**UNITED
      STATES**


**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, 2006**
  **OR**
  **o**
              **TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**
                  **SECURITIES
                    EXCHANGE ACT OF 1934****For
                  The Transition Period From ____________ To
                  ______________**


**Commission
      file number 0-21803**


**_______________________**





**AFTERMARKET
      TECHNOLOGY CORP.**


**(Exact
      name of registrant as specified in its charter)**




**DELAWARE**
            **95-4486486**(State
                or other jurisdiction of
              incorporation
                or organization)
            (I.R.S.
                Employer
              Identification
                No.)**1400
                Opus Place, Suite 600, Downers Grove, IL**
            **60515**(Address
                of principal executive offices)
            (Zip
                Code)




**Registrant's
      telephone number, including area code: (630) 271-8100**


**Securities
      registered pursuant to Section 12(b) of the Act:**




**Title
                of Each Class**
            **Name
                of Each Exchange on Which Listed****Common
                Stock, $.01 par value**
            **Nasdaq
                Global Select Market**




**Securities
      registered pursuant to Section 12(g) of the Act:
 None**






Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes **o** No **x**





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act. Yes **o** **** No **x**





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 **o**





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. **o**












Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):





Large
      accelerated filer **o**     Accelerated
      filer **x**      Non-accelerated
      filer **o**





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes **o** **** No **x**





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 June 30, 2006) was $542 million.





The
      number of shares outstanding of the Registrant's Common Stock, as of February
      15, 2007, was 21,842,908 shares.





**DOCUMENTS
      INCORPORATED BY REFERENCE**


None.








**AFTERMARKET
      TECHNOLOGY CORP.**





**ANNUAL
      REPORT ON FORM 10-K**


**FOR
      THE FISCAL YEAR ENDED DECEMBER 31, 2006**





PageITEM
                1.
            BUSINESS
            1ITEM
                1A.
            RISK
                FACTORS
            9ITEM
                1B.
            UNRESOLVED
                STAFF COMMENTS
            14ITEM
                2.
            PROPERTIES
            14ITEM
                3.
            LEGAL
                PROCEEDINGS
            14ITEM
                4.
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY
                HOLDERS
            14ITEM
                5.
            MARKET
                FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
                MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
            15ITEM
                6.
            SELECTED
                FINANCIAL DATA
            17ITEM
                7.
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                AND RESULTS OF OPERATIONS
            19ITEM
                7A.
            QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK
            39ITEM
                8.
            CONSOLIDATED
                FINANCIAL STATEMENTS AND SUPPLEMENTARY
                DATA
            40ITEM
                9.
            CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                ACCOUNTING AND FINANCIAL DISCLOSURE
            72ITEM
                9A.
            CONTROLS
                AND PROCEDURES
            72ITEM
                9B.
            OTHER
                INFORMATION
            72ITEM
                10.
            DIRECTORS,
                EXECUTIVE OFFICERS AND CORPORATE
                GOVERNANCE
            73ITEM
                11.
            EXECUTIVE
                COMPENSATION
            76ITEM
                12.
            SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                MANAGEMENT AND RELATED STOCKHOLDER MATTERS
            94ITEM
                13.
            CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS AND
                DIRECTOR INDEPENDENCE
            95ITEM
                14.
            PRINCIPAL
                ACCOUNTANT FEES AND
                SERVICES
            96ITEM
                15.
            EXHIBITS
                AND FINANCIAL STATEMENT
                SCHEDULES
            97




i
 ***Table
          of Contents***





**SPECIAL
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**





This
      Annual Report contains forward-looking statements (as such term is defined
      in
      Section 27A of the Securities Act of 1933 and Section 21E of the
      Securities Exchange Act of 1934) and information relating to us that are based
      on the current beliefs of our management as well as assumptions made by and
      information currently available to management, including statements related
      to
      the markets for our products, general trends in our operations or financial
      results, plans, expectations, estimates and beliefs. In addition, when used
      in
      this Annual Report, the words "may," "could," "should," "anticipate," "believe,"
      "estimate," "expect," "intend," "plan," "predict" and similar expressions and
      their variants, as they relate to us or our management, may identify
      forward-looking statements. These statements reflect our judgment as of the
      date
      of this Annual Report with respect to future events, the outcome of which is
      subject to risks, which may have a significant impact on our business, operating
      results or financial condition. Readers are cautioned that these forward-looking
      statements are inherently uncertain. Should one or more of these risks or
      uncertainties materialize, or should underlying assumptions prove incorrect,
      actual results or outcomes may vary materially from those described herein.
      We
      undertake no obligation to update forward-looking statements. The risks
      identified in Item 1A. “Risk Factors,” among others, may impact forward-looking
      statements contained in this Annual Report.





**PART
      I**




**ITEM
      1.BUSINESS**




**Overview**





Aftermarket
      Technology Corp. and its subsidiaries provide outsourced engineering solutions
      and supply chain logistics services to the light and medium/heavy-duty vehicle
      aftermarket and consumer electronics industries. Through our Drivetrain
      Business, we provide customized remanufacturing services focused on complex
      light and medium/heavy-duty vehicle drivetrain products, such as automatic
      transmissions and engines, that are primarily sold through the service,
      repair and parts organizations of our customers. Through our Logistics Business,
      we offer value-added supply-chain services to the consumer electronics and
      light
      vehicle aftermarket industries, including fulfillment, returns management,
      reverse logistics, test, repair and other related services. We generally provide
      services under contractual relationships with customers that distribute
      high-value, complex products.





We
      believe our service offerings are differentiated from those of our competitors
      by the degree of customization we provide coupled with our focus on quality
      and
      the consistency of our performance. We
      have
      developed business processes, technical capabilities and information technology
      systems that allow us to design flexible and scaleable solutions
      that help our
      customers reduce their costs, improve their supply chain efficiency and enhance
      their profitability. W e manage,
      monitor and communicate detailed information about our processes and our
      customers’ shipments, returns, products and inventory on a real-time basis. This
      information is readily accessible to our customers, easy-to-use, and customized
      to fit their needs. We also use this information to analyze and improve the
      performance of our businesses and to help us achieve our exacting quality and
      service benchmarks.





***Our
      Drivetrain Business***





Our
      Drivetrain Business remanufactures drivetrain products, which we distribute
      primarily to Original Equipment Service ( “ OES”)
      organizations and their outlets. As our OES customers are the service and repair
      organizations of automotive Original Equipment Manufacturers (“OEMs”), we are
      not subject to the same market trends, such as the cyclical nature of new light
      vehicle sales, as “Tier 1” suppliers to the automotive industry. We believe we
      are the largest independent light vehicle automatic transmission remanufacturer
      in the world. Our drivetrain products consist principally of remanufactured
      automatic transmissions and also include remanufactured torque converters,
      valve
      bodies and engines. Our principal drivetrain customers are the North American
      service, repair and parts organizations of Honda, Ford, DaimlerChrysler, Allison
      and the European division of Ford. Drivetrain
      Business net sales accounted for 47.1%, 63.5%, 72.2%, 74.7%, and 69.8% of our
      2006, 2005, 2004, 2003 and 2002 net sales, respectively.


1
 ***Table
          of Contents***


Remanufactured
      products are used in the repair of vehicles by dealers and other service outlets
      during both the warranty and post-warranty periods following the sale of a
      vehicle. Remanufacturing is a process through which used components known as
      “cores” are returned to a central facility where they are disassembled and the
      parts are inspected, cleaned, refurbished and tested. We then combine the
      reusable parts with new parts, primarily in a high-volume cellular assembly
      process, to create remanufactured components that are of comparable quality
      to
      new components .
      We
      remanufacture some of the most complex components of a vehicle, such as the
      transmission and engine. Generally, our customers and their designated suppliers
      provide parts and cores to us and the customer retains title to the core.
      However, our medium/heavy-duty remanufacturing program with Allison requires
      us
      to purchase the cores from Allison. In cases where we do not take ownership
      of
      the cores, our working capital requirements are reduced. Furthermore, because
      we
      use salvaged parts from cores or new parts sourced from our customers and their
      designated suppliers, we are not directly subject to material pricing
      fluctuations. We believe remanufactured products are generally lower in cost
      than new replacement components and frequently facilitate a faster, more
      reliable repair when compared to components that are rebuilt at service outlets.
      In addition, remanufactured components efficiently reuse existing parts and
      are
      less damaging to the environment.





We
      remanufacture OEM-approved transmissions for warranty and/or post-warranty
      replacement of transmissions for Honda, Ford, DaimlerChrysler, Allison and
      certain foreign OEMs, primarily for use in the United States service and repair
      organizations of their dealer networks.   Additionally, our European
      facility remanufactures OEM-approved gas and diesel engines for several European
      OEMs, including Jaguar and the European divisions of Ford and GM.  These
      engines are used for warranty and post-warranty replacement, and we also provide
      certain machining services for some of our customers.





We
      generally sell our products to each customer pursuant to a supply arrangement
      for individual transmission or engine models, which supply arrangement typically
      may be terminated by the customer on 90 days notice or less. Our contracts
      for transmission remanufacturing with Ford and DaimlerChrysler were both renewed
      during 2006 and run through 2008.





We
      work
      to develop and maintain strong relationships at many levels, in both the
      corporate and factory organizations of our drivetrain customers. We began
      remanufacturing transmissions for DaimlerChrysler’s Chrysler division and Ford
      in 1989, and Honda in 2002.  Over the past few years, we have strengthened
      our relationships with many of our Drivetrain Business customers, as evidenced
      by the award of new business with Honda, Ford, General Motors, DaimlerChrysler,
      Jaguar, Land Rover and Isuzu. We believe that we are the largest provider of
      remanufactured transmissions to DaimlerChrysler, Ford and Honda for light
      vehicles in North America.





Our
      facilities that remanufacture transmissions for OEMs have QS-9000 or ISO-9000
      certification, a complete quality management system developed for manufacturers
      who subscribe to the ISO 9002 quality standards.  The system is designed to
      help suppliers, such as us, develop a quality system that emphasizes defect
      prevention and continuous improvement in manufacturing processes.





***Our
      Logistics Business***





Our
      Logistics Business provides a number of value-added services that generate
      operational efficiencies for our customers through the outsourcing of certain
      supply chain functions. Specifically, our Logistics Business provides
      value-added warehousing and distribution, reverse logistics, turnkey order
      fulfillment, electronic equipment testing, and refurbishment and repair
      services. Except for component parts to support our repair services, we
      generally do not take ownership of inventory. As a result, we face less risk
      of
      inventory obsolescence and require relatively less working capital than
      logistics service providers who take ownership of inventory. Our principal
      customers are currently in the wireless, consumer electronics and automotive
      industries and include AT&T Mobility (formerly Cingular Wireless), Nokia,
      GM, LG, Magellan, T-Mobile, Delphi, Visteon, TiVo and TomTom. Logistics
      Business segment sales accounted for 52.9%, 36.5%, 27.8%, 25.3% and 30.2% of
      our
      2006, 2005, 2004, 2003 and 2002 net sales, respectively.


2
 ***Table
          of Contents***


We
      determine our logistics process in close consultation with our customers. Our
      information technology systems allow rapid integration with our customers’
systems and, in conjunction with our customized processes, help us to meet
      demanding logistics and repair requirements. By improving our customers’
inventory turns and speed of repair and refurbishments, as well as enabling
      our
      customers to realize value from returned products, we believe we help our
      customers increase their profitability, reduce their capital investments and
      enhance their opportunities for growth . We
      customize our products and services to meet the specific individual needs of
      customers instead of offering one standard suite of products and
      services.





Our
      logistics customers market and distribute complex and serialized consumer
      electronics such as cellular phones, wireless devices, navigation devices,
      and
      light vehicle audio systems and instrument clusters. As
      part
      of our service offering, we provide bulk and direct fulfillment of cellular
      telephones to AT&T and its partners.  We deliver products both to
      AT&T retail locations and directly to individuals who order a cellular
      phone, and provide inventory tracking and management, process all
      warranty-service exchanges and perform handset testing and repair. Growth
      in
      our Logistics Business has largely been with AT&T. Additionally, we (i)
      process returns and perform handset testing and repair for Nokia, (ii) remanufacture,
      repair and distribute light vehicle audio systems and instrument and display
      clusters primarily for Delphi, Visteon, and GM, and various mobile electronics
      products, such as navigation systems, primarily for Delphi, GM, Magellan and
      TomTom, and (iii) offer returned material reclamation and core management and
      disposition services.





Revenue
      for services to AT&T grew significantly in 2006 and we expect them to grow
      further in 2007. We also signed agreements and launched new business with other
      logistics customers in 2006 that we expect to generate additional sales in
      2007.






**Industry
      Background**





***Automotive
      Aftermarket***





Demand
      for replacement or repair of drivetrain products is a function of numerous
      factors, such as the number of vehicles in operation, the average age of
      vehicles and the average number of miles driven per vehicle. Within this overall
      market, factors that influence demand for our remanufactured products, when
      compared to repair services, include product complexity, OEM warranty policies
      governing repair-versus-replace decisions made by their dealers, and the length
      of warranty periods. In addition, we believe increasing demand for our
      remanufacturing services, when compared to repair services, is also driven
      by
      the relatively limited number of qualified repair technicians and repair test
      equipment, and the increase in customer service demands. The demand for our
      products is generally not tied to the cyclical nature of new light vehicle
      sales. We supply our products to the automotive aftermarket, which consists
      of
      parts and services for light vehicles after their original purchase. According
      to the Frost & Sullivan report dated February 2005, the North American
      replacement and repair component of this market for transmissions was
      approximately $2.7 billion in 2004 and expected to grow at a compound annual
      rate of 4.4% from 2004 to 2011 due to the increasing number of vehicles in
      operation, the average age of vehicles and the average number of miles driven
      per vehicle.





***Remanufacturing
      Process***





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:





•
            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;





•
            replace
                the assembly with an assembly from a remanufacturer such as us;
                or





•
            replace
                the assembly with a new assembly manufactured by the
                OEM.


3
 ***Table
          of Contents***


In
      our
      remanufacturing process, we generally obtain used transmission and engine cores from our
      customers or their designated suppliers.  We then sort the cores by vehicle
      make and model and either place them into immediate production or store them
      until needed.  In the remanufacturing process, we evaluate the cores,
      disassemble them into their component parts and inspect, clean, refurbish and
      test the components that can be incorporated into the remanufactured
      product.  We replace components that we determine to be not reusable or
      repairable with other remanufactured or new components.  We conduct
      inspection and testing at various stages of the remanufacturing process, and
      we
      test each finished assembly on equipment designed to simulate performance under
      operating conditions.  After testing, we generally package completed
      products for immediate delivery.





