share would have been
reduced to the proforma amounts indicated below:

<TABLE>
<CAPTION>
                                                      FOR THE YEARS ENDED DECEMBER 31,
                                                      1996         1997        1998
                                                   -------------------------------------
<S>                                                  <C>          <C>         <C>
Income (loss) before extraordinary items:
     As reported................................     $16,299      $23,003     $(7,115)
     Pro forma..................................      15,982       22,127      (9,457)
Basic earnings (loss) per common share:
     As reported................................      $ 1.15       $ 1.31     $ (0.36)
     Pro forma..................................        1.13         1.26       (0.47)
</TABLE>


                                      45
<PAGE>


         The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions:

<TABLE>
<CAPTION>
                                                    FOR THE YEARS ENDED DECEMBER 31,
                                                   1996          1997          1998
                                                --------------------------------------
<S>                                             <C>           <C>           <C>
Expected volatility........................        51.31%        51.31%        71.16%
Risk-free interest rates...................         6.00%         6.00%         5.25%
Expected lives.............................     8.2 years     8.2 years     6.3 years
</TABLE>

         The Company has not paid and does not anticipate paying dividends;
therefore, the expected dividend yield is assumed to be zero.

NOTE 13.  COMMON AND PREFERRED STOCK

         On December 17, 1996, the Company sold 4.0 million shares of common
stock at $13.50 per share through an initial public offering. In addition, the
Company sold to General Electric Pension Trust 1.0 million shares of common
stock at $12.555 per share in a private placement.

         On October 28, 1997, the Company completed a secondary public offering
of 3.7 million shares of its common stock at $23.25 per share. Of the shares
sold in the offering, 2.2 million shares were sold by the Company and 1.5
million shares were sold by certain stockholders. The Company did not receive
any proceeds from the sale of shares by the selling stockholders.

         On May 6, 1998, the stockholders of the Company approved the amendment
to the Company's Amended and Restated Certificate of Incorporation to reduce the
number of authorized shares of preferred stock from 5,000,000 to 2,000,000.

         On August 26, 1998, the Company's Board of Directors authorized the
Company to repurchase 350,000 shares of the Company's Common Stock. As of
December 31, 1998, the Company had repurchased 172,000 shares at an average
price $11.59 per share.

NOTE 14.  EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per
share:

<TABLE>
<CAPTION>
                                                                         FOR THE YEARS ENDED DECEMBER 31,
                                                                     1996              1997              1998
                                                              -----------------------------------------------------
<S>                                                              <C>              <C>               <C>
Numerator:
   Net income (loss)......................................          $16,299          $19,254          $(7,818)
                                                              -----------------------------------------------------

Denominator:
   Weighted-average common shares outstanding.............       12,203,021       17,496,173        19,985,850
   Common shares issued to redeem preferred stock ........        1,948,767               --                --
                                                              -----------------------------------------------------
   Denominator for basic earnings per common share........       14,151,788       17,496,173        19,985,850

   Effect of dilutive securities:
      Employee stock options and warrants.................        1,766,596        1,839,186                --
                                                              -----------------------------------------------------
   Denominator for diluted earnings per common share .....       15,918,384       19,335,359        19,985,850
                                                              =====================================================

Basic earnings (loss) per common share....................            $1.15            $1.10           $(0.39)
Diluted earnings (loss) per common share..................             1.02             0.99            (0.39)

</TABLE>

         The share calculation for 1996 is based upon the pro forma effects from
the estimated number of shares of Common Stock issued in the Company's initial
public offering from which net proceeds were used to redeem the outstanding
preferred stock including accrued dividends.

         Due to the loss reported in 1998, the applicable share calculation
above excludes the antidilutive effect of stock options and warrants which would
have been 1,092,511 had the Company not reported a loss.


                                     46
<PAGE>


NOTE 15.  EMPLOYEE RETIREMENT PLAN

         The Company's defined contribution plans provide substantially all 
U.S. salaried and hourly employees of the Company an opportunity to 
accumulate personal funds for their retirement, subject to minimum duration 
of employment requirements. Contributions are made on a before-tax basis to 
substantially all of these plans.

         As determined by the provisions of each plan, the Company matches a
portion of the employees' basic voluntary contributions. Company matching
contributions to the plans were approximately $206, $359 and $532 for the plan
years ending in 1996, 1997 and 1998, respectively.

NOTE 16.  COMMITMENTS AND CONTINGENCIES

         The Company leases certain facilities and equipment under various
operating lease agreements, which expire on various dates through 2012. Facility
leases that expire generally are expected to be renewed or replaced by other
leases. Future minimum rental commitments under non-cancelable operating leases
with terms in excess of one year are as follows:

<TABLE>
<CAPTION>

FOR THE YEARS ENDED DECEMBER 31,
<S>                                                  <C>
1999................................................      $11,792
2000................................................       10,071
2001................................................        7,810
2002................................................        6,264
2003................................................        4,647
Thereafter..........................................        7,960
                                                    ------------------
                                                          $48,544
                                                    ==================
</TABLE>

         Rent expense for all operating leases approximated $4,582, $7,228 
and $9,561 for the years ended December 31, 1996, 1997 and 1998, respectively.

         The Company is subject to various evolving Federal, state, local and
foreign environmental laws and regulations governing, among other things,
emissions to air, discharge to waters and the generation, handling, storage,
transportation, treatment and disposal of a variety of hazardous and non-
hazardous substances and wastes. These laws and regulations provide for
substantial fines and criminal sanctions for violations and impose liability for
the costs of cleaning up, and certain damages resulting from, past spills,
disposals or other releases of hazardous substances.

         In connection with the acquisition of certain subsidiaries, the Company
conducted certain investigations of these companies' facilities and their
compliance with applicable environmental laws. The investigations, which
included "Phase I" assessments by independent consultants of all manufacturing
and certain distribution facilities, found that certain facilities have had or
may have had releases of hazardous materials that may require remediation and
also may be subject to potential liabilities for contamination from off-site
disposal of substances or wastes. These assessments also found that certain
reporting and other regulatory requirements, including certain waste management
procedures, were not or may not have been satisfied. Although there can be no
assurance, the Company believes that, based in part on the investigations
conducted, in part on certain remediation completed prior to the acquisitions,
and in part on the indemnification provisions of the agreements entered into in
connection with the Company's acquisitions, the Company will not incur any
material liabilities relating to these matters.

         The company from which RPM Merit ("RPM") acquired its assets (the
"Prior RPM Company") has been identified by the United States Environmental
Protection Agency (the "EPA") as one of many potentially responsible parties for
environmental liabilities associated with a "Superfund" site located in the area
of RPM's former manufacturing facilities and current distribution facility in
Azusa, California. The Federal Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA" or "Superfund")
provides for cleanup of sites from which there has been a release or threatened
release of hazardous substances, and authorizes recovery of related response
costs and certain other damages from 


                                     47
<PAGE>


potentially responsible parties ("PRPs"). PRPs are broadly defined under 
CERCLA, and generally include present owners and operators of a site and 
certain past owners and operators. As a general rule, courts have interpreted 
CERCLA to impose strict, joint and several liability upon all persons liable 
for cleanup costs. As a practical matter, however, at sites where there are 
multiple PRPs, the costs of cleanup typically are allocated among the PRPs 
according to a volumetric or other standard. The EPA has preliminarily 
estimated that it will cost approximately $47.0 million to construct and 
approximately $4.0 million per year for an indefinite period to operate an 
interim remedial groundwater pumping and treatment system for the part of the 
Superfund site within which RPM's former manufacturing facilities and current 
distribution facility, as well as those of many other potentially responsible 
parties, are located. The actual cost of this remedial action could vary 
substantially from this estimate, and additional costs associated with the 
Superfund site are likely to be assessed. The Company has significantly 
reduced its presence at the site and has moved all manufacturing operations 
off-site. Since July 1995, the Company's only real property interest in this 
site has been the lease of a 6,000 square foot storage and distribution 
facility. The RPM acquisition agreement and the leases pursuant to which the 
Company leased RPM's facilities after the Company acquired the assets of RPM 
(the "RPM Acquisition") expressly provide that the Company did not assume any 
liabilities for environmental conditions existing on or before the RPM 
Acquisition, although the Company could become responsible for these 
liabilities under various legal theories. The Company is indemnified against 
any such liabilities by the seller of RPM as well as the Prior RPM Company 
shareholders. There can be no assurance, however, that the Company would be 
able to make any recovery under any indemnification provisions. Since the RPM 
Acquisition, the Company has been engaged in negotiations with the EPA to 
settle any liability that it may have for this site. Although there can be no 
assurance, the Company believes that it will not incur any material liability 
as a result of these environmental conditions.

NOTE 17.  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 and engines directly to the OEMs. The Company's Independent
Aftermarket segment consists of the Company's Distribution Group, which
primarily sells transmission repair kits, soft parts, remanufactured torque
converters and new and remanufactured hard parts used in drive train repairs to
independent transmission rebuilders and to a lesser extent to general repair
shops, wholesale distributors and retail automotive parts stores. Other
operating units, which are not reportable segments, consist of an electronic
parts remanufacturing and distribution business, warehouse and distribution
services for AT&T Wireless (the cellular telephone subsidiary of AT&T) and a
material recovery processing business for Ford.

         The Company evaluates performance and allocates resources based upon
profit or loss before income taxes and extraordinary items ("EBT"). The
reportable segments' accounting policies are the same as those described in the
summary of significant accounting policies (see Note 2). Intersegment sales and
transfers are recorded at the Company's standard cost and all intersegment
profits, if any, are eliminated.


                                     48
<PAGE>


         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:

<TABLE>
<CAPTION>
                                                                    INDEPENDENT
                                                       OEM          AFTERMARKET         OTHER         TOTALS
                                                     ---------      -----------      ----------      --------
<S>                                                  <C>             <C>              <C>            <C>
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998:
   Revenues from external customers................. $ 252,962       $ 186,730        $  47,081      $ 486,773
   Intersegment revenues............................       720           1,069                -          1,789
   Other income.....................................     2,454             529              441          3,424
   Interest expense.................................    20,795          10,985            2,911         34,691
   Depreciation and amortization expense............     8,676           4,416            1,628         14,720
   Special charges..................................     5,050           2,070                -          7,120
   Segment profit (loss)............................     5,523        (22,057)            2,265       (14,269)
   Segment assets...................................   351,560         158,914           44,535        555,009
   Expenditures for long-lived assets...............     7,936          12,761            2,560         23,257

AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997:
   Revenues from external customers................  $ 180,280       $ 158,415        $   7,415      $ 346,110
   Intersegment revenues...........................      3,364             314                -          3,678
   Other income.....................................       810           1,160                -          1,970
   Interest expense.................................    15,168           8,248              309         23,725
   Depreciation and amortization expense............     5,125           2,576              110          7,811
   Segment profit (loss)...........................     32,650           3,573            (208)         36,015
   Segment assets..................................    239,409         140,930            5,880        386,219
   Expenditures for long-lived assets..............      5,634           2,466              112          8,212

AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996:
   Revenues from external customers................ $  159,522       $ 107,002        $   6,354      $ 272,878
   Intersegment revenues...........................      5,405             328                -          5,733
   Other income.....................................       489             627                -          1,116
   Interest expense.................................    14,115           5,483              401         19,999
   Depreciation and amortization expense............     4,152           1,480              136          5,768
   Segment profit (loss)...........................     26,854           1,994            (297)         28,551
   Segment assets..................................    202,179          88,228            5,406        295,813
   Expenditures for long-lived assets..............      6,382           1,357               31          7,770
</TABLE>


                                      49
<PAGE>

         A reconciliation of the reportable segments to consolidated 
net sales, income (loss) before income taxes and extraordinary items 
and consolidated assets are as follows:

<TABLE>
<CAPTION>
                                                               As of and for the
                                                            Years Ended December 31,
                                                    -------------------------------------
                                                       1996          1997           1998
                                                       ----          ----           ----
<S>                                                 <C>           <C>            <C>
NET SALES:
    External revenues from reportable segments..... $ 266,524     $ 338,695      $ 439,692
    Intersegment revenues for reportable segments..     5,733         3,678          1,789
    Other revenues.................................     6,354         7,415         47,081
    Elimination of intersegment revenues...........    (5,733)       (3,678)        (1,789)
                                                    ---------     ---------      ---------
           Consolidated net sales.................. $ 272,878     $ 346,110      $ 486,773
                                                    =========     =========      =========
PROFIT:
    Total profit (loss) for reportable segments.... $  28,848     $  36,223      $ (16,534)
    Other profit (loss)............................      (297)         (208)         2,265
    Unallocated amounts:
      Elimination of intersegment profits..........       107          (171)             -
      Special charges..............................         -             -         (1,624)
      Corporate expenses...........................      (716)       (2,095)        (1,320)
      Depreciation and amortization................        (5)          (79)          (631)
      Other income (expense), net..................        65           (58)        (3,465)
      Interest expense.............................      (288)        4,903         11,018
                                                    ---------     ---------      ---------
           Income (loss) before income taxes and
             Extraordinary item.................... $  27,714     $  38,515      $ (10,291)
                                                    =========     =========      =========
ASSETS:
    Total assets for reportable segments........... $ 290,407     $ 380,339      $ 510,474
    Other assets...................................     5,406         5,880         44,535
    Elimination of intercompany accounts...........   (18,245)      (29,281)       (26,556)
    Unallocated assets.............................    43,179        11,739          3,452
                                                    ---------     ---------      ---------
           Consolidated assets..................... $ 320,747     $ 368,677      $ 531,905
                                                    =========     =========      =========
</TABLE>

Other significant items as disclosed within the reportable segments are
reconciled to the consolidated totals as follows:

<TABLE>
<CAPTION>
                                                      Segment
                                                       Totals     Adjustments   Consolidated
                                                       ------     -----------   ------------
<S>                                                   <C>          <C>            <C>
OTHER SIGNIFICANT ITEMS:
    FOR THE YEAR ENDED DECEMBER 31, 1998
      Other income (expense), net..................    $ 3,424     $(3,465)       $   (41)
      Interest expense.............................     34,691     (11,018)         23,673
      Depreciation and amortization expense........     14,720          631         15,351
      Special charges..............................      7,120        1,624          8,744
      Expenditures for long-lived assets...........     23,257          268         23,525

    FOR THE YEAR ENDED DECEMBER 31, 1997
      Other income (expense), net..................    $ 1,970      $  (58)       $  1,912
      Interest expense.............................     23,725      (4,903)         18,822
      Depreciation and amortization expense........      7,811           79          7,890
      Expenditures for long-lived assets...........      8,212          470          8,682

    FOR THE YEAR ENDED DECEMBER 31, 1996
      Other income (expense), net..................    $ 1,116       $   65       $  1,181
      Interest expense.............................     19,999          288         20,287
      Depreciation and amortization expense........      5,768            5          5,773
      Expenditures for long-lived assets...........      7,770           73          7,843

</TABLE>
                                     50
<PAGE>

         Revenues and long-lived assets by geographic area are determined by
the location of the Company's facilities as follows:

<TABLE>
<CAPTION>
                                                   As of and for the
                                                Years Ended December 31,
                                                ------------------------
                                               1996          1997          1998
                                               ----          ----          ----
<S>                                         <C>           <C>           <C>
NET SALES:
    United States.....................      $ 254,598     $ 324,219     $ 442,759
    Canada and Europe.................         18,280        21,891        44,014
                                            ---------     ---------     ---------
    Consolidated net sales............      $ 272,878     $ 346,110     $ 486,773
                                            =========     =========     =========
LONG-LIVED ASSETS:
    United States.....................      $ 162,166     $ 221,963     $ 318,184
    Canada and Europe.................          7,528         7,514        19,935
                                            ---------     ---------     ---------
    Consolidated long-lived assets....      $ 169,694     $ 229,477     $ 338,119
                                            =========     =========     =========
</TABLE>

         For the year ended December 31, 1998 the Company had two  
significant  external  customers.  Both customers were within the OEM segment 
and represented $88,379 and $83,155 of consolidated net sales.

         For the years ended  December  31, 1996 and 1997 sales to one  
customer  within the OEM segment  represented  approximately $101,499 and 
$110,671 of consolidated net sales, respectively.

NOTE 18.  FAIR VALUE OF FINANCIAL INSTRUMENTS

        With the exception of the Company's Senior Notes and interest rate 
swap agreement, the carrying amounts of the Company's financial instruments 
approximate their fair values due to the fact that they are either short-term 
in nature or re-priced to fair value through floating interest rates.

        The carrying amounts and fair values of these financial instruments 
are as follows:

<TABLE>
<CAPTION>
                                                    December 31,
                                    --------------------------------------------
                                             1997                   1998
                                    --------------------------------------------
                                    Carrying      Fair      Carrying     Fair
                                     Amount       Value     Amount       Value
                                    --------------------------------------------
<S>                                  <C>        <C>          <C>        <C>
Series B Senior Notes............... $ 90,000   $ 98,811     $ 82,570   $89,118
Series D Senior Notes...............   30,000     32,937       27,815    30,021
Interest rate swap agreement........       --         --           --   (1,854)
</TABLE>

NOTE 19.  SPECIAL CHARGES

         The Company has commenced 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 ATC Distribution Group's management structure,
centralization of the ATC Distribution Group's 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 plant capacity 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 ATC Distribution Group's management team
and to centralize the ATC Distribution Group's MIS operations.


                                      51
<PAGE>


         In the fourth quarter of 1998 the Company recorded an additional $5,164
in special charges comprised 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 ATC Distribution Group's management structure.
The Company is continuing to evaluate its business to identify additional
improvements that may result in additional special charges. 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.

         The following table summarizes the provisions and reserves for
restructuring and special charges as included in accrued expenses:

<TABLE>
<CAPTION>
                                    Termination
                                      Benefits     Exit/Other Costs     Total
                                    ------------   ----------------    -------
<S>                                   <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
                                     ===========   ================    =========
</TABLE>

NOTE 20.  EXTRAORDINARY ITEMS

         The extraordinary item in 1997 of $3,749, net of income tax benefit of
$2,520, consists largely of a pre-tax charge of $5,727 related to the early
redemption of $40,000 in principal amount of the Company's Senior Notes,
consisting of the early redemption premium charge of $4,316 plus unamortized
deferred financing fees of $1,411. The extraordinary item also includes a
pre-tax charge of $542 related to the restructuring of the Company's original
revolving credit facility. Both events occurred in February 1997.

         In March 1998, in connection with the restatement and amendment of the
credit agreement to provide for the Credit Facility, the Company recorded an
extraordinary item of $363, net of income tax benefit of $242, related to the
write-off of previously capitalized debt issuance costs.

         In September and October 1998, the Company purchased and retired $9,615
in principal amount of the Company's Senior Notes in open market transactions.
In connection with these repurchases, the Company recorded an extraordinary item
of $340, net of income tax benefit of $227, related to the purchase price
premium and the write-off of unamortized deferred financing fees.


NOTE 21.  SALE OF SUBSIDIARY

         In December 1998, the Company entered into an agreement to sell the
assets of Mascot Truck Parts, Inc. for $3.8 million. As part of this
transaction, the Company recorded a $1.2 million loss in 1998. This amount is
reported on the income statement under the heading "Other income and (expense),
net."

NOTE 22.  SUBSEQUENT EVENTS

         In March 1999,  the Company  obtained from its lenders,  waivers of 
the various  defaults  under the Credit  Facility as of December 31, 1998 and 
certain amendments to the Credit Facility and interest rate swap agreement.


                                     52
<PAGE>


NOTE 23.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                                               QUARTER
                                                               --------------------------------------------
                                                                FIRST       SECOND       THIRD      FOURTH
                                                               --------------------------------------------
<S>                                                            <C>         <C>         <C>         <C>
1996
----
Net sales.................................................     $ 64,146    $ 66,873    $ 68,287    $ 73,572
Gross profit..............................................       25,788      25,063      25,998      29,219
Net income................................................        4,399       3,891       4,051       3,958
Pro forma earnings per share..............................        $0.28       $0.25       $0.26       $0.23

1997
----
Net sales.................................................     $ 82,688    $ 85,410    $ 88,392    $ 89,620
Gross profit..............................................       31,575      33,363      33,873      34,883
Income before extraordinary item..........................        5,567       5,912       5,652       5,872
Diluted earnings per share................................        $0.29       $0.31       $0.30       $0.29

1998
----
Net sales.................................................    $ 107,001   $ 130,468    $125,003    $124,301
Gross profit..............................................       37,478      41,430      38,072      21,350
Income (loss) before extraordinary item...................        6,303       3,998       2,553    (19,969)
Earnings (loss) per share.................................     $   0.30     $  0.19     $  0.12    $ (0.99)
</TABLE>

Due to the loss reported in the fourth quarter of 1998, the applicable per share
calculation above excludes the antidilutive effect of stock options and warrants
in the fourth quarter of 1998.

The Company recorded 1998 year-end adjustments of approximately $21.1 
million, net of tax.  These adjustments were as follows:

<TABLE>
<CAPTION>

<S>                                                     <C>
Inventory reserves                                      $   6,894
Accruals and other reserves                                 6,226
Special charges (See Note 19)                               5,164
Core liability                                              5,170
Start-up activities and software costs expensed             3,881
Loss on sale of subsidiary                                  1,182
Other                                                       4,317
Income tax benefit of adjustments                         (11,745)
                                                        ---------
Total                                                   $  21,089
                                                        =========
</TABLE>




                                     53
<PAGE>


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

         None.
                                   PART III

ITEM 10.        DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

DIRECTORS AND EXECUTIVE OFFICERS

         The directors and executive officers of the Company are as follows:

<TABLE>
<CAPTION>

NAME                              AGE        POSITIONS
----                              ---        ---------
<S>                               <C>        <C>
Michael T. DuBose                 45         Chairman of the Board, President and Chief Executive Officer
Ronald E. Bradshaw                54         Executive Vice President and President, Autocraft Electronics
Barry C. Kohn                     43         Vice President and Chief Financial Officer
John J. Machota                   47         Vice President--Human Resources
Joseph Salamunovich               39         Vice President, General Counsel and Secretary
Kenneth A. Bear                   47         President, Aaron's Automotive Products, Inc.
Thomas R. Kawsky                  50         President, Autocraft Industries, Inc.
Michael L. LePore                 45         President, Component Remanufacturing Specialists, Inc.
Robert Anderson                   78         Director
Richard R. Crowell                44         Director
Dale F. Frey                      66         Director
Fred J. Hall                      47         Director
Mark C. Hardy                     35         Director
Dr. Michael J. Hartnett           53         Director
Gerald L. Parsky                  56         Director
Richard K. Roeder                 50         Director
William A. Smith                  53         Director
J. Richard Stonesifer             62         Director

</TABLE>

         MICHAEL T. DUBOSE joined the Company as Chairman of the Board of
Directors, President and Chief Executive Officer on December 15, 1998. Prior to
that he served as a consultant to Aurora Capital Partners ("ACP") from December
1997. From 1995 to 1997 Mr. DuBose was Chairman and Chief Executive Officer of
Grimes Aerospace Company, an international engineering, manufacturing and
distribution company. From 1993 to 1995 he served as Senior Vice President of
SAI Corporation's computer equipment manufacturing and systems sector. Prior to
that Mr. DuBose held various positions at General Instrument and General
Electric Company.

         RONALD E. BRADSHAW has served as Executive Vice President of the
Company since March 1998 and as President of the Company's Autocraft Electronics
subsidiary since March 1, 1999. Mr. Bradshaw joined the Company following the
completion of its acquisition of Autocraft from The Fred Jones Companies, Inc.
(which was formerly known as Autocraft Industries, Inc.). Prior to that, Mr.
Bradshaw served as President and Chief Operating Officer of The Fred Jones
Companies since October 1997 and as Senior Vice President and Chief Financial
Officer from 1994 to 1997 and as Treasurer from 1990 to 1994. Autocraft
Electronics remanufactures engine control modules, radios, instrument and
display clusters, and certain other electronic components for General Motors,
Ford and certain other OEMs.