There
      are
      four primary benefits of using remanufactured components in the repair of
      vehicles:





•
            First,
                costs to the customers associated with remanufactured assemblies
                generally
                are substantially less than costs associated with either new assemblies
                or
                assemblies that have been rebuilt by the dealer following a severe
                failure.  This is due primarily to our lower labor costs and our use
                of high volume salvage and manufacturing techniques that enable us
                to
                refurbish and reuse a high percentage of original components.  The
                cost savings produced by remanufactured assemblies help our customers
                manage their warranty expenses.





•
            Second,
                remanufactured assemblies are generally of consistent high quality
                due to
                the precision manufacturing techniques, technical upgrades and rigorous
                inspection and testing procedures we employ in remanufacturing.  By
                contrast, the quality of rebuilt assemblies generally is less consistent
                because it is heavily dependent on the skill level of the particular
                mechanic as well as the availability of adequate tooling and testing
                equipment.   For warranty repairs, consistent quality is
                important to the customer providing the applicable warranty, because
                once
                installed, the remanufactured product is usually covered by the customer’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 allowing the dealer or repair shop to increase its
                volume
                of business.





•
            Fourth,
                the environmental benefits of remanufacturing may be significant.  We
                annually re-process thousands of tons of materials that would otherwise
                have been discarded. Remanufacturing in our facilities, when compared
                to
                rebuilding at various dealers, generally results in a more efficient
                reuse
                of parts and a more controlled recycling of scrap materials and excess
                fluids.  This in turn leads to associated cost savings and benefits
                to customers that are increasingly focused on environmental compliance
                issues.





***Logistics
      Industry***





Logistics
      can generally be defined as the management and transportation of materials
      and
      inventory throughout the supply chain as well as the provision of value-added
      services such as assembly, packaging, programming, testing and repair.  The
      logistics industry has expanded rapidly over the last 15 years due to
      dramatic improvements in technology, increased demand in customer service
      requirements, and the significant value proposition provided to companies by third
      party logistics (3PL) providers. As
      more
      companies focus on core competencies, many companies have decided to outsource
      the management of all or part of their supply chain as a means to reduce costs,
      increase asset and labor flexibility and improve customer service.  As a
      result, 3PL providers have become extensively involved in the full range of
      customer supply chain functions.  The operational efficiencies of a 3PL
      provider enable companies to reduce investments in facilities, information
      technology, inventory and personnel.  Third-party services include turnkey
      supply chain services, such as order fulfillment, product labeling and
      packaging, inventory and warehouse management, product return, refurbishment
      and
      repair, electronics equipment testing, reverse logistics and the physical
      movement of goods.





4
 ***Table
          of Contents***


We
      compete in the value-added warehousing market, a subset of the 3PL market,
      which
      we believe is fragmented, with no dominant industry player, and growing rapidly.
      According to the Armstrong & Associates, Inc. 2006 North American 3PL Market
      Overview report, this market size was estimated to be $22.3 billion of gross
      revenues in 2005.






**Our
      Competitive Strengths**





We
      believe we offer products and solutions that improve our customers’ profits and
      operations as a result of our competitive strengths, which include the
      following:





***Customized
      Service Offering***





We are
      recognized by our customers for our high level of service and our flexibility
      in
      providing product and service solutions. This approach
      involves our team of specialists who work with the client to understand the
      specific deliverables required by that client, understand communication points
      within the supply chain, design solutions, establish operational and business
      metrics, eliminate waste and improve efficiencies. We offer a broad array of
      products and services to our logistics customers, which allows us to work with
      the customer to customize our
      products and services to meet the specific individual needs of the customer
      instead of offering one standard suite of products and services. We believe
      our
“One-Size-Fits-One” approach helps us attract and retain customers. For
      instance, for AT&T, our supply chain management services include product
      warranty and returns, order entry processing, testing and repair, warehousing,
      picking, kitting, customized packaging, shipping and delivery of wireless
      handsets, including wireless data devices.  Our integrated logistics
      services also include inventory management and private labeling. Our customized
      approach has allowed us to add Nokia, Allison, T-Mobile, LG, Magellan, TomTom
      and TiVo as new customers over the past two years.





***High
      Quality Through Engineering and Technical Know-How***





Our
      remanufactured products are of consistent high quality due to the precision
      manufacturing techniques, technical upgrades and rigorous inspection and testing
      procedures employed in our remanufacturing processes. We partner with our
      customers to design processes that help ensure that our remanufacturing of
      complex products such as automatic transmissions, valve bodies, torque
      converters, engines and automotive electronics replicates OEM quality and test
      procedures.  Our remanufacturing process is completed by testing products
      using state-of-the-art equipment such as sophisticated test stands that enable
      us to replicate OEM test procedures. We are committed to upholding the quality
      of our customers’ products and hold QS-9000 Certification, ISO-9000
      Certification and Ford’s Q1 Certification. We monitor our procedures and
      processes, which allows us to identify and to quickly correct situations that
      could impact our product quality. We have a team of engineers dedicated to
      enhancing and adding new products, sharing innovative solutions and reducing
      our
      customers’ expenses. Our engineering capabilities include developing new
      products.





***Information
      Technology Capabilities***





We
      use
      information technology to help meet customers’ needs in product security and
      confidentiality, product qualification and identification, inventory management,
      and interactive electronic communication. We also provide customers with
      solutions for their supply chain management, reverse logistics, product tracking
      and product history needs, while maintaining service and quality levels. Our
      use
      of information technology allows us to provide flexible, accurate, customized
      logistics solutions to help meet customer requirements while providing full
      visibility across the supply chain. Our solutions can reduce customer-required
      investment in information technology, and can improve the efficiency of our
      customers’ inventory and supply chains by providing enhanced traceability and
      visibility of inventory, resulting in market-leading performance metrics and
      improved customer profitability. In addition, our information technology systems
      allow for rapid integration with our customers’ systems, enhancing the quality
      of our services.





5
 ***Table
          of Contents***


***Strong,
      Experienced Management Team***





Our
      executive and operations management team has extensive experience. Our Chief
      Executive Officer, Donald T. Johnson, Jr., has 33 years of experience in the
      logistics and automotive industries, including five years as Global
      Director of Parts, Supply and Logistics for Ford and 26 years within
      Caterpillar’s Parts and Service and Logistics organizations where he became Vice
      President, Caterpillar Logistics. Our
      Vice
      President and Chief Financial Officer, Todd R. Peters, has 22 years of
      financial, acquisition and integration, and automotive operations experience.
      The President of our ATC Logistics Business, William L. Conley, Jr., has 28
      years of logistics experience, and the Vice President of our North American Remanufacturing
      Operations ,
      Brett
      O. Dickson, has 17 years of operational and supply chain management
      experience.






**Our
      Growth Strategies**





Our
      strategy is to be a valued partner that provides remanufacturing, logistics,
      return and repair services for customers that distribute high-value, complex
      products in various markets. We will grow by leveraging our strong customer
      relationships while we develop new customers and products.





***Growth
      Within Our Drivetrain Business***





*Expand
      Our Product Offering and Product Application.* Our
      business and product development teams are working to identify new products
      and
      processes that enable us to compete for additional business with our OES dealer
      customers by helping them to increase their penetration of the drivetrain repair
      market and/or reduce their total warranty costs. For example, we are working
      with certain of our OES customers to (i) develop and implement products and
      strategies designed to enable them to penetrate, or increase their penetration
      of, the post-warranty replacement market for automotive transmissions that
      we
      remanufacture on their behalf and (ii) re-introduce remanufactured transmissions
      as a transmission repair alternative in warranty applications.





*Enter
      Additional Markets for our Services.* We are
      seeking drivetrain remanufacturing opportunities in markets outside our primary
      light vehicle aftermarket, including the commercial vehicle market. For example,
      in 2005 we were awarded a remanufacturing program by Allison for
      medium/heavy-duty automatic transmissions, which generates over $30 million
      of annualized revenue. We
      believe that our expertise in drivetrain remanufacturing will be directly
      transferable to these other markets over time.





*Expand
      Our International Presence.* In
      2006,
      we generated approximately 95% of our total net sales in North America. We
      believe that our expertise in drivetrain remanufacturing will be directly
      transferable to foreign markets, which generally have a less developed
      drivetrain remanufacturing market than North America. As such we are actively
      pursuing additional opportunities with both new and existing customers to
      provide remanufacturing services in both Europe and Asia. We
      believe that these areas represent an opportunity for growth. We are currently
      working to develop programs with OEMs in the growing Chinese automotive market
      (where we do not currently have a presence).  We continue to explore
      opportunities in the global automotive industry for our products and services
      in
      order to capture new business opportunities and improve
      profitability.





*Emerging
      Technology.* W e
      continue to invest in the *NuVinciTM* Continuously Variable Planetary (CVP) Drive technology to further diversify
      our
      products, markets, customers and revenues. Initially we are focusing on the
      bicycle, light electric vehicle, recreation/garden vehicle and commercial
      vehicle markets. We intend to utilize the strengths, capabilities and capacity
      in our Drivetrain Business to develop and commercialize the CVP
      product.





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          of Contents***


***Growth
      Within Our Logistics Business***





*Target
      New Customers and Broaden Services Provided to Customers* .
      We
      believe we are well positioned to capitalize on growth in the 3PL services
      market, particularly with existing and new customers in the consumer electronics
      and vehicle industries, by offering customized, reliable and cost effective
      solutions for customers with complex logistics requirements involving high-value
      products. In
      2006,
      we were awarded new logistics business that we expect to generate $21 million
      of
      annualized revenue.





We
      intend
      to increase penetration of our existing Logistics Business customer base by
      broadening our offering of Logistics products and services and by marketing
      our
      core competencies as solutions to meet our customers’ needs.  Under our
“ One-Size-Fits-One ”
      philosophy, we will continue to leverage our broad range of services to target
      new customers that provide serialized products across a variety of industries
      and provide them with customized products and services to meet their specific
      needs instead of offering one standard suite of products and services. We also
      intend to leverage our core competencies in logistics and electronics
      refurbishment by working with our existing and new customers to identify
      products and services where we can add value in satisfaction of our customers’
specific needs. We intend to further expand our penetration of the market for
      logistics services and electronics repair through the addition of other wireless
      carriers to our customer base and through penetration into other vertical
      markets, including broadband/cable, electronics and computers, and medical
      equipment. We have also identified and targeted several new market segments,
      including additional classes of consumer electronics.





***Additional
      Corporate Initiatives***





*Leverage
      Operating Efficiency and Productivity Gains* .
      We
      regularly evaluate our operating efficiency and productivity in order to
      increase our profitability and cash flows. Over the last several years, we
      have
      completed numerous lean manufacturing, six sigma and continuous improvement
      projects that have resulted in significant cost savings and increased capacity
      utilization. Our “Lean and Continuous Improvement” program has helped us achieve
      margin improvements and further enhancement of quality. We believe there are
      additional opportunities to further improve our cost base and increase earnings.





*Selectively
      Pursue Acquisitions* .
      From
      time to time we evaluate potential acquisitions of complementary businesses
      that
      we believe will broaden our product offerings, diversify our customer base
      or
      provide us access to new markets. We have established criteria by which we
      evaluate potential acquisitions, which we use to identify and pursue only those
      that we believe will enhance long-term shareholder value. We have made various
      acquisitions in the past and, to the extent suitable acquisition candidates,
      acquisition terms and financing are available, we intend to pursue acquisitions
      in the future.






**Competition**





In
      our
      Drivetrain Business, we primarily compete in the market for remanufactured
      transmissions sold to the automotive aftermarket through the OEM dealer
      networks.  This market, narrowly defined, is one in which the majority of
      industry supply comes from a limited number of participants.  Competition
      is based primarily on product quality, service, delivery, technical support
      and
      price and tends to be split along customer lines.





In
      our
      Logistics Business, we primarily compete in a fragmented market as a niche
      participant offering a specialized value-added service requiring stringent
      service level requirements.  Based on our performance levels, we believe we
      are well positioned to compete in this market.  However, some of our
      competitors in this segment such as Caterpillar Logistics and UPS Logistics
      are
      larger and have greater financial and other resources.





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**Employees**





As
      of December
      31, 2006 ,
      we had
      approximately 4,000 full-time and temporary employees.  We believe our
      employee and labor relations are good.  We have not experienced any work
      stoppage to date and currently none of our employees is represented by a labor
      union.






**Environmental**





We
      are
      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 damages
      resulting from, past spills, disposals or other releases of hazardous
      substances.





In
      connection with the acquisition of our subsidiaries, some of which have been
      subsequently divested or relocated, we 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 various distribution facilities, found
      that
      a number of these 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 reporting and other regulatory
      requirements, including waste management procedures, were not or may not have
      been satisfied. Although there can be no assurance, we believe that, based
      in
      part on the investigations conducted, in part on certain remediation completed
      prior to or since the acquisitions, and in part on the indemnification
      provisions of the agreements entered into in connection with our acquisitions,
      we will not incur any material liabilities relating to these
      matters.





In
      connection with the October 2000 sale of our Distribution Group, we agreed
      to indemnify the buyer against environmental liability at former Distribution
      Group facilities that had been closed prior to the Distribution Group sale,
      including former facilities in Azusa, California, Mexicali, Mexico and Dayton,
      Ohio. We also agreed to indemnify the buyer against any other environmental
      liability of the Distribution Group relating to periods prior to the closing
      of
      the Distribution Group sale. Our indemnification obligations to the buyer are
      subject to a $750,000 deductible and a $12.0 million cap, except with
      respect to the closed facilities. We also have an additional $100,000 deductible
      applicable to all Distribution Group claims for indemnification.






**Segment
      Reporting**





We
      have
      two reportable segments: the Drivetrain segment and the Logistics segment.
      See
      Item 8. “Consolidated Financial Statements and Supplementary Data” and Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of
      Operations.”