         BARRY C. KOHN joined the Company as Vice President and Chief Financial
Officer on January 25, 1999. During 1998 he served as a self-employed financial
consultant. From 1995 to 1997 Mr. Kohn was Senior Vice President and Chief
Financial Officer of Grimes Aerospace Company, an international engineering,
manufacturing and distribution company. Between 1987 and 1995 he held
increasingly senior positions at Grimes including Treasurer, Controller and
Manager of Business Planning. Mr. Kohn is a Certified Public Accountant.


                                     54
<PAGE>


         JOHN J. MACHOTA has served as Vice President--Human Resources of the
Company since June 1997. From 1996 to 1997, he was a self-employed human
resources consultant. From 1995 to 1996, Mr. Machota was Vice President--
Compensation for Waste Management, Inc. and from 1993 to 1995 served as
Waste Management's Vice President--Human Resource Services. From 1986 to 1993
Mr. Machota was Vice President--Human Resources for a subsidiary of Waste
Management and prior to that held various other positions in the human resources
area.

         JOSEPH SALAMUNOVICH joined the Company as Vice President, General
Counsel and Secretary in March 1997. From 1995 to March 1997, Mr. Salamunovich
was a partner in the law firm of Gibson, Dunn & Crutcher LLP, where he
specialized in corporate and securities law matters. From 1986 to 1995, Mr.
Salamunovich was an associate of the same firm.

         KENNETH A. BEAR became President of the Company's Aaron's Automotive 
Products, Inc. subsidiary in February 1998.  Prior to that he held various 
other positions with Aaron's, including Executive Vice President since 1989.  
Mr. Bear joined  Aaron's in 1983.  Aaron's remanufactures transmissions and 
engines for Chrysler and engines for sale to independent aftermarket 
customers.

         THOMAS R. KAWSKY became President of the Company's Autocraft
Industries, Inc. subsidiary in March 1998 following the Autocraft Acquisition.
Prior to that he served as Vice President and General Manager of the OEM
Division of The Fred Jones Companies, Inc. since October 1997 and before joining
Fred Jones he served as Vice President--Manufacturing for the G&O Division of
TransPro, Inc. since March 1997. Prior to that, Mr. Kawsky was employed by
Cummins Engine Company for 26 years, where he served most recently as General
Manager--Engines for the Cummins Diesel ReCon Division. Autocraft Industries
remanufactures transmissions for Ford.

         MICHAEL L. LEPORE has been President of the Company's Component
Remanufacturing Specialists, Inc. subsidiary since 1984. From 1976 to 1984 Mr.
LePore was manager of U.S. Operations for Borg Warner Parts and Service
Division, a subsidiary of Borg Warner LTD U.K. CRS remanufactures transmissions
for General Motors, Isuzu, Hyundai and certain other OEMs.

         ROBERT ANDERSON became a director of the Company in March 1997. Mr.
Anderson has been associated with Rockwell International Corporation since 1968,
where he has been Chairman Emeritus since 1990 and served previously as Chairman
of the Executive Committee from 1988 to 1990 and as Chairman of the Board and
Chief Executive Officer from 1979 to 1988. Mr. Anderson is a director of
Gulfstream Aerospace Corporation, Motor Cargo Industries, Inc. and Optical Data
Systems Company.

         RICHARD R. CROWELL became a director of the Company in July 1994. Mr.
Crowell is President and a founding partner of ACP. Prior to forming ACP in
1991, Mr. Crowell was a Managing Director of Rosecliff, Inc., the management
company for Acadia Partners L.P. since its inception in 1987.

         DALE F. FREY became a director of the Company in August 1997. Prior to
his retirement in early 1997, Mr. Frey was Chairman of the Board, President and
Chief Executive Officer of General Electric Investment Corporation, a position
he had held since 1984, and was a Vice President of General Electric Company
since 1980. Mr. Frey is a director of USF&G Corporation, Praxair, Inc., First
American Financial Corporation (until April 1999), Roadway Express and Promus
Hotel Corp.

         MARK C. HARDY became a director of the Company in July 1994. Mr. Hardy
is a Principal of ACP and joined ACP in June 1993. Prior to joining ACP, Mr.
Hardy was an Associate at Bain & Company, a consulting firm.

         FRED J. HALL became a director of the Company in May 1998. Mr. Hall is
Chairman of the Board, President and Chief Executive Officer of The Fred Jones
Companies, Inc. which in March 1998 completed the sale of Autocraft to the
Company. In addition to being employed in various capacities by The Fred Jones
Companies and its affiliates since 1977, Mr. Hall served as Deputy Assistant
Secretary of State for European and Canadian Affairs from 1986 to 1988.


                                     55
<PAGE>


         DR. MICHAEL J. HARTNETT became a director of the Company in July 1994.
Since March 1992 Dr. Hartnett has been Chairman, President and Chief Executive
Officer of Roller Bearing Company of America, Inc., a manufacturer of ball and
roller bearings. Prior to joining Roller Bearing in 1990 as General Manager of
its Industrial Tectonics subsidiary, Dr. Hartnett spent 18 years with The
Torrington Company, a bearing manufacturer.

         GERALD L. PARSKY became a director of the Company in March 1997. Mr.
Parsky is the Chairman and a founding partner of ACP. Prior to forming ACP in
1991, Mr. Parsky was a senior partner and a member of the Executive and
Management Committees of the law firm of Gibson, Dunn & Crutcher LLP. Prior to
that, he served as an official with the United States Treasury Department and
the Federal Energy Office, and as Assistant Secretary of the Treasury for
International Affairs.

         RICHARD K. ROEDER became a director of the Company in July 1994. Mr.
Roeder is a founding partner and Managing Director of ACP. Prior to forming ACP
in 1991, Mr. Roeder was a partner in the law firm of Paul, Hastings, Janofsky &
Walker, where he served as Chairman of the firm's Corporate Law Department and a
member of its National Management Committee.

         WILLIAM A. SMITH has been a director of the Company since July 1994. He
served as Chairman Emeritus of the Board of Directors from August 1997 to
December 1998 and prior to that served as Chairman of the Board since July 1994.
Mr. Smith was President and Chief Executive Officer of the Company from July
1994 until October 1996. From March 1993 to July 1994, Mr. Smith served as a
consultant to ACP in connection with the Initial Acquisitions. From March 1992
to March 1993, Mr. Smith was President of the Rucker Fluid Power Division of
Lucas Industries, plc. Prior to that, Mr. Smith held various positions with
Navistar International Transportation Corporation, Labinal, Inc. (a French
automotive and aerospace equipment manufacturer) and Cummins Engine Company.

         J. RICHARD STONESIFER became a director of the Company in August 1997.
Prior to his retirement in 1996, Mr. Stonesifer was employed with the General
Electric Company for 37 years, serving most recently as President and Chief
Executive Officer of GE Appliances, and an executive officer and Senior Vice
President of the General Electric Company, from January 1992 until his
retirement.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.

         Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers, directors and persons who own more than 10% of
any equity security of the Company to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and to furnish copies of
these reports to the Company. Based solely on a review of the copies of the
forms that the Company received, the Company believes that the following forms
were not filed on timely basis: a Form 3 for Mr. DuBose that was due in December
1998; Form 4s for James R. Wehr (former President of Aaron's) that were due in
June and July 1998 to report the disposition of 31,000 and 45,000 shares of
Common Stock, respectively; a Form 4 for Mr. Kawsky that was due in October 1998
to report the grant of options to purchase 15,000 shares of Common Stock; and a
Form 4 for Mr. LePore that was due in July 1998 to report the exercise of
options to purchase 11,696 shares of Common Stock and the grant of options to
purchase 15,000 shares of Common Stock. These oversights were subsequently
corrected when Mr. DuBose filed a Form 3 in February 1999, Mr. Wehr filed Form
4s in August 1998, and Messrs. Kawsky and LePore filed Form 5s in February 1999.

ITEM 11.  EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

         The following table sets forth, for the three most recently completed
fiscal years, the cash compensation for services in all capacities to the
Company of those persons who were, as of December 31, 1998, (i) the Company's
current Chief Executive Officer, (ii) the Company's former Chief Executive
Officer, and (iii) the four other most highly compensated executive officers of
the Company and its subsidiaries during the last fiscal year (collectively, the
"Named Executive Officers"):


                                     56
<PAGE>

<TABLE>
<CAPTION>
                                                     ANNUAL                   LONG-TERM
                                                  COMPENSATION            COMPENSATION AWARDS
                                              ------------------------    --------------------
                                                                          NUMBER OF SECURITIES
                                                                                UNDERLYING          ALL OTHER
NAME AND PRINCIPAL POSITION          YEAR     SALARY (1)     BONUS (2)        OPTIONS (#) (3)       COMPENSATION
---------------------------          ----     ----------     ---------    ----------------------    ------------
<S>                                  <C>      <C>            <C>                 <C>                   <C> 
 Michael T. DuBose (4)               1998     $  17,534          --              500,000                 --   
  Chairman, President and            1997         --             --                 --                   --   
  Chief Executive Officer            1996         --             --                 --                   --   

 Stephen J. Perkins (5)              1998       335,000          --              332,000(6)              --   
  Former Chairman, President         1997       300,000      $ 225,000              --                   --   
  and Chief Executive Officer        1996        70,385        125,000           498,000(6)              --   

 Ronald E. Bradshaw (7)              1998       227,417        157,552            45,000                 --   
  Executive Vice President and       1997         --             --                 --                   --   
  President, Autocraft Electronics   1996         --             --                 --                   --   

 Michael L. LePore                   1998       236,376         23,637            15,000                 --   
  President, CRS                     1997       232,425         71,377              --                   --   
                                     1996       226,520        181,745              --                   --   

 Wesley N. Dearbaugh (8)             1998       215,000          --                 --                  94,734(9)
  Former President, ATC              1997       200,000         47,400              --                   --   
  Distribution Group                 1996       116,457         50,000           140,352                 --   

 Kenneth A. Bear (10)                1998       176,538         18,000            20,000                 --   
  President, Aaron's                 1997       120,368         52,662              --                   --   
                                     1996       104,000         80,000              --                   --   
</TABLE>
--------------
(1)  For information regarding the base salary of each Named Executive 
     Officer in 1999 see "Executive Compensation--Employment Agreements."

(2) Bonuses for a particular year are paid during the first quarter of the
    following year.

(3)  Consists of options to purchase securities of the Company, which options
     were issued pursuant to the Company's 1996 Stock Incentive Plan (the
     "1996 Plan") or its 1998 Stock Incentive Plan (the "1998 Plan"). Pursuant
     to the 1996 and 1998 Plans, the Compensation and Human Resources
     Committee of the Board of Directors makes recommendations to the Board of
     Directors regarding the terms and conditions of each option to be
     granted.

(4)  Mr. DuBose became Chairman, President and Chief Executive Officer in
     December 1998.

(5)  Mr. Perkins became Chairman, President and Chief Executive Officer in 
     October 1996 and ceased to hold such positions in December 1998.

(6)  The options granted in 1998 replaced the options granted in 1996.  See
     "Executive Compensation--Option Repricing Table."

(7)  Mr. Bradshaw became Executive Vice President in March 1998.

(8)  Mr. Dearbaugh became President of the ATC Distribution Group in June 1996
     and ceased to hold such position in March 1999.

(9)  Consists of (i) a one-time bonus paid in connection with Mr. Dearbaugh's
     relocation from Arizona to Illinois and (ii) reimbursement of certain
     real estate costs incurred by Mr. Dearbaugh in such relocation, grossed
     up for tax effect.

(10) Mr. Bear became President of Aaron's in February 1998. Prior to that he
     served as Executive Vice President of Aaron's.