**Available
      Information**





Our
      internet website is www.goATC.com .
      We make
      available free of charge on our website our annual reports on Form 10-K,
      quarterly reports on Form 10-Q, current reports on Form 8-K and any other
      filings we make with the Securities and Exchange Commission as soon as
      reasonably practicable. This information may also be obtained by calling the
      Securities and Exchange Commission at 1-800-SEC-0330. The Securities and
      Exchange Commission also maintains an internet website that contains reports
      and
      other information regarding issuers like us that file electronically with the
      Securities and Exchange Commission at www.sec.gov .
      We will
      provide a copy of any of the foregoing documents to shareholders upon request.
      The contents of our website are not part of this Annual Report.





8
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          of Contents***


**ITEM
      1A.** **RISK
      FACTORS**





We
      believe that the following are the material risks currently facing our business.
      Additional risks we are not presently aware of or that we currently believe
      are
      immaterial, may also impair our business operations. Any of these risks could
      have a material adverse effect on our financial condition, results of operations
      or stock price. Readers should also refer to the other information included
      in
      this Annual Report, including our consolidated financial statements and related
      notes thereto.





**We
      rely on a few major customers for a significant majority of our business and
      the
      loss of any of those customers, significant changes in prices or other terms
      with any of our major customers, or changes to our customers’ warranty policies,
      could reduce our net income and operating results.**





A
      few
      customers account for a significant majority of our net sales each year. In
      2006, we had three customers that individually accounted for more than 10%
      of
      our net sales. AT&T Mobility (formerly Cingular Wireless) accounted for
      41.8%, 29.8% and 23.5% of our net sales during 2006, 2005 and 2004,
      respectively, Ford accounted for 15.4%, 24.4% and 31.2% of our net sales for
      2006, 2005 and 2004, respectively, and Honda accounted for 15.6%, 19.3% and
      20.4% of our net sales during 2006, 2005 and 2004, respectively. In addition,
      DaimlerChrysler accounted for 7.3%, 15.4% and 15.5% of our net sales in 2006,
      2005 and 2004, respectively. If we lose any of these customers, or if any of
      them reduces or cancels a significant order, our net sales and operating results
      could decrease significantly.





Our
      significant OEM customers generally require that their dealers using
      remanufactured products for warranty application use only products from approved
      suppliers. Although we are a factory approved supplier of our customers, they
      generally are not obligated to continue to purchase our products and may switch
      some or all of their business to other suppliers in the future and we may not
      be
      able to maintain or increase our sales to them.





Most
      of
      our contracts or arrangements with our customers (including the contracts with
      AT&T and Ford) have a term of three years or less and are terminable by the
      customer subject to a notice period that ranges from 90 days or less to 180
      days. In addition, we periodically renegotiate the prices and other terms of
      our
      products with our customers, and have historically experienced price reductions
      in connection with contract renewals. Because of the periodic expiration of
      our
      customer contracts, the short termination periods of those contracts and
      periodic price negotiations, we cannot give any assurances of the stability
      of
      the demand or prices for our products and, therefore, our revenue streams.
      Significant demand or price fluctuations could materially affect our
      business.





Loss
      of a
      significant customer could also result in us incurring asset impairment charges
      and exit costs associated with the closure of the plant that serviced that
      customer. In connection with the loss of General Motors transmission business
      in
      2004, we recorded goodwill and other asset impairment charges totaling $26.4
      million and incurred $3.4 million of exit costs to close the Gastonia,
      North Carolina facility where we had produced units for General Motors.





Within
      the last few years the standard new vehicle warranty provided by our customers
      has varied and shorter warranty periods could be implemented in the future.
      Any
      shortening of warranty periods could reduce the amount of warranty work
      performed by dealers and reduce the demand for our products. Additionally,
      our
      customers may vary their policies that determine when their dealers may use
      remanufactured products for warranty applications, which could reduce the demand
      for our products. Our results, most recently in 2005, have been adversely
      affected by certain customers changing the policies that govern their dealer
      warranty repair-versus-replace decisions, which have resulted in dealers
      repairing more transmissions and consequently replacing fewer transmissions
      with
      remanufactured units.





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          of Contents***


**Our
      Logistics Business is dependent on the strength of
      AT&T.**





AT&T,
      which accounted for 79.0% of our Logistics segment net sales for 2006, operates
      in a highly competitive technology market. The number of cell phones sold by
      AT&T, whether to new subscribers or as replacement phones to existing
      subscribers, is dependent on its ability to keep pace with technological
      advancements and to provide service programs and prices that are attractive
      to
      current and potential customers. Our Logistics net sales to AT&T are
      substantially related to the number of phones sold by AT&T. Consequently,
      any material decrease in phones sold by AT&T will materially and adversely
      affect our Logistics net sales.





**Interruptions
      or delays in obtaining transmission cores and component parts could impair
      our
      business.**





In
      our
      remanufacturing operations, we obtain used transmissions, 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 we
      remanufacture are obtained from OEMs. Our ability to obtain cores of the types
      and in the quantities we require is critical to our ability to meet demand
      and
      expand production. With the increasing acceptance in the aftermarket of
      remanufactured assemblies, the demand for cores has increased. We have
      periodically experienced situations in which the inability to obtain sufficient
      cores has limited our ability to accept orders. We may experience core shortages
      in the future. In addition, from time to time, we experience shortages of
      components manufactured by our OEM customers that we require for our
      transmission remanufacturing process. If we experience such shortages for an
      extended period of time, it could have a material adverse effect on our business
      and negatively impact our competitive position.





**Our
      financial results are affected by transmission failure rates, which are outside
      our control.**





Our
      quarterly and annual operating results are affected by transmission failure
      rates, and a drop in these rates could adversely affect sales or profitability
      or lead to variability of our operating results. Generally, if transmissions
      last longer, there will be less demand for our remanufactured transmissions.
      Transmission failure rates could drop due to a number of factors outside our
      control, including:





•
            consumers
                retaining automobiles for shorter periods, which could occur in periods
                of
                economic growth or stability;





•
            transmission
                designs that result in greater reliability;





•
            consumers
                driving fewer miles per year due to high gasoline prices; and





•
            mild
                weather.





**Our
      financial results are affected by our customers' policies, which are outside
      our
      control.**





Our
      financial results are also affected by the policies of our OEM customers.
      Changes to our key OEM customers’ policies that could materially affect our
      business include:





•
            guidelines
                that affect dealer decisions to rebuild units at the dealer rather
                than
                install remanufactured transmissions;





•
            a
                decision not to use remanufactured units for warranty
                replacements;





•
            shortened
                warranty periods that could reduce the demand for our products;





•
            reductions
                in the amount of inventory our OEM customers elect to retain;





•
            longer
                time periods before remanufactured transmissions are introduced for
                use
                with a particular automobile; and




•
              pricing
                  strategies.


10
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**We
      may incur material liabilities under various federal, state, local and foreign
      environmental laws.**





We
      are
      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 the
      damages resulting from, past spills, disposals or other releases of hazardous
      substances. In connection with our acquisition activity, we have conducted
      certain investigations of facilities we have acquired and their compliance
      with
      applicable environmental laws. Similarly, in the course of lease terminations,
      we have generally conducted investigations into potential environmental impacts
      resulting from our operations. These investigations revealed various
      environmental matters and conditions that could expose us to liability or which
      have required us to undertake compliance-related improvements or remedial
      activities. Any liability we may have under environmental laws could materially
      affect our business.





**Substantial
      competition could reduce our market share and significantly harm our financial
      performance.**





Our
      industry segments are highly competitive. We may not be successful in competing
      against other companies, some of which are larger than us and have greater
      financial and other resources available to them than we do. Increased
      competition could require us to reduce prices or take other actions that may
      have an adverse effect on our operating results.





**Our
      stock price is volatile, and investors may not be able to recover their
      investment if our stock price declines.**





The
      trading price of our common stock has been volatile and can be expected to
      be
      affected by factors such as:





•
            quarterly
                variations in our results of operations, which may be impacted by,
                among
                other things, price renegotiations with, or loss of, our customers;





•
            quarterly
                variations in the results of operations or stock prices of comparable
                companies;





•
            announcements
                of new products or services offered by us or our competitors;





•
            changes
                in earnings estimates or buy/sell recommendations by financial analysts;





•
            the
                stock price performance of our customers; and





•
            general
                market conditions or market conditions specific to particular industries.





**Our
      future operating results may fluctuate significantly.**





We
      may
      experience significant variations in our future quarterly results of operations.
      These fluctuations may result from many factors, including the condition of
      our
      industry in general and shifts in demand and pricing for our products. Our
      operating results are also highly dependent on our level of gross profit as
      a
      percentage of net sales. Our gross profit percentage fluctuates due to numerous
      factors, some of which may be outside of our control. These factors include:





•
            pricing
                strategies;





•
            changes
                to our customers’ warranty policies;


11
 ***Table
          of Contents***


•
            changes
                in product costs from vendors;





•
            the
                risk of some of the items in our inventory becoming obsolete;





•
            the
                availability and quality of cores;





•
            the
                relative mix of products and services sold during the period; and





•
            general
                market and competitive conditions.





Results
      of operations in any period, therefore, should not be considered indicative
      of
      the results to be expected for any future period.





**Our
      success depends on our ability to retain our senior management and to attract
      and retain key personnel.**





Our
      success depends to a significant extent on the efforts and abilities of our
      senior management team. We have various programs in place to motivate, reward
      and retain our management team, including bonus and stock incentive plans.
      However, the loss of one or more of these persons could have an adverse effect
      on our business. Our success and plans for future growth will also depend on
      our
      ability to hire, train and retain skilled workers in all areas of our business.
      We currently do not have key executive insurance relating to our senior
      management team.





**We
      cannot predict the impact of unionization efforts or labor shortages on our
      business.**





From
      time
      to time, labor unions have indicated their interest in organizing a portion
      of
      our workforce. Given that our OEM customers are in the highly unionized
      automotive industry, our business is likely to continue to attract the attention
      of union organizers. While these efforts have not been successful to date except
      in the case of our former Mahwah, New Jersey facility (which we closed in
      December 2003), we cannot give any assurance that we will not experience
      additional union activity in the future. Any union organization activity, if
      successful, could result in increased labor costs and, even if unsuccessful,
      could result in a temporary disruption of our production capabilities and a
      distraction to our management.





Additionally,
      we need qualified managers and a number of skilled employees with technical
      experience in order to operate our business successfully. From time to time,
      there may be a shortage of skilled labor, which may make it more difficult
      and
      expensive for us to attract and retain qualified employees. If we are unable
      to
      attract and retain qualified individuals or our costs to do so increase
      significantly, our operations would be materially adversely affected.





**We
      are subject to risks associated with future acquisitions.**





An
      element of our growth strategy is the acquisition and integration of
      complementary businesses in order to broaden product offerings, capture market
      share and improve profitability. We will not be able to acquire other businesses
      if we cannot identify suitable acquisition opportunities, obtain financing
      on
      acceptable terms or reach mutually agreeable terms with acquisition candidates.
      The negotiation of potential acquisitions as well as the integration of an
      acquired business could require us to incur significant costs and cause
      diversion of our management's time and resources. Future acquisitions by us
      could result in:





•
            dilutive
                issuances of equity securities;





•
            reductions
                in our operating results;





•
            incurrence
                of debt and contingent liabilities;





•
            future
                impairment of goodwill and other intangibles; and





•
            other
                acquisition-related expenses.


12
 ***Table
          of Contents***


Some
      or
      all of these items could have a material adverse effect on our business. The
      businesses we may acquire in the future might not achieve sales and
      profitability that justify our investment. In addition, to the extent that
      consolidation becomes more prevalent in our industry, the prices for suitable
      acquisition candidates may increase to unacceptable levels and limit our growth.





We
      may
      encounter difficulties in integrating any businesses we acquire with our
      operations. The success of these transactions depends on our ability to:





•
            retain
                key management members and technical personnel of acquired companies;





•
            successfully
                merge corporate cultures and operational and financial systems; and





•
            realize
                sale and cost reduction synergies.





Furthermore,
      we may not realize the benefits we anticipated when we entered into these
      transactions. In addition, after we have completed an acquisition, our
      management must be able to assume significantly greater responsibilities, and
      this in turn may cause them to divert their attention from our existing
      operations. Any of the foregoing could have a material adverse effect on our
      business and results of operations.





**Our
      level of indebtedness and the terms of our indebtedness could adversely affect
      our business and liquidity position.**





As
      of
      December 31, 2006, our net debt (outstanding indebtedness minus cash and
      cash equivalents on hand) was $10.0 million. However, we expect that our
      indebtedness may increase substantially from time to time in the future for
      various reasons, including fluctuations in operating results, capital
      expenditures and possible acquisitions. Our consolidated indebtedness level
      could materially affect our business because:





•
            a
                portion of our cash flow from operations must be dedicated to interest
                payments on our indebtedness and is not available for other purposes,
                which amount would increase if prevailing interest rates rise;





•
            it
                may materially limit or impair our ability to obtain financing in
                the
                future;





•
            it
                may reduce our flexibility to respond to changing business and economic
                conditions or take advantage of business opportunities that may arise;
                and





•
            our
                ability to pay dividends is limited.





In
      addition, our credit facility requires us to meet specified financial ratios
      and
      limits our ability to enter into various transactions. If we default on any
      of
      our indebtedness, or if we are unable to obtain necessary liquidity, our
      business could be adversely affected.





**Our
      certificate of incorporation contains provisions that may hinder or prevent
      a
      change in control of our company.**





Provisions
      of our certificate of incorporation could make it more difficult for a third
      party to obtain control of us, even if such a change in control would benefit
      our stockholders. Our Board of Directors can issue preferred stock without
      stockholder approval. The rights of common stockholders could be adversely
      affected by the rights of holders of preferred stock that we issue in the
      future. These provisions could discourage a third party from trying to obtain
      control of us. Such provisions may also impede a transaction in which our
      stockholders could receive a premium over then-current market prices and our
      stockholders' ability to approve transactions that they consider in their best
      interests.


13
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          of Contents***


**ITEM
      1B.** **UNRESOLVED
      STAFF COMMENTS**





None.