                                     57
<PAGE>


OPTION GRANTS TABLE

         Shown below is information concerning grants of options issued by the
Company to the Named Executive Officers during 1998:

<TABLE>
<CAPTION>
                                       INDIVIDUAL                                           POTENTIAL REALIZABLE
                                         GRANTS                                               VALUE AT ASSUMED
                            ------------------------------                                    ANNUAL RATES OF
                               NUMBER OF       % OF TOTAL                                       STOCK PRICE
                              SECURITIES         OPTIONS                                        APPRECIATION
                              UNDERLYING       GRANTED TO       EXERCISE                      FOR OPTION TERM(1)
                            OPTIONS GRANTED   EMPLOYEES IN       PRICE        EXPIRATION    ---------------------
           NAME                   (#)          FISCAL YEAR      ($/SHARE)        DATE        5% ($)      10% ($)
-----------------------     ---------------   ------------      ---------     ----------    --------   ----------
<S>                           <C>                 <C>           <C>           <C>           <C>        <C>
Michael T. DuBose......       300,000(2)          26.5          $  5.00       12/15/08      $943,342   $2,390,614
                              200,000(3)          17.7            10.00       12/15/08          --        593,742
Stephen J. Perkins.....       332,000(4)          29.3             5.00       12/31/02       357,740      770,406
Michael L. LePore......        15,000(5)           1.3            18.125       5/12/08       174,035      438,162
Ronald E. Bradshaw.....        30,000(6)           2.7            20.25        4/1/08        382,053      968,199
                               15,000(5)           1.3            18.125       5/12/08       174,035      438,162
Wesley N. Dearbaugh....           --               --               --           --             --           --  
Kenneth A. Bear........        20,000(5)           1.8            18.125       5/12/08       232,047      584,216
</TABLE>
----------------
(1)  The potential gains shown are net of the option exercise price and do not
     include the effect of any taxes associated with exercise. The amounts
     shown are for the assumed rates of appreciation only, do not constitute
     projections of future stock price performance, and may not necessarily be
     realized. Actual gains, if any, on stock option exercises depend on the
     future performance of the Common Stock, continued employment of the
     optionee through the term of the options, and other factors.

(2)  These options were granted under the 1998 Plan and vest and become 
     exercisable as follows: 166,667 on December 15, 1999 and 133,333 on 
     December 15, 2000.

(3)  These options were granted under the 1998 Plan and vest and become 
     exercisable as follows: 33,334 on December 15, 2000 and 166,666 on 
     December 15, 2001.

(4)  These options were granted under the 1996 Plan and are fully vested and
     exercisable. These options were granted in replacement of a like number
     of fully vested and exercisable options that were granted in October 1996
     having an exercise price of $4.67 per share that would have terminated on
     January 30, 1999. See "Executive Compensation--Option Repricing Table."

(5)  These options were granted under the 1998 Plan.  One third of the options
     vest and become exercisable on each of May 12, 1999, 2001 and 2003.

(6)  These options were granted under the 1996 Plan. One third of the options
     vest and become exercisable on each of April 1, 1999, 2001 and 2003.

AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUE TABLE

         Shown below is information relating to the exercise of stock options
during 1998 by the Named Executive Officers and the value of unexercised options
for each of the Named Executive Officers as of December 31, 1998:


                                     58
<PAGE>

<TABLE>
<CAPTION>
                                                          NUMBER OF SECURITIES           VALUE OF UNEXERCISED
                                                         UNDERLYING UNEXERCISED         IN-THE-MONEY OPTIONS
                             SHARES                    OPTIONS AT FISCAL YEAR-END       AT FISCAL YEAR-END (1)
                          ACQUIRED ON     VALUE       ----------------------------   ---------------------------
           NAME             EXERCISE     REALIZED     EXERCISABLE    UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
-----------------------   -----------    --------     -----------    -------------   -----------   -------------
<S>                         <C>          <C>            <C>            <C>            <C>            <C>
Michael T. DuBose......       --            --            --            500,000          --          $862,500
Stephen J. Perkins.....       --            --          332,000           --          $954,500          --   
Michael L. LePore......     11,696       $180,762        11,696          26,696         72,574         72,574
Ronald E. Bradshaw.....       --            --            --             45,000          --             --   
Wesley N. Dearbaugh....       --            --           35,088         105,264        112,457        337,371
Kenneth A. Bear........       --            --           46,784          43,392        290,295        145,147
</TABLE>
---------------
(1)  Calculated using the closing price of the Common Stock on the Nasdaq
     National Market System on December 31, 1998, which was $7.875 per share.

OPTION REPRICING TABLE

<TABLE>
<CAPTION>
                                                                                                    LENGTH OF
                                         NUMBER OF                                                   ORIGINAL
                                         SECURITIES    MARKET PRICE                                OPTION TERM
                                         UNDERLYING    OF STOCK AT      EXERCISE                   REMAINING AT
                                          OPTIONS        TIME OF     PRICE AT TIME                   DATE OF
                                        REPRICED OR    REPRICING OR   OF REPRICING  NEW EXERCISE   REPRICING OR
       NAME                  DATE         AMENDED       AMENDMENT     OR AMENDMENT      PRICE       AMENDMENT
--------------------       --------     -----------    ------------  -------------  ------------   ------------
<S>                        <C>           <C>              <C>            <C>            <C>         <C>
Stephen J. Perkins         12/15/98      498,000(1)       $5.00          $4.67          $5.00       46 days(2)
</TABLE>
------------------
(1)  These options were replaced with new options to purchase 332,000 shares
     of Common Stock.

(2)  The replaced options by their terms were to expire on October 1, 2007
     unless Mr. Perkins ceased to be employed by the Company prior to then, in
     which case they would have terminated 30 days after he ceased to be so
     employed. Mr. Perkins' employment with the Company ended December 31,
     1998.

REPORT OF THE COMPENSATION & HUMAN RESOURCES COMMITTEE ON REPRICING OF OPTIONS

         Mr. Perkins joined the Company in October 1996, at which time he was
granted options to purchase 498,000 shares of the Common Stock at $4.67 per
share. These options were to vest over three years and would expire ten years
after the date of grant unless Mr. Perkins ceased to be an employee of the
Company before then, in which case the options would terminated 30 days after he
ceased to be employed. At the time that Mr. Perkins resigned as Chief Executive
Officer of the Company, 332,000 of the options had vested and were exercisable.
As a result of Mr. Perkins' resignation, these vested options would have expired
at the end of January 1999.

         The Compensation and Human Resources Committee concluded that, in
recognition of Mr. Perkins' many contributions to the growth of the Company, it
was appropriate to permit Mr. Perkins an additional four years in which to
exercise his vested options. Therefore, the Company canceled the 332,000 vested
options and replaced them with an equal number of fully vested new options that
will expire on December 31, 2002 and have an exercise price equal to the fair
market value of the Common Stock on the date of grant of the new options
($5.00). The new exercise price represents a 7% increase over the old exercise
price. By increasing the exercise price to fair market value, the Company is not
required to recognize any compensation expense in connection with the grant of
the new options. The 166,000 old stock options that were not vested as of the
time Mr. Perkins resigned were terminated according to their terms.

                       The Compensation and Human Resources Committee
                               J. Richard Stonesifer, Chairman
                               Richard R. Crowell
                               Gerald L. Parsky


                                     59
<PAGE>

EMPLOYMENT AGREEMENTS

         The Company typically enters into an employment agreement with each of
its executive officers (including the Named Executive Officers) that provides
for a three-year term and is automatically renewable thereafter on a
year-to-year basis. The agreement includes a noncompetition provision for a
period of 18 months from the termination of the executive officer's employment
with the Company (except in the case of Mr. LePore, whose noncompetition
provision expires June 1, 2002) and a nondisclosure provision which is effective
for the term of the employment agreement and indefinitely thereafter. The
executive officer is entitled to severance equal to his base salary for a period
of 12 months after termination if he is terminated without cause (as defined in
the employment agreement), except in the cases of (i) Mr. DuBose, whose
severance period is the longer of 24 months or the balance of the initial
contract term, and (ii) Messrs. Perkins and LePore, whose severance period is 18
months. Set forth below is the current annual base salary for each of the Named
Executive Officers:

<TABLE>
<CAPTION>
                                                ANNUAL           END OF INITIAL
                  NAME                        BASE SALARY        CONTRACT TERM
------------------------------------------    -----------        ---------------
<S>                                            <C>               <C>
Michael T. DuBose.........................     $400,000            12/15/02
Stephen J. Perkins........................      335,000 (1)           (2)
Ronald E. Bradshaw........................      275,000              3/6/01
Michael L. LePore.........................      240,158              6/1/00
Wesley N. Dearbaugh.......................      215,000 (3)           (4)
Kenneth A. Bear...........................      200,000           year-to-year
</TABLE>
----------------
(1) Mr. Perkins is receiving severance payments at this rate through 
    June 30, 2000.
(2) Mr. Perkins ceased to be an employee of the Company on December 31, 1998.
(3) Mr. Dearbaugh is receiving severance payments at this rate through 
    August 18, 2000. 
(4) Mr. Dearbaugh ceased to be an employee of the Company on March 31, 1999.

1996 AND 1998 STOCK INCENTIVE PLANS

         Pursuant to the 1996 and 1998 Plans, officers, directors, employees and
consultants of the Company and its affiliates are eligible to receive options to
purchase Common Stock and other awards. Awards under the 1996 Plan are not
restricted to any specified form or structure and may include, without
limitation, sales or bonuses of stock, restricted stock, stock options, reload
stock options, stock purchase warrants, other rights to acquire stock,
securities convertible into or redeemable for stock, stock appreciation rights,
phantom stock, dividend equivalents, performance units or performance shares.
Awards under the 1998 Plan may take the form of stock options, annual incentive
bonuses and incentive stock.

         The Plans are administered by the Compensation and Human Resources
Committee of the Board of Directors (the "Committee"), although the Board of
Directors may exercise any authority of the Committee under the Plans in lieu of
the Committee's exercise thereof. While the Plans permit the Committee to grant
awards, such grants are typically made by the Board of Directors based on the
Committee's recommendations regarding the recipients and type and amount of
awards. Subject to the express provisions of the Plans, the Committee has broad
authority in administering and interpreting the Plans. Options granted to
employees may be options intended to qualify as incentive stock options under
Section 422 of the Internal Revenue Code of 1986, as amended, or options not
intended to so qualify. Awards to employees may include a provision terminating
the award upon termination of employment under certain circumstances or
accelerating the receipt of benefits upon the occurrence of specified events,
including, at the discretion of the Committee, any change of control of the
Company.

         The aggregate number of shares of Common Stock that can be issued under
the 1996 Plan may not exceed 2,400,000. As of February 4, 1999, there were
outstanding options to purchase an aggregate of 922,332 shares of Common Stock
granted to officers and employees of the Company and its subsidiaries and
certain independent contractors pursuant to the 1996 Plan, and the number of
shares available for issuance pursuant to options yet to be granted under the
1996 Plan was 240,694.


                                     60
<PAGE>


         The aggregate number of shares of Common Stock that can be issued under
the 1998 Plan may not exceed 1,200,000. As of February 4, 1999, there were
outstanding options to purchase an aggregate of 880,500 shares of Common Stock
granted to directors, officers and employees of the Company and its subsidiaries
pursuant to the 1998 Plan, and the number of shares available for issuance
pursuant to options yet to be granted under the 1998 Plan was 319,500.

         In most cases, outstanding options are subject to certain vesting
provisions and expire on the tenth anniversary of the date of grant. The
exercise prices of options outstanding under the 1996 and 1998 Plans as of
February 4, 1999 are as follows:

<TABLE>
<CAPTION>

       NUMBER OF OPTION SHARES        EXERCISE PRICE
<S>                                      <C>
             289,804                     $1.67
             235,440                      4.67
             632,000                      5.00
             120,000                      5.3125
               3,000                      5.5625
             200,000                     10.00
               6,000                     10.938
              35,088                     14.75
               1,500                     18.00
             250,000                     18.125
              30,000                     20.25
</TABLE>

         For information regarding options granted to directors and officers
of the Company, see Item 12. "Security Ownership of Certain Beneficial Owners
and Management."