**ITEM
      2.PROPERTIES**




We
      conduct our business from the following facilities:





**Location**
            
            **Approx.**
              **Sq.
                Feet**
            
            **Lease**
              **Expiration**
              **Date**
            
            **Products
                Produced/Services Provided**Springfield,
                MO
            
            280,800
            
            2008
            
            transmissions,
                transfer cases and assorted components (1)Oklahoma
                City, OK
            
            100,000
            
            2019
            
            transmissions,
                transfer cases and assorted components,*NuVinci*products (1)Oklahoma
                City, OK
            
            200,000
            
            owned
                (2)
            
            transmissions
                and assorted components (1)Oklahoma
                City, OK
            
            94,000
            
            2008
            
            returned
                material reclamation and disposition, core management
                (3)Carrollton
                (Dallas), TX
            
            39,000
            
            2008
            
            radios,
                telematics and instrument and display clusters (3)Ft.
                Worth, TX
            
            221,000
            
            2008
            
            cellular
                phone and accessory distribution and related
                services (3)Ft.
                Worth, TX
            
            375,000
            
            2010
            
            cellular
                phone test and repair, returns processing, accessory packaging
                (3)Ft.
                Worth, TX
            
            180,000
            
            2009
            
            wireless
                device and accessory distribution and related
                services (3)Grantham,
                England
            
            120,000
            
            owned
            
            engines
                and related components (1)


________________


(1)
            This
                facility is used by the Drivetrain segment.


(2)
            This
                property is subject to a mortgage securing our bank credit
                facility.


(3)
            This
                facility is used by the Logistics
                segment.





We
      also
      lease assorted warehouses and space for our corporate offices and computer
      services centers. We believe that our current facilities are adequate for the
      current level of our activities. In the event we were to require additional
      facilities, we believe that we could procure acceptable facilities.








**ITEM
      3.LEGAL
      PROCEEDINGS**




From
      time
      to time, we have been, and currently are, involved in various legal proceedings.
      Management believes that all of our litigation is routine in nature and
      incidental to the conduct of our business, and that none of our litigation,
      if
      determined adverse ly
      to us,
      would have a material adverse effect, individually or in the aggregate, on
      us.








**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, 2006.


14
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          of Contents***


**PART
      II**





**ITEM
        5.MARKET FOR REGISTRANT'S
        COMMON
        EQUITY**,
        RELATED STOCKHOLDER MATTERS****AND ISSUER PURCHASES OF EQUITY
        SECURITIES****




**Market
      Information and Holders**





Our
      common stock is traded on the Nasdaq Global Select Market under the symbol
      "ATAC". As of February 15, 2007, there were 126 record holders of our 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:





**High**
            
            **Low****2006**First
                quarter
            $
            22.68
            
            $
            19.19Second
                quarter
            
            26.83
            
            
            21.77Third
                quarter
            
            25.64
            
            
            16.81Fourth
                quarter
            
            22.31
            
            
            17.49**2005**First
                quarter
            $
            16.70
            
            $
            13.53Second
                quarter
            
            17.68
            
            
            13.80Third
                quarter
            
            18.84
            
            
            15.96Fourth
                quarter
            
            21.71
            
            
            16.15





On February
      15, 2007, the
      last
      sale price of our common stock, as reported by Nasdaq, was $24.00
      per share.





**Stock
      Repurchases**





During November
      2006, certain employees of the Company delivered to us a total of 1,473 shares
      of our outstanding common stock in payment of $25,940 of withholding tax
      obligations arising from the vesting of restricted stock previously awarded
      under our stock incentive plans. Per the stock incentive plans, the shares
      delivered to us were valued at $17.61 per share, the closing price of our common
      stock on the vesting date of the restricted stock.





Following
      is a summary of treasury stock acquisitions during the three month period ended
      December 31, 2006:




**Period**
            
            **Total
                number**
              **of
                Shares Purchased**
            
            
            **Price
                Paid per Share**
            
            **Total
                Number of Shares Purchased**
              **as
                Part of a**
              **Publicly**
              **Announced
                Plan**
            
            **Maximum**
              **Number
                of Shares that May Yet Be Purchased Under**
              **the
                Plan**October
                1-31, 2006
            
            −
            
            $
            −
            
            −
            
            −November
                1-30, 2006
            
            1,473
            
            $
            17.61
            
            1,473(1)
            
            −December
                1-31, 2006
            
            −
            
            $
            −
            
            −
            
            −


________________


(1)
            Repurchases
                were made pursuant to our stock incentive
                plans.





For
      2007, we
      intend
      to repurchase shares of our outstanding common stock to offset the dilutive
      impact of stock option exercises and restricted stock grants made during the
      year under our stock incentive plans. We estimate the number of shares to be
      repurchased under this plan to be approximately 2% of the total shares
      outstanding.





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**Dividends**





We
      have
      never paid cash dividends on our common stock. Because we currently intend
      to
      retain any earnings to provide funds for the operation and expansion of our
      business and for the servicing and repayment of indebtedness, we do not intend
      to pay cash dividends on the common stock in the foreseeable future.
      Furthermore, as a holding company with no independent operations, the ability
      of
      Aftermarket Technology Corp. to pay cash dividends is dependent upon the receipt
      of dividends or other payments from our subsidiaries. The agreement for our
      bank
      credit facility contains certain covenants that, among other things, restrict
      our ability to pay dividends. 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 common stock
      in the future will be at the sole discretion of our Board of
      Directors.





**Performance
      Graph**




The
      following graph shows the total return to our stockholders compared to a peer
      group and the Nasdaq Market Index over the period from December 31, 2001 to
      December 31, 2006. Each line on the graph assumes that $100 was invested in
      our common stock and the respective indices at the closing price on
      December 31, 2001. The graph then presents the value of these investments,
      assuming reinvestment of dividends, through the close of trading on
      December 31, 2006.







**12/31/01**
            **12/31/02**
            **12/31/03**
            **12/31/04**
            **12/30/05**
            **12/29/06**Aftermarket
                Technology Corp.
            100.00
            89.51
            84.69
            99.38
            120.00
            131.36Peer
                Group Index
            100.00
            85.18
            98.45
            133.68
            141.54
            156.27NASDAQ
                Market Index
            100.00
            69.75
            104.88
            113.70
            116.19
            128.12




The
      peer
      group consists of Federal-Mogul Corp., Genuine Parts Co., Standard Motor
      Products (publicly-traded companies engaged primarily in businesses in the
      automotive aftermarket) and Brightpoint, Inc. (a publicly-traded company engaged
      in third party logistics business), which, in management’s opinion, most closely
      represent the peer group for our two business segments.





The
      cumulative total return shown on the stock performance graph indicates
      historical results only and is not necessarily indicative of future results.





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**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, 2006, 2005 and 2004 and the balance
      sheet data as of December 31, 2006 and 2005 are derived from the
      Consolidated Financial Statements of the Company that have been audited by
      Ernst & Young LLP, independent registered public accounting firm, 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 statements of income data for the years ended December 31, 2003 and
      2002
      and the balance sheet data as of December 31, 2004, 2003 and 2002, are
      derived from the Consolidated Financial Statements of the Company that have
      been
      audited by Ernst & Young LLP, independent registered public accounting
      firm, but are not included herein. The data provided should be read in
      conjunction with the Consolidated Financial Statements and related notes,
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations and other financial information included in this Annual Report. During
      the first quarter of 2006, we discontinued our Independent Aftermarket
      businesses, which were
      reported as “Other” in segment information previously disclosed. These
      businesses are classified as discontinued operations and are excluded from
      the
      selected financial data presented below.





**Year
                Ended December 31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002****(In
                thousands, except per share data)****Statements
                of Income Data:**Net
                sales
            $
            497,974
            
            $
            419,618
            
            $
            375,600
            
            $
            322,657
            
            $
            378,764Cost
                of sales
            
            393,269
            
            
            315,507
            
            
            275,453
            
            
            227,239
            
            
            242,781Exit,
                disposal, certain severance and other charges (1)
            
            −
            
            
            −
            
            
            −
            
            
            200
            
            
            −Gross
                profit
            
            104,705
            
            
            104,111
            
            
            100,147
            
            
            95,218
            
            
            135,983Selling,
                general and administrative expense
            
            54,538
            
            
            48,993
            
            
            45,034
            
            
            45,332
            
            
            52,612Amortization
                of intangible assets
            
            269
            
            
            125
            
            
            125
            
            
            299
            
            
            333Impairment
                of goodwill
            
            14,592
            
            
            −
            
            
            −
            
            
            −
            
            
            −Exit,
                disposal, certain severance and other charges (credits)
                (1)
            
            1,938
            
            
            523
            
            
            3,766
            
            
            8,273
            
            
            (277
            )Operating
                income
            
            33,368
            
            
            54,470
            
            
            51,222
            
            
            41,314
            
            
            83,315Interest
                income
            
            605
            
            
            2,026
            
            
            2,658
            
            
            2,863
            
            
            2,769Interest
                expense
            
            (4,297
            )
            
            (7,696
            )
            
            (7,271
            )
            
            (8,169
            )
            
            (12,280
            )Other
                income, net
            
            262
            
            
            542
            
            
            19
            
            
            70
            
            
            43Equity
                  in income (losses) of investee
            
            −
            
            
            −
            
            
            146
            
            
            277
            
            
            (575
            )Redemption
                of senior notes
            
            −
            
            
            −
            
            
            −
            
            
            −
            
            
            (3,022
            )Write-off
                of debt issuance costs
            
            (1,691
            )
            
            −
            
            
            −
            
            
            −
            
            
            (1,480
            )Income
                tax expense
            
            (10,506
            )
            
            (16,344
            )
            
            (16,698
            )
            
            (13,477
            )
            
            (23,650
            )Income
                from continuing operations (2)
            $
            17,741
            
            $
            32,998
            
            $
            30,076
            
            $
            22,878
            
            $
            45,120Income
                from continuing operations per diluted share (3)
            $
            0.81
            
            $
            1.53
            
            $
            1.40
            
            $
            0.93
            
            $
            1.87Shares
                used in computation of income from continuing operations per diluted
                share
                (3)
            
            21,927
            
            
            21,579
            
            
            21,411
            
            
            24,486
            
            
            24,119**Other
                Data:**Capital
                expenditures
            $
            11,910
            
            $
            17,292
            
            $
            10,820
            
            $
            12,927
            
            $
            12,476


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 ***Table
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**As
                of December 31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002****(In
                thousands)****Balance
                Sheet Data:**Cash
                and cash equivalents
            $
            7,835
            
            $
            45,472
            
            $
            18,085
            
            $
            59,628
            
            $
            65,504Working
                capital, continuing operations
            
            89,262
            
            
            109,226
            
            
            88,221
            
            
            103,855
            
            
            122,627Property,
                plant and equipment, net
            
            53,008
            
            
            54,153
            
            
            51,416
            
            
            53,435
            
            
            51,648Total
                assets
            
            345,677
            
            
            407,780
            
            
            390,277
            
            
            451,862
            
            
            454,030Current
                and long-term debt outstanding
            
            17,800
            
            
            90,779
            
            
            112,406
            
            
            127,342
            
            
            164,613Long-term
                liabilities, less current portion
            
            46,194
            
            
            107,077
            
            
            122,225
            
            
            134,545
            
            
            159,561Total
                stockholders' equity
            
            232,330
            
            
            221,230
            
            
            186,373
            
            
            229,251
            
            
            206,435


________________





(1)
            See
                Item 8. “Consolidated Financial Statements and Supplementary Data - Note
                18” for a description of exit, disposal, certain severance and other
                charges.





(2)
            Income
                from continuing operations for the years ended December 31, 2006,
                2005, 2004, 2003 and 2002 excludes gain (loss) from discontinued
                operations, net of incometaxes,
                of $(9,718), $(1,990), $(24,300), $(2,367) and $1,307, respectively.





(3)
            See
                Item 8. “Consolidated Financial Statements and Supplementary Data - Note
                13” for a description of the computation of earnings per
                share.


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




The
      following discussion should be read in conjunction with our consolidated
      financial statements 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 “Special Note Regarding
      Forward-Looking Statements” appearing at the beginning of this Annual
      Report.








**Discontinued
      Operations**





During
      the first quarter of 2006, we discontinued our Independent Aftermarket
      businesses which remanufactured engines and distributed non-OEM branded
      remanufactured engines and transmissions directly to independent transmission
      and general repair shops and certain aftermarket parts retailers. These
      businesses were not reportable segments and were reported as “Other” in segment
      information previously disclosed. The operations of these businesses have been
      reflected in the accompanying consolidated financial statements and management’s
      discussion and analysis as discontinued operations.








**Overview**





*Operations* .
      We
      provide outsourced engineering solutions and supply chain logistics services
      to
      the light vehicle and medium/heavy-duty aftermarket and consumer electronics
      industries. Through our Drivetrain Business, we provide customized
      remanufacturing services focused on complex light and medium/heavy duty vehicle
      drivetrain products, such as automatic transmissions and engines, that are
      primarily sold through the service, repair and parts organizations of our
      customers. Through our Logistics Business, we offer value-added supply-chain
      services to the consumer electronics and light vehicle aftermarket industries,
      including fulfillment, returns management, reverse logistics, repair and other
      related services. We generally provide our services under contractual
      relationships with customers that distribute high-value, complex products.





Demand
      for replacement or repair of drivetrain products is a function of numerous
      factors, such as the number of vehicles in operation, the average age of
      vehicles and the average number of miles driven per vehicle. Within this overall
      market, factors that influence demand for our remanufactured products, when
      compared to repair services, include product complexity, OEM warranty policies
      governing replace-versus-repair decisions made by their dealers, and the length
      of warranty periods. In addition, we believe demand for our remanufacturing
      services, when compared to repair services, is also increased by the relatively
      limited number of qualified repair technicians and repair test equipment, and
      the increase in customer service demands. The demand for our products is not
      tied to the cyclical nature of new light vehicle sales. However, our OEM
      customers periodically revise their policies governing warranty
      repair-versus-replace decisions that can impact, either positively or
      negatively, the demand for our remanufactured products as dealers utilize a
      greater or lesser number of remanufactured transmissions. Policy revisions
      that
      have negatively impacted demand for our products occurred in late 2002 and
      early
      2003 and again in late 2004. For 2006, our Drivetrain Business reported net
      sales of $234.6 million, or 47.1% of our total net sales. Additionally, during
      2006 we were awarded three new transmission remanufacturing programs with Ford
      and General Motors that are expected to launch during 2007.





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Our
      Logistics Business provides a number of value-added services that generate
      operational efficiencies for our customers through the outsourcing of certain
      supply chain functions. Specifically, our Logistics Business provides
      value-added warehousing and distribution, reverse logistics, turnkey order
      fulfillment, electronic equipment testing, and refurbishment and repair
      services. Except for component parts to support our repair services, we
      generally do not take ownership of inventory. As a result, we face less risk
      of
      inventory obsolescence and less working capital needs than other logistics
      services providers who do take ownership of inventory. However, during 2006,
      our
      volume of repair services and associated component inventory increased
      significantly. Additionally, our business model does not require substantial
      capital investments in transportation equipment or facilities.