COMPENSATION AND HUMAN RESOURCES COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION IN COMPENSATION DECISIONS

         The members of the Compensation and Human Resources Committee are 
Messrs. Crowell, Parsky and Stonesifer. Messrs. Crowell and Parsky are (i) 
two of the three stockholders and directors of Aurora Advisors, Inc., the 
general partner of ACP, which is the general partner of Aurora Equity 
Partners, L.P. ("AEP"), a significant stockholder of the Company, and (ii) 
two of the three stockholders and directors of Aurora Overseas Advisors, 
Ltd., the general partner of Aurora Overseas Capital Partners L.P., the 
general partner of Aurora Overseas Equity Partners I, L.P. ("AOEP"), also a 
significant stockholder of the Company. See Item 12.  "Security Ownership of 
Certain Beneficial Owners and Management." In addition, Messrs. Crowell and 
Parsky are two of the three managing directors of ACP, which provides 
management services to the Company pursuant to a management services 
agreement.  See Item 13. "Certain Relationships and Related Transactions."



                                     61
<PAGE>


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth the beneficial ownership of the 
Common Stock (the only class of issued and outstanding voting securities of 
the Company), as of February 4, 1999, by each director of the Company, each 
of the Named Executive Officers, the directors and executive officers of the 
Company as a group and each person who at such time was known by the Company 
to beneficially own more than 5% of the outstanding shares of any class of 
voting securities of the Company.

<TABLE>
<CAPTION>
                                                                                NUMBER OF         VOTING
                                                                                SHARES (1)      PERCENTAGE
                                                                               ------------     ----------
<S>                                                                            <C>                <C>
Aurora Equity Partners L.P. (other beneficial owners: Richard R.
   Crowell, Gerald L. Parsky and Richard K. Roeder) (2)(3).................      9,927,536        49.0
Aurora Overseas Equity Partners I, L.P. (other beneficial owners:
   Richard R. Crowell, Gerald L. Parsky and Richard K. Roeder) (4).........      4,069,392        20.1
General Electric Pension Trust (5).........................................      2,038,152        10.1
Investment Advisors, Inc. (6)..............................................      1,141,400         5.6
Michael T. DuBose (7)......................................................          5,000         *
Stephen J. Perkins (8).....................................................        335,000         1.6
Ronald E. Bradshaw (9).....................................................         11,000         *
Michael L. LePore (10).....................................................         60,080         *
Wesley N. Dearbaugh (11)...................................................         36,088         *
Kenneth A. Bear (12).......................................................         47,084         *
Robert Anderson (13)(14)...................................................         36,918         *
Richard R. Crowell (2)(3)(4)(14)...........................................     11,040,453        54.5
Dale F. Frey (15)..........................................................         22,000         *
Fred J. Hall (16)..........................................................         25,600         *
Mark C. Hardy (3)(14)(17)..................................................         16,460         *
Dr. Michael J. Hartnett (18)...............................................         80,176         *
Gerald L. Parsky (2)(3)(4)(14)(19).........................................     11,040,453        54.5
Richard K. Roeder (2)(3)(4)(14)............................................     11,040,453        54.5
J. Richard Stonesifer (20).................................................         17,000         *
William A. Smith (21)......................................................        545,984         2.7
All directors and officers as a group (19 persons) (22)....................     11,895,663        58.2
</TABLE>
---------------
*    Less than 1%.

(1)  The shares of Common Stock underlying options or warrants that are
     exercisable as of February 4, 1999 or that will become exercisable within
     60 days thereafter (such options being referred to as "Exercisable") are
     deemed to be outstanding for the purpose of calculating the beneficial
     ownership of the holder of such options or warrants, but are not deemed
     to be outstanding for the purpose of computing the beneficial ownership
     of any other person.

(2)  Consists of (i) 6,971,061 shares owned by AEP (one of the Aurora
     Partnerships), (ii) 2,038,152 shares owned by the General Electric
     Pension Trust ("GEPT") (see Note 5 below) and (iii) 918,323 shares that
     are subject to an irrevocable proxy granted to the Aurora Partnerships by
     certain holders of Common Stock, including Messrs. Anderson, Crowell,
     Hardy, Parsky and Roeder, certain other limited partners of AEP and
     certain affiliates of a limited partner of AOEP (the other Aurora
     Partnership). The proxy terminates upon the earlier of the transfer of
     such shares or July 31, 2004. AEP is a Delaware limited partnership the
     general partner of which is ACP, a Delaware limited partnership whose
     general partner is Aurora Advisors, Inc. Messrs. Crowell, Parsky and
     Roeder are the sole stockholders and directors of Aurora Advisors, are
     limited partners of ACP and may be deemed to beneficially share ownership
     of the Common Stock beneficially 


                                      62
<PAGE>


     owned by AEP and may be deemed to be the organizers of the Company under 
     regulations promulgated under the Securities Act of 1933.

(3)  The address of this stockholder is 10877 Wilshire Boulevard, Suite 2100, 
     Los Angeles, CA 90024.

(4)  Consists of (i) 1,112,917 shares owned by AOEP, (ii) 2,038,152 shares
     owned by GEPT (see Note 5 below) and (iii) 918,323 shares that are
     subject to an irrevocable proxy granted to the Aurora Partnerships by
     certain holders of Common Stock, including Messrs. Anderson, Crowell,
     Hardy, Parsky and Roeder, certain other limited partners of AEP and
     certain affiliates of a limited partner of AOEP. The proxy terminates
     upon the earlier of the transfer of such shares or July 31, 2004. AOEP is
     a Cayman Islands limited partnership the general partner of which is
     Aurora Overseas Capital Partners, L.P., a Cayman Islands limited
     partnership, whose general partner is Aurora Overseas Advisors, Ltd.
     Messrs. Crowell, Parsky and Roeder are the sole stockholders and
     directors of Aurora Overseas Advisor,, are limited partners of Aurora
     Overseas Capital Partners and may be deemed to beneficially own the
     shares of the Company's Common Stock beneficially owned by AOEP. AOEP's
     address is West Wind Building, P.O. Box 1111, Georgetown, Grand Cayman,
     Cayman Islands, B.W.I.

(5)  With limited exceptions, GEPT has agreed to vote these shares in the same
     manner as the Aurora Partnerships vote their respective shares of Common
     Stock. This provision terminates upon the earlier of the transfer of such
     shares or July 31, 2004. GEPT's address is 3003 Summer Street, Stamford,
     CT 06905.

(6)  Based on a Schedule 13G filed with the Securities and Exchange Commission
     on January 29, 1999. The address of Investment Advisors, Inc., is 3700
     First Bank Place, Box 357, Minneapolis, MN 55440.

(7)  Excludes 500,000 shares subject to options granted under the 1998 Plan
     that are not Exercisable. Mr. DuBose's address is One Oak Hill Center,
     Suite 400, Westmont, IL 60559.

(8)  Includes 322,000 shares subject to options granted under the 1996 Plan 
     that are Exercisable. Mr. Perkins' address is 14735 Pine Tree Road, Orland
     Park, IL 60462.

(9)  Includes 10,000 shares subject to options granted under the 1996 Plan
     that are Exercisable. Excludes 35,000 shares subject to options granted
     under the 1996 and 1998 Plans that are not Exercisable. Mr. Bradshaw's
     address is 201 Robert S. Kerr, Suite 201, Oklahoma City, OK 73102.

(10) Includes 11,696 shares subject to options granted under the 1996 Plan
     that are Exercisable. Excludes 26,696 shares subject to options granted
     under the 1996 and 1998 Plans that are not Exercisable.
     Mr. LePore's address is 400 Corporate Drive, Mahwah, NJ 07430.

(11) Includes 35,088 shares subject to options granted under the 1996 Plan
     that are Exercisable. Excludes 105,264 shares subject to options granted
     under the 1996 Plan that are not Exercisable.  Mr. Dearbaugh's address is
     2318 Brookwood Court, Aurora, IL 60504.

(12) Includes 46,784 shares subject to options granted under the 1996 Plan
     that are Exercisable. Excludes 43,392 shares subject to options granted
     under the 1996 and 1998 Plans that are not Exercisable.
     Mr. Bear's address is 2699 North Westgate, Springfield, MO 65803.

(13) Includes (i) 4,290 shares held by Mr. Anderson's wife (including 2,790
     shares held by her as trustee for her relatives), as to which Mr.
     Anderson disclaims beneficial ownership, and (ii) 12,000 shares subject
     to options granted under the 1998 Plan that are Exercisable. Excludes
     24,000 shares subject to options granted under the 1998 Plan that are not
     Exercisable. Mr. Anderson's address is 10877 Wilshire Boulevard, Suite
     1405, Los Angeles, CA 90024-4341.

(14) The shares actually owned by this person (as distinguished from the
     shares that this person is deemed to beneficially own) are subject to an
     irrevocable proxy granted to the Aurora Partnerships.

(15) Includes 12,000 shares subject to options granted under the 1998 Plan
     that are Exercisable. Excludes 24,000 shares subject to options granted
     under the 1998 Plan that are not Exercisable. Mr. Frey's address is One
     Gorham Island, Westport, CT 06880.

(16) Consists of (i) 4,000 shares subject to options granted under the 1998
     Plan that are Exercisable, and (ii) 21,600 shares owned by Fred Jones
     Industries A Limited Partnership, a Texas limited partnership ("Fred


                                     63
<PAGE>


     Jones Industries"), which is a significant stockholder of The Fred Jones
     Companies, Inc. The general partner of Fred Jones Industries is a
     corporation of which Mr. Hall is a director, officer and significant
     stockholder. Mr. Hall is also a limited partner of Fred Jones Industries.
     Excludes 8,000 shares subject to options granted under the 1998 Plan that
     are not Exercisable. Mr. Hall disclaims beneficial ownership of the
     shares owned by Fred Jones Industries. Mr. Hall's address is 123 South
     Hudson Avenue, Oklahoma City, OK 73102

(17) Includes 8,000 shares subject to options granted under the 1996 Plan that
     are Exercisable. Excludes 4,000 shares subject to options granted under
     the 1996 Plan that are not Exercisable.

(18) Includes 70,176 shares subject to exercisable warrants.  Mr. Hartnett's 
     address is 60 Round Hill Road, Fairfield, CT 06430.

(19) Includes 2,000 shares held by Mr. Parsky's wife, as to which Mr. Parsky
     disclaims beneficial ownership.

(20) Includes 12,000 shares subject to options granted under the 1998 Plan
     that are Exercisable. Excludes 24,000 shares subject to options granted
     under the 1998 Plan that are not Exercisable. Mr.
     Stonesifer's address is 8473 Bay Colony Drive, Naples, FL 34108.

(21) Mr. Smith's address is 629 SW 293rd Street, Federal Way, WA 98023.

(22) Excludes shares held by Named Executive Officers who are no longer
     officers of the Company. Includes 198,352 shares subject to warrants and
     options that are Exercisable. Excludes 252,480 shares subject to options
     granted under the 1996 and 1998 Plans that are not Exercisable.

ITEM 13.        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Company believes the transactions described below were beneficial
to the Company and were on terms at least as favorable to the Company as could
have been obtained from unaffiliated third parties pursuant to arms-length
negotiations.

RELATIONSHIP WITH ACP

         The Company was formed in 1994 at the direction of ACP, which is
affiliated with the Aurora Partnerships. ACP is controlled by Messrs. Crowell,
Parsky and Roeder, who are directors of the Company. See Item 12. "Securities
Ownership of Certain Beneficial Owners and Management." As of March 1, 1999, the
Company had paid ACP aggregate fees of approximately $4.4 million for investment
banking services provided by ACP in connection with the Company's acquisitions
in 1995-1998.