For
      the
      year ended December 31, 2006, net sales from our Logistics Business
      increased $110.2 million, or 71.9%, to $263.4 million, which represented 52.9%
      of our total net sales. AT&T Mobility (formerly Cingular Wireless) accounted
      for 79.0% of our Logistics Business sales in 2006. Sales and growth in our
      Logistics segment have largely: (i) been related to services we provide for
      AT&T; (ii) been dependent on demand for cellular phones and services and
      AT&T’s share of cellular service volume; and (iii) benefited from upgrades
      in cellular telephone technology through increased replacement demand for more
      advanced handsets, from any increases in the number of AT&T’s subscribers,
      and from any expansion of our service offerings. Over the past three years,
      we
      have launched additional business with AT&T and have expanded on certain
      lines of service previously provided. In addition to new business from AT&T,
      we have signed agreements with a number of new logistics customers over the
      past
      three years that generated additional sales in 2006 and will generate
      incremental sales in 2007. We believe our Logistics Business represents a key
      growth opportunity and we continue to actively pursue customer diversification.





*Financing.* During
      2006, we replaced our old credit facility with a new $150 million revolving
      credit facility with terms we consider more favorable than those of the old
      facility. During 2006 we reduced total debt outstanding by $72.9 million and
      repurchased $11.1 million of treasury stock, primarily from $45.5 million of
      cash on hand at December 31, 2005, $47.5 million of cash from 2006 operating
      activities-continuing operations, and $8.8 million of cash generated primarily
      from the exercise of stock options during 2006. As of December 31, 2006, we
      had
      $17.8 million of total debt outstanding, $7.8 million of cash and cash
      equivalents on hand and $130.6 million of borrowing capacity under our new
      credit facility.








**Components
      of Income and Expense**





*Net
      Sales.* In our
      Drivetrain segment, we recognize sales primarily from the sale of remanufactured
      transmissions at the time of shipment to the customer and, to a lesser extent,
      upon the completion or performance of a service. In our Logistics segment,
      sales
      are primarily related to providing:





•
            value-added
                warehouse and distribution services;





•
            turnkey
                order fulfillment and information
                services;





•
            test
                and repair services;





•
            automotive
                electronic components remanufacturing and distribution services;
                and





•
            returned
                material reclamation, disposition and core management services,





and
      are
      recognized upon completion or performance of those services.





*Cost
      of Sales.* Cost of
      sales represents the actual cost of purchased components and other materials,
      direct labor, indirect labor and warehousing cost and manufacturing overhead
      costs, including depreciation, utilized directly in the production of products
      or performance of services for which sales have been recognized.


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*Selling,
      General & Administrative Expense.* Selling,
      general and administrative (“SG&A”) expenses generally are those costs not
      directly related to the production process or the performance of a service
      generating sales and include all selling, marketing, product development and
      customer service expenses as well as expenses related to general management,
      finance and accounting, information services, human resources, legal, and
      corporate overhead expense.





*Amortization
      of Intangible Assets.* Expense
      for amortization of intangibles primarily relates to the amortization of
      definite lived intangible assets.





*Exit,
      Disposal, Certain Severance and Other Charges.* As part
      of our lean and continuous improvement philosophy, w e
      have
      periodically identified opportunities to right-size, rationalize and consolidate
      operations or manufacturing capacity, alter our processes in an effort to
      improve customer service, and fix or discontinue lower-margin product lines,
      the
      purpose of which is to improve profitability, reduce costs, streamline
      operations and improve efficiency. As a result of this process, we may incur
      certain costs, primarily associated with restructuring and other initiatives
      that include consolidation of operations or facilities, management
      reorganization and delayering, rationalization of certain products, product
      lines and services and asset impairments. In management’s opinion these costs
      are generally incremental to our ongoing operation and are separated on our
      statements of income in order to improve the clarity of our reported operations.





Examples
      of these costs include severance benefits for terminated employees, lease
      termination and other facility exit costs, moving and relocation costs, losses
      on the disposal of fixed assets and write down of inventories. The components
      of
      these charges are computed based on actual cash payouts, our estimate of the
      realizable value of the affected tangible and intangible assets and estimated
      exit costs including severance and other employee benefits.





These
      charges can vary significantly from period to period and as a result, we may
      experience fluctuations in our reported net income and earnings per share due
      to
      the timing of these actions. See Item 8. “Consolidated Financial Statements and
      Supplementary Data - Note 18”
for a further discussion of these costs.








**Critical
      Accounting Policies and Estimates**





Our
      financial statements are based on the selection and application of significant
      accounting policies, some of which require management to make estimates and
      assumptions. We believe that the following are some of the more critical
      judgmental areas in the application of our accounting policies that currently
      affect our financial condition and results of operations.





*Allowance
      for Doubtful Accounts.*   We
      maintain allowances for doubtful accounts for estimated losses resulting from
      the failure of our customers to make required payments. We evaluate the adequacy
      of our allowance for doubtful accounts and make judgments and estimates in
      determining the appropriate allowance at each reporting period based on
      historical experience, credit evaluations, specific customer collection issues
      and the length of time a receivable is past due.  Since
      our
      accounts receivable are often concentrated in a relatively few number of
      customers, a significant change in the liquidity or financial position of any
      one of these customers could have a material adverse impact on our financial
      statements. For each of the years ended December 31, 2006, 2005 and 2004, our
      write-offs were less than $0.1 million. As of December 31, 2006, we had
      $77.7 million of accounts receivable, net of allowance for doubtful accounts
      of
      $0.9 million.





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*Inventory
      Valuation.* We make
      adjustments to write down our inventories for estimated excess and obsolete
      inventory equal to the difference between the cost of the inventory and the
      estimated market value based on assumptions about market conditions, future
      demand and expected usage rates. Changes in economic conditions, customer
      demand, product introductions or pricing changes can affect the carrying value
      of our inventory. Demand for our products has fluctuated in the past and may
      do
      so in the future, which could result in an increase in excess quantities on
      hand. If actual market conditions are less favorable than those projected by
      management, causing usage rates to vary from those estimated, additional
      inventory write-downs may be required. Although no assurance can be given,
      these
      write-downs would not be expected to have a material adverse impact on our
      financial statements. For the years ended December 31, 2006, 2005 and 2004,
      we recorded charges for excess and obsolete inventory of approximately $1.8
      million, $0.8 million and $1.9 million, respectively. As of December 31, 2006,
      we had inventory of $56.9 million, net of a reserve for excess and obsolete
      inventory of $5.2 million.





*Warranty
      Liability.* We
      provide an allowance for the estimated cost of product warranties at the time
      revenue is recognized. While we engage in extensive product quality programs
      and
      processes, including inspection and testing at various stages of the
      remanufacturing process and the testing of each finished assembly on equipment
      designed to simulate performance under operating conditions, our warranty
      obligation is affected by the number of products sold, historical and
      anticipated rates of warranty claims and costs per unit and actual product
      failure rates. Additionally, we participate in the tear-down and analysis of
      returned products with certain of our customers to assess responsibility for
      product failures. For the years ended December 31, 2006, 2005 and 2004, we
      (i)
      recorded charges for estimated warranty costs of approximately $1.3 million,
      $1.3 million and $3.4 million, respectively, and (ii) paid and/or settled
      warranty claims of approximately $1.3 million, $1.5 million and $3.7 million,
      respectively. Should actual product failure rates differ from our estimates,
      revisions to the estimated warranty liability may be required. Although no
      assurance can be given, these revisions would not be expected to have a material
      adverse impact on our financial statements.





*Goodwill
      and Indefinite Lived Intangible Assets.* Our
      goodwill and indefinite lived intangible assets are tested for impairment
      annually as of September 30 th of each
      year unless events or circumstances would require an immediate review. Goodwill
      is tested for impairment at a level of reporting referred to as a reporting
      unit, which generally is an operating segment or a component of an operating
      segment as defined in paragraph 10 of SFAS No. 131, *Disclosures
      about Segments of an Enterprise and Related Information* and
      paragraph 30 of SFAS No. 142, *Goodwill
      and Other Intangible Assets* .
      In
      accordance with paragraph 30 of SFAS No. 142, certain components of an operating
      segment with similar economic characteristics are aggregated and deemed a single
      reporting unit. Goodwill amounts are generally allocated to the reporting units
      based upon the amounts allocated at the time of their respective acquisition,
      adjusted for significant transfers of business between reporting units. In
      estimating the fair value of our reporting units, we utilize a valuation
      technique based on multiples of projected cash flow, giving consideration to
      unusual items, cost reduction initiatives, new business initiatives and other
      factors that generally would be considered in determining value. Impairments
      are
      recorded (i) if the fair value is less than the carrying value or (ii) when
      an
      individual reporting unit is disposed of. Actual results may differ from these
      estimates under different assumptions or conditions. If we were to lose a key
      customer within a particular operating segment or its sales were to decrease
      materially, impairment adjustments that may be required could have a material
      adverse impact on our financial statements.





Because
      key new business opportunities considered in the prior year goodwill assessment
      in both the Drivetrain segment’s United Kingdom-based operation and the
      Logistics segment’s automotive materials reclamation operation did not
      materialize, and other near-term growth opportunities were considered limited,
      we concluded that the fair value of these reporting units no longer supported
      the assigned goodwill. Accordingly, based upon our annual goodwill impairment
      tests made as of September 30, 2006, we recorded goodwill impairment charges
      of
      $11.7 million related to our Drivetrain segment’s United Kingdom-based
      operation, and $2.9 million related to the automotive materials reclamation
      business within our Logistics segment. The fair value of the reporting units
      was
      estimated by applying a range of multiples to adjusted EBITDA. As of December
      31, 2006, goodwill was recorded at a carrying value of $132.4 million.





22
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*Deferred
      Income Taxes and Valuation Allowances.* Tax
      law
      requires items to be included in the tax return at different times than when
      these items are reflected in the consolidated financial statements. As a result,
      our annual tax rate reflected in our consolidated financial statements is
      different than that reported in our tax return. Some of these differences are
      permanent, such as expenses that are not deductible in our tax return, and
      some
      differences reverse over time, such as depreciation expense. These timing
      differences create deferred tax assets and liabilities. Deferred tax assets
      and
      liabilities are determined based on temporary differences between the financial
      reporting and tax bases of assets and liabilities. The tax rates used to
      determine deferred tax assets or liabilities are the enacted tax rates in effect
      for the year in which the differences are expected to reverse. Based on the
      evaluation of all available information, we recognize future tax benefits,
      such
      as net operating loss carryforwards, to the extent that realizing these benefits
      is considered more likely than not.





We
      evaluate our ability to realize the tax benefits associated with deferred tax
      assets by analyzing our forecasted taxable income using both historical and
      projected future operating results, the reversal of existing temporary
      differences, taxable income in prior carry-back years (if permitted) and the
      availability of tax planning strategies. A valuation allowance is required
      to be
      established unless management determines that it is more likely than not that
      we
      will ultimately realize the tax benefit associated with a deferred tax
      asset.





*Accounting
      for Stock-Based Awards.* On
      January 1, 2006, we adopted SFAS No. 123R, *Share-Based Payment.* Prior
      to
      January 1, 2006, we had applied the intrinsic value method of accounting for
      stock options granted to our employees and directors under the provisions of
      Accounting Principles Board Opinion No. 25, *Accounting
      for Stock Issued to Employees* ,
      and
      related interpretations, as permitted by SFAS No. 123, *Accounting
      for Stock-Based Compensation* .
      Accordingly, employee and director compensation expense was recognized only
      for
      those options whose exercise price was less than the market value of our common
      stock at the measurement date.





We
      adopted the fair value recognition provisions of SFAS No. 123R, using the
      modified prospective transition method. Under the modified prospective method,
      (i) compensation expense for share-based awards granted prior to January 1,
      2006
      are recognized over the remaining service period using the compensation cost
      calculated for pro forma disclosure purposes under SFAS No. 123 and (ii)
      compensation expense for all share-based awards granted subsequent to December
      31, 2005 are based on the grant date fair value estimated in accordance with
      the
      provisions of SFAS No. 123R. Results for periods prior to January 1, 2006 have
      not been restated. As a result of adopting SFAS No. 123R, during 2006 we
      recorded pre-tax expense of $1.2 million for stock options compensation and
      classified this cost as part of selling, general and administrative expense
      in
      our consolidated statement of income. The impact on both basic and diluted
      earnings per share for the year ended December 31, 2006 was approximately $0.04
      per share. The pro forma pre-tax cost of stock options compensation for the
      years ended December 31, 2005 and 2004 was $4.3 million and $5.7 million,
      respectively. For stock options outstanding as of December 31, 2006, we have
      yet
      to record, on a pre-tax basis, an estimated total of $1.1 million of
      compensation expense to be recognized over a weighted-average period of 1.4
      years.




During
      2006, we awarded share-based compensation to our employees and non-employee
      directors. A mix of stock options and restricted stock was granted to our
      non-employee directors, executive officers and business unit vice presidents
      and
      only restricted stock was granted to other employees. As compared to past
      awards, this award generally contained a greater number of restricted stock
      awards and a lower number of stock options. We made this change to match current
      market practice. For restricted stock outstanding as of December 31, 2006,
      we
      have yet to record, on a pre-tax basis, an estimated total of $1.8 million
      of
      compensation expense to be recognized over a weighted-average period of 1.4
      years.





Also
      during 2006, we elected to adopt the alternative method for calculating the
      tax
      effects of stock-based compensation per the provisions of FASB Staff Position
      No. FAS 123R-3, *Transition
      Election Related to Accounting for the Tax Effects of Share-Based Payment
      Awards* .
      The
      alternative transition (i) provides a simplified method to establish the
      beginning balance of the additional paid-in capital pool available to absorb
      tax
      deficiencies recognized subsequent to the adoption of SFAS No. 123R related
      to
      the tax effects of stock-based compensation, and (ii) determines the subsequent
      impact on the Consolidated Statements of Cash Flows of the tax effects of
      stock-based compensation awards that were partially vested upon adoption of
      SFAS
      No. 123R.




23
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SFAS
      No.
      123R prohibits recognition of a deferred tax asset for an excess tax benefit
      that has not been realized. We recognize a benefit from stock-based compensation
      in equity if an incremental tax benefit is realized by following the ordering
      provisions of the tax law.