         The Company also pays to ACP a base annual management fee of $550,000
for advisory and consulting services pursuant to a written management services
agreement (the "Management Services Agreement"). ACP is also entitled to
reimbursements from the Company for all of its reasonable out-of-pocket costs
and expenses incurred in connection with the performance of its obligations
under the Management Services Agreement. The base annual management fee is
subject to increase, at the discretion of the disinterested members of the
Company's Board of Directors, by up to an aggregate of $250,000 in the event the
Company consummates one or more significant corporate transactions. The base
annual management fee has not been increased as a result of any of the Company's
acquisitions. The base annual management fee is also subject to increase for
specified cost of living increases pursuant to which the base annual management
fee was most recently increased in January 1999 from $540,000. If the Company's
EBITDA in any year exceeds management's budgeted EBITDA by 15.0% or more for
that year, ACP will be entitled to receive an additional management fee equal to
one half of its base annual management fee for such year. Because the Company's
EBITDA did not exceed management's budgeted EBITDA by 15.0% in 1998, ACP did not
receive this additional management fee in 1998. In the event the Company
consummates any significant acquisitions or dispositions, ACP will be entitled
to receive a closing fee from the Company equal to 2.0% of the first $75.0
million of the acquisition consideration (including debt assumed and current
assets retained) and 1.0% of acquisition consideration (including debt assumed
and current assets retained) in excess of $75.0 million. Notwithstanding the
foregoing, no payment will be made to ACP pursuant to the Management Services
Agreement at any time that certain events of default shall have occurred and be
then continuing under any of the Indentures governing the Senior Notes or the
Company's bank credit facility. The Management Services Agreement also provides
that the Company shall provide 


                                      64
<PAGE>

ACP and its directors, employees, partners and affiliates with customary 
indemnification against all actions not involving gross negligence or willful 
misconduct.

         The base annual management fee payable to ACP will be reduced as the
collective beneficial ownership of Common Stock by the Aurora Partnerships
declines below 50% as follows: for any period during which the collective
beneficial ownership of the Aurora Partnerships is less than 50% but at least
40%, the base annual management fee payable for the period will be 80% of the
original base annual management fee (as such original base annual management fee
may previously have been adjusted due to discretionary increases by the Board of
Directors or cost of living increases as described above, the "Original Fee");
for any period during which the Aurora Partnerships' collective beneficial
ownership is less than 40% but at least 30%, the base annual management fee
payable for the period will be 60% of the Original Fee; and for any period
during which the collective beneficial ownership of the Aurora Partnerships is
less than 30% but at least 20%, the base annual management fee payable for the
period will be 40% of the Original Fee. If the Aurora Partnerships' collective
beneficial ownership declines below 20%, the Management Services Agreement will
terminate. As of February 4, 1999, the collective beneficial ownership of the
Aurora Partnerships for purposes of the Management Services Agreement was
approximately 55%. See Item 12. "Security Ownership of Certain Beneficial Owners
and Management."

         In October 1996, the Company granted options for an aggregate of 48,000
shares of Common Stock to Mark C. Hardy (a director of the Company), Kurt Larsen
(a former director of the Company) and two consultants of the Company, all four
of whom were then employees of ACP. These options, which have an exercise price
of $4.67 per share, become exercisable in one-third increments on each of the
first three anniversaries of the date of grant and expire in 2006. In 1997,
12,000 of these options terminated when Mr. Larsen resigned from ACP.

RELATIONSHIP WITH THE FRED JONES COMPANIES

         In March 1998 the Company purchased Autocraft from The Fred Jones
Companies, Inc. (then known as Autocraft Industries, Inc.) for $112.5 million in
cash plus up to an additional $12.5 million to be paid in 1999 based on the
performance of Autocraft's European operations during 1998. Of the $112.5
million, $1.25 million was paid to Fred Jones Industries in exchange for an
agreement from Fred Jones Industries to cooperate with the Company and not
compete against it for a specified period of time following the Autocraft
Acquisition.

         In connection with the Autocraft Acquisition, the Company entered into
a lease with The Fred Jones Companies pursuant to which the Company leases a
manufacturing facility in Oklahoma City at a base rental rate of $26,500 per
month. The lease may be terminated by either party on six months' written
notice.

         As part of the Autocraft Acquisition, the Company purchased
substantially all of The Fred Jones Companies' computer business systems
equipment and related software and support capabilities. The parties entered
into an agreement under which the Company provides computer systems support to
The Fred Jones Companies for a monthly fee plus the Company's cost to provide
any specialized services required by The Fred Jones Companies. Through March 31,
1999 the monthly fee is $108,300, and thereafter it will be $102,500. The
agreement will expire on March 31, 2000.

         The Company sells certain electronic components to automobile
dealerships that are owned by a limited liability company in which The Fred
Jones Companies has a significant equity interest. Sales to these dealerships
totaled $95,000 during 1998.

         Fred J. Hall, who is a director of the Company, is (i) the Chairman of
the Board, President and Chief Executive Officer and a significant stockholder
of The Fred Jones Companies, and (ii) a director, officer and significant
stockholder of the corporation that is the general partner of Fred Jones
Industries, which is also a significant stockholder of The Fred Jones Companies.
Mr. Hall is also a limited partner of Fred Jones Industries.

                                       65
<PAGE>

INDEMNIFICATION AGREEMENTS

         The Company has entered into separate but identical indemnification
agreements (the "Indemnification Agreements") with each director and executive
officer of the Company. The Indemnification Agreements provide for, among other
things, the following: (i) indemnification to the fullest extent permitted by
law against any and all expenses (including attorneys' fees and all other costs
and obligations of any nature whatever), judgments, fines, penalties and amounts
paid in settlement (including all interest, assessments and other charges paid
or payable in connection therewith) of any claim, unless the Company determines
that such indemnification is not permitted under applicable law; (ii) the prompt
advancement of expenses to the director or officer, including attorneys' fees
and all other costs, fees, expenses and obligations paid or incurred in
connection with investigating or defending any threatened, pending or completed
action, suit or proceeding related to the fact that such director or officer is
or was a director or officer of the Company or is or was serving at the request
of the Company as a director, officer, employee, trustee, agent or fiduciary of
another corporation, partnership, joint venture, employee benefit plan, trust or
other enterprise, and for repayment to the Company if it is found that such
director or officer is not entitled to such indemnification under applicable
law; (iii) a mechanism through which the director or officer may seek court
relief in the event the Company determines that the director or officer is not
permitted to be indemnified under applicable law (and therefore is not entitled
to indemnification under the Indemnification Agreement); and (iv)
indemnification against expenses (including attorneys' fees) incurred in seeking
to collect from the Company an indemnity claim or advancement of expenses to the
extent successful.

REGISTRATION RIGHTS

         The holders of the Common Stock outstanding before the IPO in December
1996 have certain "demand" and "piggyback" registration rights pursuant to a
stockholders agreement. In addition, GEPT has certain "demand" and "piggyback"
registration rights with respect to a portion of the shares of Common Stock
owned by it.

ITEM 14  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
         ON FORM 8-K

(a)  Index to Financial Statements, Financial Statement Schedules and Exhibits:

         1.  Financial Statements Index

         See Index to Financial Statements and Supplemental Data on page 25.

         2.  Financial Statement Schedules Index

         II - Valuation and Qualifying Accounts.......................... S-1

                  All other schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and therefore
have been omitted.

                                       66
<PAGE>


                  3.  Exhibit Index

                  The following exhibits are filed as part of this Annual Report
on Form 10-K, or are incorporated herein by reference.

<TABLE>
<CAPTION>

   EXHIBIT
   NUMBER                        DESCRIPTION
   -------                       ------------
  <S>           <C>
     3.1       Amended and Restated  Certificate of Incorporation of 
               Aftermarket  Technology Corp.  (previously filed as Exhibit 
               3.1 to the Company's  Annual Report on Form 10-K for the year 
               ended  December 31,  1996 and incorporated herein by this 
               reference)

     3.2       Certificate of Designations, Preferences, and Relative,
               Participating, Option and Other Special Rights of Preferred Stock
               and Qualifications, Limitations and Restrictions Thereof of
               Redeemable Exchangeable Cumulative Preferred Stock of Aftermarket
               Technology Corp. (previously filed as Exhibit 3.2 to the
               Company's Annual Report on Form 10-K for the year ended December
               31, 1996 and incorporated herein by this reference)

     3.3       Amended and Restated Bylaws of Aftermarket  Technology Corp.  
               (previously  filed as Exhibit 3.3 to the Company's  
               Registration  Statement on Form S-1 (File  No. 333-35543)  
               filed on September 12,  1997 and incorporated herein by this 
               reference)

    *3.4       Certificate of Amendment of Restated  Certificate of  
               Incorporation  of Aftermarket  Technology  Corp. filed with 
               the Delaware Secretary of State on August 7, 1998

     4.1       Indenture, dated August 2, 1994, among Aftermarket Technology
               Corp., the Guarantors named therein and Firstar Bank of
               Minnesota, N.A. (formerly known as American Bank N.A.), as
               Trustee for the Series B Notes (previously filed as Exhibit 4.1
               to the Company's Registration Statement on Form S-4 filed on
               November 30, 1994, Commission File No. 33-86838, and incorporated
               herein by this reference)

     4.2       Indenture, dated June 1, 1995, among Aftermarket Technology
               Corp., the Guarantors named therein and Firstar Bank of
               Minnesota, N.A. (formerly known as American Bank N.A.), as
               Trustee for the Series D Notes (previously filed as Exhibit 4.1
               to the Company's Registration Statement on Form S-4 filed on June
               21, 1995, Commission File No. 33-93776, and incorporated herein
               by this reference)

     4.3       First Supplemental Indenture, dated as of February 23, 1995,
               among Aftermarket Technology Corp., the Guarantors named therein
               and Firstar Bank of Minnesota, N.A. (formerly known as American
               Bank N.A.), as Trustee for the Series B Notes (previously filed
               as Exhibit 4.3 to Amendment No. 1 to the Company's Registration
               Statement on Form S-1 filed on October 25, 1996, Commission File
               No. 333-6697, and incorporated herein by this reference)

     4.4       Second Supplemental Indenture, dated as of June 1, 1995, among
               Aftermarket Technology Corp., the Guarantors named therein and
               Firstar Bank of Minnesota, N.A. (formerly known as American Bank
               N.A.), as Trustee for the Series B Notes (previously filed as
               Exhibit 4.4 to Amendment No. 1 to the Company's Registration
               Statement on Form S-1 filed on October 25, 1996, Commission File
               No. 333-5597, and incorporated herein by this reference)

     4.5       Third Supplemental Indenture to the Series B Indenture and First
               Supplemental Indenture to the Series D Indenture, dated as of
               July 25, 1996, among Aftermarket Technology Corp., the Guarantors
               named therein and Firstar Bank of Minnesota, N.A. (formerly known
               as American Bank N.A.), as Trustee for the Notes (previously
               filed as Exhibit 4.5 to Amendment No. 1 to the Company's
               Registration Statement on Form S-1 filed on October 25, 1996,
               Commission File No. 333-5597, and incorporated herein by this
               reference)

    *4.6       Fourth Supplemental Indenture to the Series B Indenture and
               Second Supplemental Indenture to the Series D Indenture, dated as
               of June 1, 1998, among Aftermarket Technology Corp., the
               Guarantors named therein and Firstar Bank of Minnesota, N.A.
               (formerly known as American Bank N.A.), as Trustee for the Notes

    10.1       Stockholders Agreement, dated as of August 2, 1994, among
               Holdings, and certain of its stockholders, optionholders and
               warrant holders (the Stockholders Agreement) (previously filed as
               Exhibit 10.1 to the Company's Registration Statement on Form S-4
               filed on November 30, 1994, Commission File No. 33-86838, and
               incorporated herein by this reference)

                                         67

<PAGE>

    10.2       Amendment  No.  1 to the  Stockholders  Agreement,  dated as 
               of  June 24,  1996  (previously  filed as Exhibit 10.38  to  
               Amendment  No. 2 to the  Company's  Registration  Statement  
               on Form  S-1  filed on November 6, 1996, Commission File No. 
               333-5597, and incorporated herein by this reference)

    10.3       Amendment No. 2 to the  Stockholders  Agreement,  dated as of 
               October 24,  1996  (previously  filed as Exhibit  10.39 to  
               Amendment  No.  2 to the  Company's  Registration  Statement  
               on Form S-1  filed on November 6, 1996, Commission File No. 
               333-5597, and incorporated herein by this reference)

    10.4       Amendment  No.  3 to  Stockholders  Agreement,  dated  as of  
               December 4,  1996  (previously  filed as Exhibit 10.4  to the  
               Company's  Annual Report on Form 10-K for the year ended  
               December 31,  1996 and incorporated herein by this reference)