See
      Item
      8. “Consolidated Financial Statements and Supplementary Data - Note 2 and Note
      11” for additional disclosures related to our accounting for stock-based awards.





**Segment
          Reporting**
 
 We
          have
          two reportable segments: the Drivetrain segment and the Logistics segment.
          Our
          Drivetrain segment primarily sells remanufactured transmissions to Honda,
          Ford,
          DaimlerChrysler, Allison and certain foreign OEMs, primarily for use as
          replacement parts by their domestic dealers during the warranty and/or
          post-warranty periods following the sale of a vehicle. In
          addition, the Drivetrain segment sells select remanufactured engines primarily
          to certain European OEMs. Our Logistics segment provides value-added warehousing
          and distribution, reverse logistics, turnkey order fulfillment, electronic
          equipment testing, and refurbishment and repair services to customers in
          the
          wireless, consumer electronics and automotive industries. The Logistics
          segment’s primary customer is AT&T.
 
 We
          evaluate the performance of each business based upon operating income (segment
          profit). Our reportable segments are each managed and measured separately
          primarily due to the differing customers and distribution channels.
 
 
 **Results
          of Operations**
 
 The
          following table sets forth financial statement data expressed in millions
          of
          dollars and as a percentage of net sales.
 
 **Year
                    Ended December 31,******
                **2006**
                
                **2005**
                
                **2004**Net
                    sales
                $
                498.0
                
                100.0
                %
                
                $
                419.6
                
                100.0
                %
                
                $
                375.6
                
                100.0
                %Gross
                    profit
                
                104.7
                
                21.0
                
                
                
                104.1
                
                24.8
                
                
                
                100.1
                
                26.7SG&A
                    expense
                
                54.5
                
                10.9
                
                
                
                49.0
                
                11.7
                
                
                
                45.0
                
                12.0Impairment
                    of goodwill
                
                14.6
                
                2.9
                
                
                
                −
                
                −
                
                
                
                −
                
                −Exit,
                    disposal, certain severance and other charges
                
                1.9
                
                0.3
                
                
                
                0.5
                
                0.1
                
                
                
                3.8
                
                1.0Operating
                    income
                
                33.4
                
                6.7
                
                
                
                54.5
                
                13.0
                
                
                
                51.2
                
                13.6Interest
                    income
                
                0.6
                
                0.1
                
                
                
                2.0
                
                0.5
                
                
                
                2.7
                
                0.7Other
                    income, net
                
                0.3
                
                −
                
                
                
                0.5
                
                0.1
                
                
                
                −
                
                −Write-off
                    of debt issuance costs
                
                (1.7
                )
                (0.3
                )
                
                
                −
                
                −
                
                
                
                −
                
                −Interest
                    expense
                
                (4.3
                )
                (0.9
                )
                
                
                (7.7
                )
                (1.8
                )
                
                
                (7.3
                )
                (1.9
                )Income
                    from continuing operations
                
                17.7
                
                3.6
                
                
                
                33.0
                
                7.9
                
                
                
                30.1
                
                8.0


24
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***Year
      Ended December 31, 2006 Compared to the Year Ended December 31,
      2005***





Income
      from continuing operations decreased $15.3 million, or 46.4%, to $17.7 million
      in 2006 from $33.0 million in 2005. Income from continuing operations per
      diluted share was $0.81 in 2006 as compared to $1.53 in 2005. Our results
      for 2006 include (i) goodwill impairment charges of $9.9 million (net of tax),
      related to our Drivetrain segment’s United Kingdom-based operation and our
      Logistics segment’s automotive materials reclamation business, (ii) a charge of
      $1.1 million (net of tax) related to the write-off of deferred debt issuance
      costs associated with the early termination of our old credit facility, and
      (iii) exit, disposal, certain severance and other charges of $1.2 million (net
      of tax), partially offset by income tax benefits of (x) $0.3 million related
      to
      the revaluation of our deferred income tax attributes and (y) $0.2 million
      related to research and development tax credits. Our results for 2005 included
      (a) a gain of $0.9 million (net of tax) related to $1.4 million of research
      and
      development tax credits, net of fees and related expenses of $0.5 million (net
      of tax), (b) a gain of $0.4 million (net of tax) from the early redemption
      of
      the note receivable from the Distribution Group, (c) exit, disposal, certain
      severance and other charges of $0.3 million (net of tax) and (d) a gain of
      $0.2
      million (net of tax) related to an investment tax credit from the state of
      Oklahoma. Other factors which caused income from continuing operations to
      decrease in 2006 as compared to 2005 included:




•
            scheduled
                price reductions to certain customers in our Drivetrain and Logistics
                segments pursuant to recent contract
                renewals;





•
            a
                lower volume of Ford remanufactured transmissions we believe to be
                largely
                the result of (i) comparatively higher sales in 2005 due to inventory
                increases in Ford’s distribution channel during the third and fourth
                quarters of 2005 (we believe these higher inventory positions returned
                to
                historical levels during the first half of 2006), and (ii) declining
                new
                vehicle sales resulting in a reduction in the population of Ford
                vehicles
                in the zero to eight-year age category, which category we believe
                drives
                the majority of demand for our Ford
                products;





•
            a
                reduction in volume of DaimlerChrysler remanufactured transmissions
                due to
                (i) DaimlerChrysler’s decision not to use remanufactured transmissions for
                warranty repairs generally for model years 2003 and later,
                resulting in one less model year being in our warranty program each
                year
                and (ii)comparatively
                higher sales in 2005 due to inventory increases in DaimlerChrysler’s
                distribution channel;





•
            an
                increase in product development and startup cost in our Drivetrain
                segment
                associated with the*NuVinciTM*CVP technology;





•
            an
                increase in cost in our Logistics segment associated with the vertical
                integration of certain test and repair services that were previously
                outsourced; and





•
            an
                increase in cost in our Logistics segment associated with the launch
                of a
                new test and repair program in a new
                market,





partially
      offset by an increase in volumes in our Logistics segment, primarily related
      to
      an increase in our base business with AT&T and the launch and roll-out of
      new business added during 2005 with AT&T, and to a lesser extent, Nokia, LG,
      Magellan, T-Mobile and others, the roll-out of our medium/heavy duty
      transmission remanufacturing program with Allison, benefits of our on-going
      lean
      and continuous improvement program and a reduction in interest
      expense.





*Net
      Sales*





Net
      sales
      increased $78.4 million, or 18.7%, to $498.0 million for 2006 from $419.6
      million for 2005. This increase was primarily due to:





•
            an
                increase in volumes in our Logistics segment, primarily related to
                the
                launch and roll-out of new business added during 2005 with AT&T, and
                to a lesser extent, Nokia, LG, Magellan, T-Mobile and others, coupled
                with
                an increase in our base business with AT&T; and


25
 ***Table
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•
            an
                increase in volume of medium/heavy duty remanufactured transmissions
                in
                our Drivetrain segment related to the roll-out of the program we
                launched
                for Allison in the fourth quarter of 2005 (under the terms of our
                remanufacturing program with Allison, we are required to purchase
                the
                transmission core; accordingly, our results for 2006 and 2005 reflect
                $23.6 million and $3.2 million, respectively, for core included in
                both
                net sales and cost of goods sold);





pa rtially
      offset by:





•
            a
                lower volume of Ford remanufactured transmissions we believe to be
                largely
                the result of (i) comparatively higher sales in 2005 due to inventory
                increases in Ford’s distribution channel during the third and fourth
                quarters of 2005 (we believe these higher inventory positions returned
                to
                historical levels during the first half of 2006), and (ii) declining
                new
                vehicle sales resulting in a reduction in the population of Ford
                vehicles
                in the zero to eight-year age category, which category we believe
                drives
                the majority of demand for our Ford
                products;





•
            a
                reduction in volume of DaimlerChrysler remanufactured transmissions
                due to
                (i) DaimlerChrysler’s decision not to use remanufactured transmissions for
                warranty repairs generally for model years 2003 and later,
                resulting in one less model year being in our warranty program each
                year
                and (ii)comparatively
                higher sales in 2005 due to inventory increases in DaimlerChrysler’s
                distribution channel;





•
            a
                one-time sale in 2005 of $12.5 million of transmission components
                at cost
                relating to end-of-life support for an OEM transmission program that
                ceased production in late 2000; and





•
            scheduled
                price reductions to certain customers in our Drivetrain and Logistics
                segments pursuant to recent contract
                renewals.





Of
      our
      net sales for 2006 and 2005, AT&T accounted for 41.8% and 29.8%, Honda
      accounted for 15.6% and 19.3%, Ford accounted for 15.4% and 24.4%, and
      DaimlerChrysler accounted for 7.3% and 15.4%, respectively.





*Gross
      Profit*





Gross
      profit increased $0.6 million, or 0.6%, to $104.7 million for 2006 from
      $104.1 million for
      2005 .
      The
      increase was primarily the result of the factors described above under “Net
      Sales” and benefits from our on-going lean and continuous improvement program
      and other cost reduction initiatives, partially offset by (i) an
      increase in cost in our Logistics segment associated with the vertical
      integration of certain test and repair services that were previously outsourced,
      (ii) an increase in cost in our Logistics segment associated with the launch
      of
      a new test and repair program in a new market and (iii) start-up costs
      associated with the launch of products
      utilizing the *NuVinciTM* CVP
      technology . Primarily as a result of the higher percentage of test and repair services
      in
      Logistics, reverse operating leverage resulting from lower Drivetrain volume
      and
      the integration and start-up costs described herein, gross profit as a
      percentage of net sales decreased to 21.0% for 2006 from 24.8% for 2005.





*SG&A
      Expense*





SG&A
      expense increased $5.5 million, or 11.2%, to $54.5 million for 2006 from $49.0
      million for 2005. The net increase is primarily the result of an increase in
      costs associated with revenue growth in our Logistics segment, as well as for
      new product development in our Drivetrain segment, partially offset by benefits
      from our on-going lean and continuous improvement program and other cost
      reduction initiatives. As a percentage of net sales, SG&A expense decreased
      to 10.9% for 2006 from 11.7% for 2005.





26
 ***Table
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*Impairment
      of Goodwill*





During
      2006, our annual evaluation of goodwill as required by SFAS No. 142, *Goodwill
      and Other Intangible Assets* resulted
      in goodwill impairment charges of $11.7 million related to our United
      Kingdom-based Drivetrain remanufacturing operation and $2.9 million related
      to
      our Logistics segment’s automotive materials reclamation operation. Because key
      new business opportunities considered in the prior year assessment for both
      of
      these reporting units did not materialize, and other near-term growth
      opportunities were considered limited, we concluded that the fair value of
      these
      reporting units no longer supported the assigned goodwill.





*Exit,
      Disposal, Certain Severance and Other Charges*





During
      2006, we recorded $1.9 million ($1.2 million net of tax) of exit, disposal,
      certain severance and other charges consisting of (i) $1.1 million ($0.7 million
      net of tax) for severance and related costs associated with cost reduction
      activities and the reorganization and upgrade of certain management functions,
      (ii) $0.5 million ($0.3 million net of tax) for due diligence and other costs
      related to potential acquisitions that we ultimately decided not to pursue,
      and
      (iii) $0.3 million ($0.2 million net of tax) of costs for asset retirement
      obligations we are contractually obligated to perform in order to restore
      certain leased facilities to a condition specified in the lease
      agreement.




During
      2005, we recorded $0.5 million ($0.3 million net of tax) of e xit,
      disposal, certain severance and other charges primarily related to the closure of an old facility and the move to a new larger
      facility as part of our capacity expansion within the Logistics
      segment.





As
      an
      on-going part of our planning process, we continue to identify and evaluate
      areas where cost efficiencies can be achieved through consolidation of redundant
      facilities, outsourcing functions or changing processes or systems.
      Implementation of any of these could require us to incur additional costs of
      a
      nature described above, which would be offset over time by the projected cost
      savings.





*Operating
      Income*





Operating
      income decreased $21.1 million, or 38.7%, to $33.4 million for 2006 from $54.5
      million for 2005. This net decrease is primarily the result of the goodwill
      impairment charges, and the factors described above under “Net Sales,” “Gross
      Profit,” “SG&A Expense” and “ Exit,
      Disposal, Certain Severance and Other Charges.” As
      a
      percentage of net sales, operating income decreased to 6.7% from 13.0%.





*Interest
      Income*





Interest
      income decreased $1.4
      million, or 70.0%, to $0.6 million  for
      2006 from
      $2.0 million for
      2005.  This
      decrease was primarily due to the redemption of the note receivable from the
      Distribution Group in the second quarter of 2005, coupled with lower cash
      balances invested in cash and equivalents during 2006 as compared to 2005
      resulting from the structure of our new credit facility, which allows us to
      use
      cash to repay outstanding debt without a corresponding reduction in borrowing
      capacity.





*Other
      Income, net*





Other
      income, net decreased $0.2
      million, or 40.0%, to $0.3 million  for
      2006 from
      $0.5 million for
      2005 . This
      decrease was primarily due to a  gain of $0.6
      million recorded
      from the early redemption of the note receivable from the Distribution Group
      during 2005.





*Write-Off
      of Debt Issuance Costs*





During
      2006, we paid the balance outstanding under our old credit facility and
      terminated the related credit and security agreements.  As a result, we
      recorded a non-cash charge of $1.7 million during 2006 to write off deferred
      debt issuance costs associated with the early termination of the
      facility.


27
 ***Table
          of Contents***





*Interest
      Expense*





Interest
      expense decreased $3.4 million, or 44.2%, to $4.3 million for
      2006 from
      $7.7 million for
      2005 .
      This
      decrease was primarily due to a reduction in total debt outstanding, partially
      offset by a general increase
      in interest rates in 2006 as compared to 2005. Additionally, we experienced lower
      interest expense in 2006 as compared to 2005 due to the structure of our new
      revolving credit facility, which in addition to a reduced borrowing cost, allows
      us to use cash to repay outstanding debt, thereby reducing our total debt
      outstanding, without a corresponding reduction in borrowing capacity .





*Income
      Tax Expense*





Income
      tax expense as a percentage of income from continuing operations before income
      taxes increased to 37.2% for 2006 from 33.1% for 2005. The increase was
      primarily due to the impact of the $14.6 million goodwill impairment charge
      recorded during 2006, a significant portion of which (relating to the goodwill
      previously recorded on the books of our United Kingdom-based subsidiary)
      received a tax benefit at a rate of 30%. In addition, during 2005, we recorded
      tax benefits of $1.4 million related to previously unclaimed research and
      development tax credits and $0.2 million related to an investment tax credit
      from the State of Oklahoma. Based on our current estimate of the distribution
      of
      taxable income by state and currently enacted laws, we expect an effective
      income tax rate of approximately 39% for 2007.





*Discontinued
      Operations*





During
      2006 and 2005 we recorded after-tax losses from discontinued operations of
      $9.7
      million and $2.0 million, respectively.





The
      loss
      from 2006 includes after-tax charges of $9.7 million for the discontinued
      Independent Aftermarket businesses. On a pre-tax basis, this loss included
      $1.6
      million of losses from the operations of these businesses during the year ended
      December 31, 2006 along with charges related to the closure and sale of these
      businesses of (i) $9.8 million of inventory write-downs, (ii) $1.4 million
      for
      the impairment of goodwill, (iii) $0.8 million of fixed asset impairment
      charges, (iv) $0.7 million of severance costs, (v) $0.4 million related to
      the
      write-down of accounts receivable and (vi) $0.2 million of other costs primarily
      related to a settlement with a customer.





The
      loss
      from 2006 also includes $0.1 million for certain workers compensation claims
      at
      our previously discontinued Drivetrain operation located in Gastonia, North
      Carolina, offset by a gain of $0.1 million for a change in estimated costs
      related to the sale of our former Distribution Group business, which we sold
      in
      October 2000.





The
      loss
      from 2005 includes
      after-tax charges of (i) $1.1
      million related to the discontinued Independent Aftermarket businesses, (ii) $0.7
      million related
      to the previously discontinued Drivetrain operation located in Gastonia, North
      Carolina, and (iii) $0.2 million for a valuation allowance related to the
      expected expiration of a capital loss carryforward from the sale of our former
      Distribution Group business, which we sold in October 2000.





See
      Item
      8. “Consolidated Financial Statements and Supplementary Data - Note 15”
for a further discussion of these charges.





28
 ***Table
          of Contents***


*Reportable
      Segments*





Drivetrain
      Segment




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





**Year
                Ended December 31,******
            **2006**
            
            **2005**Net
                sales
            $
            234.6
            100.0
            %
            
            $
            266.4
            100.0
            %Segment
                profit
            $
            9.0
            3.8
            %
            
            $
            36.4
            13.7
            %








*Net
      Sales.* Net
      sales decreased  $31.8
      million, or 11.9%, to $234.6 million for 2006 from $266.4 million for
      2005. The decrease was primarily due to:





•
            a
                lower volume of Ford remanufactured transmissions we believe to be
                largely
                the result of (i) comparatively higher sales in 2005 due to inventory
                increases in Ford’s distribution channel during the third and fourth
                quarters of 2005 (we believe these higher inventory positions returned
                to
                historical levels during the first half of 2006), and (ii) declining
                new
                vehicle sales resulting in a reduction in the population of vehicles
                in
                the zero to eight-year age category, which category we believe drives
                the
                majority of demand for our Ford
                products;





•
            a
                reduction in volume of DaimlerChrysler remanufactured transmissions
                due to
                (i) DaimlerChrysler’s decision not to use remanufactured transmissions for
                warranty repairs generally for model years 2003 and later,
                resulting in one less model year being in our warranty program each
                year
                and (ii)comparatively
                higher sales in 2005 due to inventory increases in DaimlerChrysler’s
                distribution channel;




•
              a
                  one-time sale in 2005 of $12.5 million of transmission components
                  at cost
                  relating to end-of-life support for an OEM transmission program
                  that
                  ceased production in late 2000; 
 •
                a
                    reduction in volume of remanufactured engines for certain older
                    European
                    engine programs;





•
              a
                  reduction in volume of Honda remanufactured transmissions used
                  in warranty
                  applications; and  •
                scheduled
                    price reductions to certain customers pursuant to recent contract
                    renewals,





pa rtially
      offset by an
      increase in volume of medium/heavy duty remanufactured transmissions related
      to
      the roll-out of the program we launched for Allison in the fourth quarter of
      2005 (under the terms of our remanufacturing program with Allison, we are
      required to purchase the transmission core; accordingly, our results for 2006
      and 2005 reflect $23.6 million and $3.2 million, respectively, for core included
      in both net sales and cost of goods sold).





Of
      our
      segment net sales for 2006 and 2005, Ford accounted for 32.7% and 38.2%, Honda
      accounted for 33.1% and 30.4%, General Motors accounted for 16.1% and 2.6%,
      and
      DaimlerChrysler accounted for 15.6% and 24.3%, respectively.





*Impairment
      of Goodwill* .
      During
      2006, we completed our annual evaluation of goodwill as required by SFAS No.
      142, *Goodwill and Other Intangible Assets*. As a result of the
      evaluation, we recorded a charge of $11.7 million for the impairment of goodwill
      assigned to our United Kingdom-based remanufacturing operation. There were
      no
      similar costs recorded in 2005.


29
 ***Table
          of Contents***


*Exit,
      Disposal, Certain Severance and Other Charges* . During
      2006, we recorded $1.5 million of these costs for (i) severance and related
      costs associated with cost reduction activities and the reorganization of
      certain management functions, (ii) costs related to a potential acquisition
      that
      we ultimately decided not to pursue, and (iii) costs for asset retirement
      obligations we are contractually obligated to perform in order to restore
      certain leased facilities back to a condition specified in the lease agreement.
      There were no similar costs recorded in 2005.





*Segment
      Profit* .
      Segment
      profit decreased $27.4 million, or 75.3%, to $9.0 million (3.8% of segment
      net sales) for 2006 from $36.4 million (13.7% of segment net sales) for
      2005. This resulted primarily from the goodwill impairment charge, coupled
      with
      the factors described above under “Net Sales” and “Exit, Disposal, Certain
      Severance and Other Charges” and an
      increase in product development and start-up costs associated with *NuVinciTM* CVP
      products, partially offset by benefits resulting from our lean and continuous improvement
      program and other cost reductions and a reduction of $2.4 million in allocated
      corporate overhead pursuant to our accounting policy of allocating corporate
      overhead based upon segment profitability.





Logistics
      Segment





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





**Year
                Ended December 31,******
            **2006**
            ****
            **2005**Net
                sales
            $
            263.4
            
            100.0
            %
            
            $
            153.2
            100.0
            %Segment
                profit
            $
            24.4
            
            9.3
            %
            
            $
            18.1
            11.8
            %





*Net
      Sales.* Net
      sales increased  $110.2 million,
      or 71.9%, to $263.4 million for 2006 from $153.2 million for 2005.
      This increase was primarily attributable to the launch and roll-out of new
      business added during 2005 with AT&T, and to a lesser extent, Nokia, LG,
      Magellan, T-Mobile and others, coupled with an increase in our base business
      with AT&T, partially offset by scheduled price reductions to certain
      customers pursuant to recent contract renewals. Of our segment net sales for
      2006 and 2005, AT&T accounted for 79.0% and 81.5%,  respectively.





*Impairment
      of Goodwill*. During 2006, we completed our annual evaluation of goodwill as
      required by SFAS No. 142, Goodwill and Other Intangible Assets. As a result
      of
      the evaluation, we recorded a charge of $2.9 million for the impairment of
      goodwill assigned to our automotive materials reclamation operation. There
      were
      no similar costs recorded in 2005.





*Exit,
      Disposal, Certain Severance and Other Charges* . During
      2006, we recorded $0.5 million of these costs for severance and related
      costs associated with the reorganization and upgrade of certain management
      functions and costs related to a potential acquisition that we ultimately
      decided not to pursue. During 2005, we recorded  $0.5 million  of
      these
      costs primarily related to our capacity  expansion.





*Segment
      Profit* .
      Segment
      profit increased $6.3 million, or 34.8%, to $24.4 million (9.3% of
      segment net sales) for 2006 from $18.1 million (11.8% of segment net sales)
      for
      2005. The increase was primarily the result of the factors described above
      under
“Net Sales” combined with the benefits of our lean and continuous improvement
      program and other cost reductions, partially offset by (i) the goodwill
      impairment charge, (ii) an
      increase in cost associated with the vertical integration of certain test and
      repair services that were previously outsourced, (iii) an increase in cost
      associated with the launch of a new test and repair program in a new
      market, and (iv)
      an increase of $2.1 million in allocated corporate overhead pursuant to our
      accounting policy of allocating corporate overhead based upon segment
      profitability.





30
 ***Table
          of Contents***


***Year
      Ended December 31, 2005 Compared to the Year Ended December 31,
      2004***





Income
      from continuing operations increased $2.9 million, or 9.6%, to $33.0 million
      in
      2005 from $30.1 million in 2004. Income from continuing operations per diluted
      share was $1.53 in 2005 as compared to $1.40 in 2004. Our results for 2005
      included (i) a gain of $0.9 million (net of tax) related to $1.4 million of
      research and development tax credits, net of fees and related expenses of $0.5
      million, net of tax, (ii) a gain of $0.4 million (net of tax) from the early
      redemption of the note receivable from the Distribution Group, (iii) exit,
      disposal, certain severance and other charges of $0.3 million (net of tax)
      and
      (iv) a gain of $0.2 million (net of tax) related to an investment tax credit
      from the state of Oklahoma. For 2004, our results included (i) exit, disposal,
      certain severance and other charges of $2.3 million (net of tax) and (ii) an income
      tax benefit of $0.4 million related to the favorable resolution of an IRS audit
      of our 1999 tax year .
      Other
      factors which caused income from continuing operations to increase in 2005
      as
      compared to 2004 included:





•
            benefits
                from our on-going lean and continuous improvement program and other
                cost
                reduction initiatives;





•
            new
                business wins in our Logistics segment, including our test and repair
                program with AT&T and, to a lesser extent, Nokia, LG and
                T-Mobile;





•
            an
                increase in our base logistics business with AT&T;
                and





•
            an
                increase in volume of Honda remanufactured transmissions as we realized
                the full-year benefit of that program, which did not fully ramp up
                until
                the second quarter of 2004,





pa rtially
      offset by:





•
            scheduled
                price reductions to certain customers in our Drivetrain and Logistics
                segments pursuant to contracts entered into primarily in
                2003;





•
            a
                reduction in volume of remanufactured engines for certain older European
                engine programs;





•
            an
                increase in costs related to new business and product development
                in our
                Drivetrain Remanufacturing segment;
                and





•
            a
                reduction in volume of Ford remanufactured transmissions that is
                believed
                to result from repair cost-cap adjustments on certain transmission
                models.







*Net
      Sales.* Net
      sales increased $44.0 million, or 11.7%, to $419.6 million for 2005 from $375.6
      million for 2004. This increase was primarily due to:





•
            new
                business wins in our Logistics segment, including our test and repair
                program and other programs with AT&T and, to a lesser extent, Nokia,
                LG and T-Mobile;





•
            increases
                in our base logistics volume with
                AT&T;





•
            a
                one-time sale in 2005 of $12.5 million of transmission components
                at cost
                relating to end-of-life support for an OEM transmission program that
                ceased production in late 2000and
                from which we do not expect any future sales;
                and





•
            an
                increase in volume of Honda remanufactured transmissions as we realized
                the full-year benefit of that program, which did not fully ramp up
                until
                the second quarter of 2004,





pa rtially
      offset by:


31
 ***Table
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•
            scheduled
                price reductions to certain customers in our Drivetrain and Logistics
                segments pursuant to contracts entered into primarily in
                2003;





•
            a
                reduction in volume of remanufactured engines for certain older European
                engine programs;





•
            a
                reduction in volume of Ford remanufactured transmissions that is
                believed
                to result from repair cost-cap adjustments on certain transmission
                models;
                and





•
            a
                reduction in sales for certain remanufacturing-related services and
                certain other low volume remanufacturing
                programs.





Of
      our
      net sales for 2005 and 2004, AT&T accounted for 29.8% and 23.5%, Ford
      accounted for 24.4% and 31.2%, Honda accounted for 19.3% and 20.4%, and
      DaimlerChrysler accounted for 15.4% and 15.5%, respectively.





*Gross
      Profit* .
      Gross
      profit increased $4.0 million, or 4.0%, to $104.1 million for 2005 from
      $100.1 million for
      2004 .
      The
      increase was primarily the result of benefits from our lean and continuous
      improvement program and other cost reduction initiatives, which were largely
      offset by the factors described above under “Net Sales.” Additionally, gross
      profit as a percentage of net sales decreased to 24.8% for 2005 from 26.7%
      for
      2004. This decrease in gross profit as a percentage of net sales was primarily
      due to (i) the scheduled price reductions, (ii) the change in mix of new
      business in our Logistics segment, and (iii) the unwinding of the end-of-life
      support for the out-of-production OEM transmission program, which resulted
      in a
      one-time sale of $12.5 million of transmissions components at cost in 2005,
      which reduced gross profit as a percentage of net sales for 2005 by 0.7%,
      partially offset by benefits from our on-going lean and continuous improvement
      program and other cost reduction initiatives. In
      the
      fourth quarter of 2005, we launched a remanufacturing program for
      medium/heavy-duty transmissions and expect to realize growth resulting from
      the
      ramp-up of that program. Unlike our light vehicle remanufacturing programs,
      the
      terms of this medium/heavy-duty remanufacturing contract require us to take
      title to the core. As a result, the core value is reflected in both revenue
      and
      cost of goods sold and is expected to reduce gross profit margins.




*SG&A
      Expense.* SG&A
      expense increased $4.0 million,
      or 8.9%, to
      $49.0
      million for 2005 from $45.0 million for 2004. The net increase is primarily
      the
      result of an increase in costs associated with revenue growth in our Logistics
      Segment as well as for new business and product development in our Drivetrain
      segment, partially offset by benefits from our on-going lean and continuous
      improvement program and other cost reduction initiatives. As a percentage of
      net
      sales, SG&A expense decreased to 11.7% for 2005 from 12.0% for 2004. The
      one-time sale of transmission components at cost as described above under “Net
      Sales” reduced SG&A expense as a percentage of net sales for 2005 by 0.3%.





*Exit,
      Disposal, Certain Severance and Other Charges* .
      During
      2005, we recorded $0.5 million ($0.3 million net of tax) of e xit,
      disposal, certain severance and other charges primarily related to the closure of an old facility and the move to a new larger
      facility as part of our capacity expansion within the Logistics
      segment.