    10.5       Amendment No. 4 to Stockholders Agreement, dated as of December
               16, 1996 (previously filed as Exhibit 10.5 to the Company's
               Annual Report on Form 10-K for the year ended December 31, 1996
               and incorporated herein by this reference)

    10.6       Amended and Restated Credit Agreement, dated as of March 6, 1998,
               among Aftermarket Technology Corp., the Lenders from time to time
               parties thereto and The Chase Manhattan Bank (the Credit
               Agreement) (previously filed as Exhibit 10.6 to the Company's
               Annual Report on Form 10-K for the year ended December 31, 1997
               and incorporated herein by this reference)

    10.7       Guarantee and Collateral Agreement, dated as of March 6, 1998, by
               Aftermarket Technology Corp. and each of the signatories thereto
               in favor of The Chase Manhattan Bank as Agent for the banks and
               other financial institutions from time to time parties to the
               Amended and Restated Credit Agreement (see Exhibit 10.6)
               (previously filed as Exhibit 10.7 to the Company's Annual Report
               on Form 10-K for the year ended December 31, 1997 and
               incorporated herein by this reference)

    10.8       Amended and Restated Tax Sharing Agreement, dated as of December
               20, 1996, among Aftermarket Technology Holdings Corp., Aaron's
               Automotive Products, Inc., ATC Components, Inc., CRS Holdings
               Corp., Diverco Acquisition Corp., H.T.P., Inc., Mamco Converters,
               Inc., R.P.M. Merit, Inc. and Tranzparts Acquisition Corp.
               (previously filed as Exhibit 10.8 to the Company's Annual Report
               on Form 10-K for the year ended December 31, 1996 and
               incorporated herein by this reference)

    10.9       Amended and Restated Management Services Agreement, dated as of
               November 18, 1996, by and among Aftermarket Technology Corp., the
               subsidiaries of Aftermarket Technology Corp., and Aurora Capital
               Partners L.P. (previously filed as Exhibit 10.4 to Amendment No.
               4 to the Company's Registration Statement on Form S-1 filed on
               October 25, 1996, Commission File No. 333-5597, and incorporated
               herein by this reference)

    10.10      Aftermarket  Technology  Corp.  1996 Stock  Incentive Plan  
               (previously  filed as Exhibit 10.10 to the Company's Annual 
               Report on Form 10-K for the year ended December 31,  1996 and 
               incorporated  herein by this reference)

    10.11      Form of Incentive Stock Option Agreement (previously filed as
               Exhibit 10.36 to Amendment No. 1 to the Company's Registration
               Statement on Form S-1 filed on October 25, 1996, Commission File
               No. 333-5597, and incorporated herein by this reference)

    10.12      Form of Non-Qualified Stock Option Agreement (previously filed as
               Exhibit 10.37 to Amendment No. 1 to the Company's Registration
               Statement on Form S-1 filed on October 25, 1996, Commission File
               No. 333-5597, and incorporated herein by this reference)

    10.13      Employment Agreement dated as of August 1, 1997 between William
               A. Smith and Aftermarket Technology Corp. (previously filed as
               Exhibit 10.13 to the Company's Registration Statement on Form S-1
               (File No. 333-35543) filed on September 12, 1997 and incorporated
               herein by this reference)

    10.14      Employment  Agreement,  dated as of  October 7,  1996,  
               between  Stephen J.  Perkins  and  Aftermarket Technology 
               Corp.  (previously filed as Exhibit 10.35 to Amendment No. 1 
               to the Company's  Registration Statement on Form S-1 filed on  
               October 25,  1996,  Commission  File No.  333-5597,  and  
               incorporated herein by this reference)

    10.15      Employment  Agreement,  dated as of October 1,  1996, between 
               John C. Kent and Aftermarket  Technology Corp.  (previously 
               filed as Exhibit 10.7 to Amendment No. 2 to the Company's 
               Registration Statement on Form S-1 filed on November 6,  1996, 
                Commission File No. 333-5597,  and  incorporated  herein by 
               this reference)

                                       68

<PAGE>

    10.16      Employment Agreement, dated August 2, 1994, between James R. Wehr
               and Aaron's Automotive Products, Inc. (previously filed as
               Exhibit 10.9 to the Company's Registration Statement on Form S-4
               filed on November 30, 1994, Commission File No. 33-86838, and
               incorporated herein by this reference)

    10.17      Employment Agreement, dated as of June 1, 1995, between Michael
               L. LePore and Component Remanufacturing Specialists, Inc.
               (previously filed as Exhibit 10.11 to the Company's Registration
               Statement on Form S-4 filed on June 21, 1995, Commission File No.
               33-93776, and incorporated herein by this reference)

    10.18      Amended and Restated Warrant Certificate, dated as of August 2,
               1994, for 280,704 warrants issued to William E. Myers, Jr.
               (previously filed as Exhibit 10.18 to the Company's Annual Report
               on Form 10-K for the year ended December 31, 1996 and
               incorporated herein by this reference)

    10.19      Amended and Restated Warrant Certificate, dated as of August 2,
               1994, for 70,176 warrants issued to Brian E. Sanderson
               (previously filed as Exhibit 10.19 to the Company's Annual Report
               on Form 10-K for the year ended December 31, 1996 and
               incorporated herein by this reference)

    10.20      Amended and Restated Warrant Certificate, dated June 24, 1996,
               for 70,176 warrants issued to Michael J. Hartnett (previously
               filed as Exhibit 10.20 to the Company's Annual Report on Form
               10-K for the year ended December 31, 1996 and incorporated herein
               by this reference)

    10.21      Stock Purchase Agreement,  dated May 16,  1994, by and among 
               C.R. Wehr, Jr., Rev. Liv. Trust, James R. Wehr, Aaron's 
               Automotive  Products, Inc.  and AAP Acquisition Corp. 
               (previously filed as Exhibit 10.14 to the  Company's  
               Registration  Statement on Form S-4 filed on  November 30,  
               1994,  Commission  File No. 33-86838, and incorporated herein 
               by this reference)

    10.22      Stock Purchase Agreement, dated July 21, 1994, by and among John
               B. Maynard, Kenneth T. Hester, H.T.P., Inc. and HTP Acquisition
               Corp. (previously filed as Exhibit 10.15 to the Company's
               Registration Statement on Form S-4 filed on November 30, 1994,
               Commission File No. 33-86838, and incorporated herein by this
               reference)

    10.23      Stock Purchase Agreement,  dated July 21,  1994, by and among 
               John B. Maynard,  Mamco Converters, Inc. and  Mamco  
               Acquisition  Corp.  (previously  filed  as  Exhibit  10.16 to 
               the  Company's  Registration Statement on Form S-4 filed on 
               November 30,  1994,  Commission  File No.  33-86838,  and  
               incorporated herein by this reference)

    10.24      Asset Purchase Agreement, dated June 24, 1994, by and among RPM
               Merit, Donald W. White, John A. White, The White Family Trust and
               RPM Acquisition Corp. (previously filed as Exhibit 10.17 to the
               Company's Registration Statement on Form S-4 filed on November
               30, 1994, Commission File No. 33-86838, and incorporated herein
               by this reference)

    10.25      Agreement and Plan of Merger and Reorganization, dated May 10,
               1995, by and among Component Remanufacturing Specialists, Inc.,
               James R. Crane, Michael L. LePore, Aftermarket Technology Corp.,
               CRS Holdings Corp. and CRS Acquisition Corp. (previously filed as
               Exhibit 2 to the Company's Current Report on Form 8-K filed on
               June 15, 1995, Commission File No. 33-80838-01, and incorporated
               herein by this reference)

    10.26      Stock Purchase Agreement,  dated June 9, 1995, by and among 
               Dianne Hanthorn,  Jobian Limited,  Randall Robinson,  Barry E. 
               Schwartz,  Bradley Schwartz,  Angela White, John White,  
               Incorporated  Investments Limited,  Glenn M.  Hanthorn,  Guido 
               Sala and Tony  Macharacek,  Mascot  Truck  Parts Inc.  and 
               Mascot Acquisition Corp.  (previously filed as Exhibit 10.22 
               to the Company's  Registration Statement on Form S-4 filed on 
               June 21, 1995, Commission File No. 33-93776, and incorporated 
               herein by this reference)

    10.27      Stock Purchase Agreement, dated September 12, 1995, by and among
               Gordon King, 433644 Ontario Limited, 3179338 Canada Inc.,
               King-O-Matic Industries Limited, KOM Acquisition Corp. and
               Aftermarket Technology Corp. (previously filed as Exhibit 10.23
               to the Company's Annual Report on Form 10-K for the year ended
               December 31, 1995 and incorporated herein by this reference)

    10.28      Stock Purchase  Agreement,  dated as of April 2,  1996, by and 
               among the Charles T. and Jean F. Gorham Charitable   Remainder 
                Trust  dated   March 27,   1996,   Charles  T.  Gorham,   J.  
               Peter  Donoghue, Tranzparts, Inc.  and Tranzparts Acquisition 
               Corp. (previously filed as Exhibit 10.23 to Amendment No. 1 to 
               the Company's  Registration  Statement on Form S-1 filed on  
               October 25,  1996,  Commission  File No. 333-5597, and 
               incorporated herein by this reference)

                                       69

<PAGE>

    10.29      Stock  Purchase  Agreement,  dated as of  October 1,  1996,  
               by and among  Robert T. Carren  Qualified Annuity Trust, 
               Robert T. Carren,  Diverco, Inc.,  and Diverco  Acquisition 
               Corp.  (previously filed as Exhibit 10.34  to  Amendment  No. 
               1 to the  Company's  Registration  Statement  on Form  S-1  
               filed on October 25, 1996, Commission File No. 333-5597, and 
               incorporated herein by this reference)

    10.30      Stock  Purchase  Agreement,  dated as of  January 31,  1997,  
               by and  among S. Jay  Wilemon,  Ricki J. Wilemon,  Bradley J. 
               Wilemon, Corby L. Wilemon,  Replacement &  Exchange Parts Co., 
               Inc.,  Aftermarket Technology  Corp.  and Repco  Acquisition  
               Corp.  (previously  filed as Exhibit 10.30 to the Company's 
               Annual  Report on Form  10-K for the year  ended  December 31, 
                1996 and  incorporated  herein by this reference)

    10.31      Lease, dated February 24, 1995, between 29 Santa Anita
               Partnership L.P. and Replacement Parts Manufacturing with respect
               to property located at 12250 E. 4th Street, Rancho Cucamonga,
               California (previously filed as Exhibit 10.24 to Amendment No. 2
               to the Company's Registration Statement on Form S-1 filed on
               November 6, 1996, Commission File No. 333-5597, and incorporated
               herein by this reference)

    10.32      Lease, dated January 1, 1994, between CRW, Incorporated and
               Aaron's Automotive Products, Inc. with respect to property
               located at 2600 North Westgate, Springfield, Missouri (previously
               filed as Exhibit 10.4 to the Company's Registration Statement on
               Form S-4 filed on November 30, 1994, Commission File No.
               33-86838, and incorporated herein by this reference)

    10.33      Amended and Restated Lease, dated as of June 1, 1997, by and
               among Confar Investors II, L.L.C. and Aaron's Automotive
               Products, Inc. (previously filed as Exhibit 10.33 to the
               Company's Annual Report on Form 10-K for the year ended December
               31, 1997 and incorporated herein by this reference)

    10.34      Sublease, dated April 20, 1994, between Troll Associates, Inc.
               and Component Remanufacturing Specialists, Inc. with respect to
               property located at 400 Corporate Drive, Mahwah, New Jersey
               (previously filed as Exhibit 10.40 to Amendment No. 2 to the
               Company's Registration Statement on Form S-1 filed on November 6,
               1996, Commission File No. 333-5597, and incorporated herein by
               this reference)

    10.35      Sublease Modification and Extension Agreement, dated as of
               February 28, 1996, between Olde Holding Company and Component
               Remanufacturing Specialists, Inc. with respect to property
               located at 400 Corporate Drive, Mahwah, New Jersey (previously
               filed as Exhibit 10.41 to Amendment No. 2 to the Company's
               Registration Statement on Form S-1 filed on November 6, 1996,
               Commission File No. 333-5597, and incorporated herein by this
               reference)

    10.36      Exchange and Registration Rights Agreement, dated August 2, 1994,
               by and among Aftermarket Technology Corp., the subsidiaries of
               Aftermarket Technology Corp., Chemical Securities Inc., and
               Donaldson, Lufkin & Jenrette Securities Corporation (previously
               filed as Exhibit 10.13 to the Company's Registration Statement on
               Form S-4 filed on November 30, 1994, Commission File No.
               33-83868, and incorporated herein by this reference)

    10.37      Exchange and Registration Rights Agreement, dated June 1, 1995,
               by and among Aftermarket Technology Corp., the subsidiaries of
               Aftermarket Technology Corp., Chemical Securities Inc., and
               Donaldson, Lufkin & Jenrette Securities Corporation (previously
               filed as Exhibit 10.16 to the Company's Registration Statement on
               Form S-4 filed on June 21, 1995, Commission File No. 33-93776,
               and incorporated herein by this reference)

    10.38      Firstbank Lending Agreement, dated as of June 28, 1996, between
               Mascot Trust Parts Inc. and/or King-O-Matic Industries Ltd. and
               Bank of Montreal (previously filed as Exhibit 10.33 to Amendment
               No. 1 to the Company's Registration Statement on Form S-1 filed
               on October 25, 1996, Commission File No. 333-5597, and
               incorporated herein by this reference)

    10.39      Stock Subscription Agreement, dated as of November 18, 1996,
               between Aftermarket Technology Corp. and the Trustees of the
               General Electric Pension Trust (previously filed as Exhibit 10.44
               to Amendment No. 4 to the Company's Registration Statement on
               Form S-1 filed on October 25, 1996, Commission File No. 333-5597,
               and incorporated herein by this reference)

    10.40      Amendment and Consent dated as of July 25, 1997 to the Credit
               Agreement dated as of February 14, 1997 among Aftermarket
               Technology Corp., the several banks and other financial
               institutions from time to time parties thereto and The Chase
               Manhattan Bank, as agent (previously filed as Exhibit 10.40 to
               the 

                                         70

<PAGE>

               Company's Registration Statement on Form S-1 (File No. 333-35543)
               filed on September 12, 1997 and incorporated herein by this 
               reference)

    10.41      Asset Purchase Agreement dated as of July 31, 1997 among
               Automatic Transmission Shops Inc., C.W. Smith, ATS
               Remanufacturing, Inc. and Aftermarket Technology Corp.
               (previously filed as Exhibit 10.41 to the Company's Registration
               Statement on Form S-1 (File No. 333-35543) filed on September 12,
               1997 and incorporated herein by this reference)

    10.42      Lease Agreement dated as July 31, 1997 between C.W. Smith and ATS
               Remanufacturing, Inc. (previously filed as Exhibit 10.42 to the
               Company's Registration Statement on Form S-1 (File No. 333-35543)
               filed on September 12, 1997 and incorporated herein by this
               reference)

    10.43      Stock Purchase  Agreement dated as of July 21,  1997 among 
               Gary A. Gamble,  James E. Henderson,  Trans Mart, Inc.,   
               TM-AL  Acquisition  Corp.  and  Aftermarket   Technology  
               Corp.   (previously  filed  as Exhibit 10.43  to the  
               Company's  Registration  Statement  on Form S-1 (File  No. 
               333-35543)  filed on September 12, 1997 and incorporated 
               herein by this reference)

    10.44      Amendment No. 1 to Stock Purchase  Agreement  dated as of 
               August 15, 1997 among Gary A. Gamble,  James E. Henderson,  
               Trans Mart, Inc.,  TM-AL Acquisition Corp. and Aftermarket 
               Technology Corp. (previously filed as Exhibit 10.44 to the 
               Company's  Registration Statement on Form S-1 (File No. 
               333-35543) filed on September 12, 1997 and incorporated herein 
               by this reference)

    10.45      Amendment No. 2 to Stock Purchase  Agreement  dated as of 
               August 15, 1997 among Gary A. Gamble,  James E. Henderson,  
               Trans Mart, Inc.,  TM-AL Acquisition Corp. and Aftermarket 
               Technology Corp. (previously filed as Exhibit 10.45 to the 
               Company's  Registration Statement on Form S-1 (File No. 
               333-35543) filed on September 12, 1997 and incorporated herein 
               by this reference)

    10.46      Form of Indemnification Agreement between Aftermarket Technology
               Corp. and directors and certain officers (previously filed as
               Exhibit 10.46 to Amendment No. 1 the Company's Registration
               Statement on Form S-1 (File No. 333-35543) filed on October 1,
               1997 and incorporated herein by this reference)

    10.47      Amendment Agreements dated August 25, 1997 to Firstbank Lending
               Agreement between Bank of Montreal, Mascot Truck Parts, Inc. and
               King-O-Matic Industries Limited (previously filed as Exhibit
               10.47 to Amendment No. 1 the Company's Registration Statement on
               Form S-1 (File No. 333-35543) filed on October 1, 1997 and
               incorporated herein by this reference)

    10.48      Stock Purchase Agreement, dated as of November 14, 1997, by and
               among Matthew Obeid, Metran Automatic Transmission Parts Corp.,
               Metran of Boston, Inc., Metran Parts of Pennsylvania, Inc., TM-AL
               Acquisition Corp. and Aftermarket Technology Corp. (previously
               filed as Exhibit 10.48 to the Company's Annual Report on Form
               10-K for the year ended December 31, 1997 and incorporated herein
               by this reference)

    10.49      Asset Purchase Agreement, dated as of February 10, 1998, by and
               among Autocraft Industries, Inc., Fred Jones Industries A Limited
               Partnership, and Aftermarket Technology Corp. (previously filed
               as Exhibit 10.49 to the Company's Annual Report on Form 10-K for
               the year ended December 31, 1997 and incorporated herein by this
               reference)

    10.50      Amendment No. 1 to Asset Purchase Agreement, dated as of February
               10, 1998, by and among Autocraft Industries, Inc., Fred Jones
               Industries A Limited Partnership, and Aftermarket Technology
               Corp. (previously filed as Exhibit 10.50 to the Company's Annual
               Report on Form 10-K for the year ended December 31, 1997 and
               incorporated herein by this reference)

    10.51      Employment Agreement, dated as of July 28, 1994, between Kenneth
               A. Bear and Aaron's Automotive Products, Inc. (previously filed
               as Exhibit 10.51 to the Company's Annual Report on Form 10-K for
               the year ended December 31, 1997 and incorporated herein by this
               reference)

    10.52      Employment Agreement, dated as of February 21, 1997, between
               Joseph Salamunovich and Aftermarket Technology Corp. (previously
               filed as Exhibit 10.52 to the Company's Annual Report on Form
               10-K for the year ended December 31, 1997 and incorporated herein
               by this reference)

    10.53      Employment Agreement, dated as of March 6, 1998, between Ronald
               E. Bradshaw and Aftermarket Technology Corp. (previously filed as
               Exhibit 10.53 to the Company's Annual Report on Form 10-K for the
               year ended December 31, 1997 and incorporated herein by this
               reference)

   *10.54      Employment  Agreement,  dated as of  December 15,  1998,  
               between  Michael T.  DuBose and  Aftermarket 

                                       71

<PAGE>
               Technology Corp.

   *10.55      Aftermarket Technology Corp. 1998 Stock Incentive Plan

   *10.56      Waiver and Amendment dated as of March 26, 1999 to the Amended
               and Restated Credit Agreement, dates as of March 26, 1998, among
               Aftermarket Technology Corp., the several banks and other
               financial institutions from time to time parties thereto and The
               Chase Manhatten Bank, as agent

     *11       Statement Re Computation of Net Income Per Share

     *21       List of Subsidiaries

     *23       Consent of Ernst & Young LLP, independent auditors

     *27       Financial Data Schedules
</TABLE>
-----------
*       Filed herewith

(b)     Reports on Form 8-K

         During the last quarter of 1998, the Company filed a Report on Form 8-K
dated October 12, 1998 disclosing the following pursuant to Item 5 of Form 8-K:
(i) management's estimates of earnings per share for the third and fourth
quarters of 1998 and for 1999, (ii) management's expectations for performance of
the Company's Distribution Group, (iii) management's view regarding improved
quality of Chrysler transmissions, and (iv) a press release regarding projected
earnings per share.

(c)     Refer to (a) 3 above.

(d)     Refer to (a) 2 above.

                                      72
<PAGE>


                                  SIGNATURES

         Pursuant to the requirements of Section 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized,
on March 29, 1999.

                              AFTERMARKET TECHNOLOGY CORP.

                              By:  /s/ Michael T. DuBose
                                   ---------------------------
                                       Michael T. DuBose
                                  Chairman of the Board, President 
                                    and Chief Executive Officer

                  Pursuant to the requirements of the Securities Exchange Act of
1934, this Annual Report on Form 10-K has been signed by the following persons
in the capacities indicated on the dates indicated.

<TABLE>
<CAPTION>

                 SIGNATURE                                         TITLE                              DATE
                 ---------                                         -----                              ----
         <S>                                 <C>                                                <C>
           /s/ Michael T. DuBose             Chairman of the Board, President and Chief
          -----------------------            Executive Officer (Principal Executive Officer)    March 29, 1999
             Michael T. DuBose


             /s/ Barry C. Kohn               Chief Financial Officer (Principal Financial and
          -----------------------            Accounting Officer)                                March 29, 1999
               Barry C. Kohn


            /s/ Robert Anderson
          -----------------------            Director                                           March 29, 1999
              Robert Anderson


           /s/ Richard R. Crowell
          -----------------------            Director                                           March 29, 1999
             Richard R. Crowell


          -----------------------            Director                                           March __, 1999
                Dale F. Frey


              /s/ Fred J. Hall
          -----------------------            Director                                           March 29, 1999
                Fred J. Hall


             /s/ Mark C. Hardy
          -----------------------            Director                                           March 29, 1999
               Mark C. Hardy


          -----------------------            Director                                           March __, 1999
            Michael J. Hartnett

                                         73

<PAGE>
                 SIGNATURE                                         TITLE                              DATE
                 ---------                                         -----                              ----

            /s/ Gerald L. Parsky 
          -----------------------            Director                                           March 29, 1999
              Gerald L. Parsky


           /s/ Richard K. Roeder
          -----------------------            Director                                           March 29, 1999
             Richard K. Roeder


            /s/ William A. Smith 
          -----------------------            Director                                           March 29, 1999
              William A. Smith


         /s/ J. Richard Stonesifer
          -----------------------            Director                                           March 29, 1999
           J. Richard Stonesifer
</TABLE>

                                             74
<PAGE>

                                          AFTERMARKET TECHNOLOGY CORP.

                                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                                   ADDITIONS
                                                                            -----------------------
                                                              BALANCE AT    CHARGED TO   CHARGE TO                      BALANCE
                                                             BEGINNING OF    COSTS AND     OTHER                         AT END
                                                                PERIOD       EXPENSES     ACCOUNTS     DEDUCTIONS      OF PERIOD
                                                             ------------    ---------   -----------   ----------      ----------
<S>                                                           <C>             <C>         <C>           <C>             <C>
         Year ended December 31, 1996:
Reserve and allowances deducted from asset accounts:
  Allowance for uncollectible accounts                          $ 2,469       $    668    $    14(2)   $  1,825(1)      $   1,326
  Reserve for inventory obsolescence                              2,114          1,411      -               784             2,741
         Year ended December 31, 1997:
Reserve and allowances deducted from asset accounts:
  Allowance for uncollectible accounts                            1,326            921        183(2)      1,284(1)          1,146
  Reserve for inventory obsolescence                              2,741            930      -             1,575             2,096
         Year ended December 31, 1998:
Reserve and allowances deducted from asset accounts:
  Allowance for uncollectible accounts                            1,146          1,877        214(2)        833(1)          2,404
  Reserve for inventory obsolescence                              2,096          7,788      1,456(2)        380            10,960

    (1)      Accounts written off, net of recoveries
    (2)      Balances added through new acquisitions
</TABLE>


                                                              S-1