During
      2004, we recorded $3.8 million ($2.3 million net of tax) of these costs
      including (i) $3.3
      million of certain non-cash stock-based compensation costs related to modifications
      to unexercised stock options previously granted to our former Chief Executive
      Officer and former Chief Financial Officer, per the provisions of the Financial
      Accounting Standards Board’s Interpretation No. 44, *Accounting
      for Certain Transactions Involving Stock Compensation (an Interpretation of
      APB
      Opinion No. 25)* , (ii)
      $0.6
      million of costs to terminate an agreement with an independent contractor,
      facility exit and other costs, (iii) $0.5
      million of certain non-cash stock-based compensation costs related to the hiring
      of our current CEO, (iv) $0.3 million of severance and related costs associated
      with the reorganization and upgrade of certain management
      functions and other cost reduction initiatives, and
      (v)
      $0.3 million of relocation costs related to the hiring of our current CFO,
      partially offset by a gain of $1.2 million attributed to the reversal of a previously established provision related to
      the
      Drivetrain segment for a potential non-income state tax liability upon the
      finalization of an audit by the state tax authorities.





32
 ***Table
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*Operating
      Income.* Operating income increased $3.3 million, or 6.4%, to $54.5 million for 2005
      from
      $51.2 million for 2004. This increase is primarily the result of the factors
      described above under “Net Sales,” “Gross Profit” and “ Exit,
      Disposal, Certain Severance and Other Charges.” As a
      percentage of net sales, operating income decreased to 13.0% from 13.6%. The
      one-time sale of transmission components at cost as described above under “Net
      Sales” adversely affected operating income as a percentage of net sales for 2005
      by 0.4%.





*Interest
      Income.* Interest
      income decreased $0.7 million, or 25.9%, to $2.0 million for
      2005 from
      $2.7
      million for
      2004 . This
      decrease was primarily due to the early redemption in 2005 of the note
      receivable from the Distribution Group, partially offset by higher cash balances
      invested in cash and equivalents during 2005 as compared to 2004 and a general
      increase in interest rates.





*Other
      Income, net.* Other
      income increased to $0.5 million for
      2005 from
      $19 thousand for
      2004 . This
      increase was due to a gain recorded in 2005 from the early redemption of the
      note receivable from the Distribution Group.





*Interest
      Expense.* Interest
      expense increased $0.4 million, or 5.5%, to $7.7 million for
      2005 from
      $7.3 million for
      2004 . This
      increase was primarily due to a general increase in interest rates in 2005
      as
      compared to 2004, partially offset by a reduction in total debt
      outstanding.





*Income
      Tax Expense.* Income
      tax expense as a percentage of income from continuing operations before income
      taxes decreased to 33.1% in 2005 from 35.7% for
      2004.
      The 2005 rate reflects income tax benefits of (i) $1.4 million related to
      previously unclaimed research and development tax credits and (ii) $0.2 million
      related to an investment tax credit from the state of Oklahoma. During 2004
      we
      recorded an income
      tax benefit of $0.4 million related to the favorable resolution of an IRS audit
      of our 1999 tax year.





*Discontinued
      Operations.* The
      loss
      from 2005 ,
      includes after-tax charges of (i) $1.1
      million related to the discontinued Independent Aftermarket businesses, (ii) $0.7
      million related
      to the previously discontinued Drivetrain operation located in Gastonia, North
      Carolina and (iii) a charge of $0.2 million for a valuation allowance related
      to
      the expected expiration of a capital loss carryforward from the sale of our
      former Distribution Group business, which we sold in October 2000.





In
      2004,
      General Motors’ consolidated its vendor base and resourced its remanufactured
      transmission program from our facility located in Gastonia, North Carolina,
      in
      connection with which we closed this facility and discontinued this operation
      in
      accordance with SFAS No. 144, *Accounting
      for the Impairment or Disposal of Long-Lived Assets* and
      recorded an after-tax loss of $20.2 million. On a pre-tax basis, this loss
      included (i) $22.1 million for the impairment of goodwill assigned to this
      reporting unit, (ii) $1.9 million of costs related to the exit from this
      facility and the termination of our contract with GM, (iii) $1.7 million of
      inventory write-downs, (iv) $1.8 million for severance and related costs
      and (v) $1.5 million of fixed asset impairment charges.





Also
      in
      2004 ,
      our
      discontinued operations include after-tax charges of $3.3 million related to
      the
      discontinued Independent Aftermarket businesses and $0.8 million related to
      our
      former Distribution Group business.




33
 ***Table
          of Contents***


*Reportable
      Segments*





Drivetrain
      Remanufacturing Segment





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


**Year
                  Ended December 31,******
              **2005**
              ****
              **2004**Net
                  sales
              $
              266.4
              
              100.0
              %
              
              $
              271.2
              100.0
              %Segment
                  profit
              $
              36.4
              
              13.7
              %
              
              $
              40.0
              14.7
              %


*Net
      Sales.* Net
      sales decreased $4.8 million, or 1.8%, to $266.4 million for 2005 from
      $271.2 million for 2004. The decrease was primarily due to:





•
            a
                reduction in volume of remanufactured engines for certain older European
                engine programs;





•
            scheduled
                price reductions to certain customers pursuant to contracts entered
                into
                primarily in 2003;





•
            a
                reduction in volume of Ford remanufactured transmissions that is
                believed
                to result from repair cost-cap adjustments on certain transmission
                models;
                and





•
            a
                reduction in sales for certain remanufacturing-related services and
                certain other low volume remanufacturing
                programs,





partially
      offset by (i) a one-time sale of $12.5 million of transmission components at
      cost in 2005, relating to end-of-life support for an OEM transmission program
      that ceased production in late 2000 and from which we do not expect any future
      sales, (ii) an
      increase in volume of Honda remanufactured transmissions as we realized the
      full-year benefit of that program, which did not fully ramp up until the second
      quarter of 2004 and
      (iii) the launch in the fourth quarter of 2005 of a medium/heavy duty
      transmission remanufacturing program for Allison.





Of
      our
      segment net sales for 2005 and 2004, Ford accounted for 38.2% and 42.9%, Honda
      accounted for 30.4% and 28.3% and DaimlerChrysler accounted for 24.3% and 21.5%,
      respectively.





*Exit,
      Disposal, Certain Severance and Other Charges* . During
      2004, we recorded a net credit of $0.7 million consisting of income of $1.2
      million due to
      the reversal of a previously established provision for a potential non-income
      state tax liability upon the finalization of an audit by the state tax
      authorities, partially offset by (i) $0.4 million of costs primarily related
      to
      the termination of an independent contractor agreement and (ii) $0.1
      million of severance and related costs primarily associated with the
      reorganization and upgrade of certain management
      functions and other cost reduction initiatives.  There
      were no similar costs recorded in 2005.





*Segment
      Profit* .
      Segment
      profit decreased $3.6 million, or 9.0%, to $36.4 million (13.7% of segment
      net
      sales) for 2005 from $40.0 million (14.7% of segment net sales) for 2004.
      This decrease resulted primarily from (i) the factors described above under
“Net
      Sales”, (ii) the 2004 gain of $0.7 million described above under “Exit,
      Disposal, Certain
      Severance and Other Charges”, (iii) an increase in costs related to new business
      and product development, partially offset by benefits from our lean and continuous improvement program
      and other cost reductions. The “ Exit,
      Disposal, Certain Severance and Other Charges” positively affected segment
      profit as a percentage of net sales for 2004 by 0.2%. The one-time sale of
      transmission components at cost as described above under “Net Sales,” adversely
      affected segment profit as a percentage of net sales for 2005 by 0.6%.





34
 ***Table
          of Contents***


In
      the
      fourth quarter of 2005, we launched a remanufacturing program for
      medium/heavy-duty transmissions and expect to realize growth resulting from
      the
      ramp-up of that program. Unlike our light vehicle remanufacturing programs,
      the
      terms of this medium/heavy-duty remanufacturing contract require us to take
      title to the core. As a result, the core value is reflected in both revenue
      and
      cost of goods sold and is expected to reduce segment margins.





Logistics
      Segment





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




**Year
                  Ended December 31,******
              **2005**
              ****
              **2004**Net
                  sales
              $
              153.2
              
              100.0
              %
              
              $
              104.4
              100.0
              %Segment
                  profit
              $
              18.1
              
              11.8
              %
              
              $
              15.5
              14.8
              %


*Net
      Sales.* Net
      sales increased $48.8 million, or 46.7%, to $153.2 million for 2005
      from $104.4 million for 2004. This increase was primarily attributable to
      new business programs, including our test and repair, kitting and other programs
      with AT&T and, to a lesser extent, Nokia, LG and T-Mobile, combined with an
      increase in our base fulfillment business with AT&T, partially offset by
      scheduled price reductions to a customer pursuant to a contract entered into
      in
      2003. Of our segment net sales for 2005 and 2004, AT&T accounted for 81.5%
      and 84.5%, respectively.





*Exit
      and Certain Severance Charges* . During
      2005, we recorded $0.5 million of these costs primarily related to the
      closure of an old facility and the move to a new larger facility as part of
      our
      capacity expansion. During 2004, we recorded $0.2 million of these costs
      consisting of (i) $0.1
      million of facility exit costs and (ii) $0.1 million of severance and related
      costs associated with co st
      reduction initiatives.





*Segment
      Profit* .
      Segment
      profit increased $2.6 million, or 16.8%, to $18.1 million (11.8% of
      segment net sales) for 2005 from $15.5 million (14.8% of segment net sales)
      for 2004. The increase was primarily the result of the factors described above
      under “Net Sales,” combined with the benefits of our lean and continuous
      improvement program and other cost reductions, partially offset by costs and
      other start-up inefficiencies associated with our capacity expansion efforts.








**Liquidity
      and Capital Resources**





***Cash
      Flow & Capital Expenditures***





We
      had
      total cash and cash equivalents on hand of $7.8 million at December 31, 2006.
      Net cash provided by operating activities from continuing operations was $47.5
      million in 2006. During the period, we used $7.6 million of cash for our working
      capital accounts, which included the use of $5.3 million for accounts receivable
      primarily as the result of increased sales to our Logistics segment customers
      and $5.0 million for inventories primarily related to increased test and repair
      volume in the Logistics segment, partially offset by an increase in cash of
      $2.9
      million from accounts payable and accrued expenses.





Net
      cash
      used in investing activities from continuing operations was $16.0 million for
      the period, which included $11.9 million of capital spending primarily related
      to machinery and equipment for new business initiatives and capacity maintenance
      efforts, $1.7 million for assets of a business purchased from one of our
      suppliers, $1.5 million of net purchases of available-for-sale securities for
      our nonqualified deferred compensation plan and $1.0 million for the purchase
      of
      intangible assets. Net cash used in financing activities of $76.1 million





35
 ***Table
          of Contents***


included
      payments of $90.7 million related to the termination of our old credit facility,
      $11.1 million for treasury stock repurchases of 516,950 shares of our common
      stock, and $0.8 million of payments for debt issuance costs related to our
      new
      credit facility (see discussion below), partially offset by $17.8 million of
      net
      borrowings under our new credit facility and $7.5 million of cash proceeds
      and
      $1.3 million of tax benefits from the exercise of stock-based awards by our
      employees and non-employee directors.





The
      $1.0
      million payment for intangible assets consists of a license fee that we paid
      in
      August 2006 to Fallbrook Technologies Inc to license the right
      to develop, manufacture and sell Fallbrook's *NuVinci* TM
CVP
      technology in specified fields of use. The Fallbrook license agreement also
      provides that in the future we may elect
      to obtain a license for the automotive field of use by
      paying an additional $1.0 million license fee.





For
      2007,
      we estimate $18-$22 million for capital expenditures, consisting of
      approximately $12-$14 million in support of new business and capacity expansion
      initiatives in our Logistics and Drivetrain segments and $6-$8 million in
      support of maintenance and cost reduction initiatives.





For
      2007,
      we expect our effective tax rate to be 39.0%, an increase from our 2006
      effective tax rate of 37.2%. This increase is primarily the result of the
      enactment of tax laws in the state of Texas that are expected to increase our
      taxable income in that state. These new tax laws are effective as of January
      1,
      2007. Additionally, in 2006 and 2005 we utilized $4.9 million and $5.1 million
      of net operating loss carryforwards, reducing our net income tax payments to
      $0.8 million and $4.8 million, respectively. In 2004, we incurred a tax loss
      and
      did not utilize any of our operating loss carryforwards. For 2007, we expect
      to
      utilize approximately $4.7 million of remaining net operating loss carryforwards
      and other available tax credits and expect our tax payments to increase to
      $11-$13 million.





***Financing***





On
      March
      21, 2006, we entered into a new credit agreement and a related security
      agreement with certain banks. This new credit agreement provides for a $150.0
      million revolving credit facility available through March 2011. This agreement
      also provides for the ability to increase the facility size by up to $75.0
      million in the aggregate, subject to certain conditions (including the receipt
      from one or more lenders of the additional commitments that may be requested)
      and achievement of certain financial ratios. Amounts advanced under the credit
      facility are guaranteed by all of our domestic subsidiaries and secured by
      substantially all of our assets and the assets of our domestic subsidiaries.





At
      our
      election, amounts advanced under the revolving credit facility will bear
      interest at either (i) the Base Rate plus a specified margin or (ii) the
      Eurocurrency Rate plus a specified margin. The Base Rate is equal to the higher
      of (a) the lender’s prime rate or (b) the federal funds rate plus 0.50%. The
      applicable margins for both Base Rate and Eurodollar Rate loans are subject
      to
      quarterly adjustments based on our leverage ratio as of the end of the four
      fiscal quarters then completed. At December 31, 2006, the applicable margins
      for
      Base Rate and Eurodollar Rate loans were zero and 1.00%, respectively. As
      specified in our credit agreement, the following table sets forth the rates
      based upon our leverage ratio:





**Applicable
                Rate****Consolidated
                Leverage Ratio**
            ****
            **LIBOR
                Margin and**
              **Letters
                of Credit**
            ****
            **Commitment
                Fee**
            ****
            **Prime
                Rate**
              **Margin**Less
                than 1.00:1
            
            1.00%
            
            0.20%
            
            0.00%Greater
                or equal to 1.00:1 but less than 1.75:1
            
            1.25%
            
            0.25%
            
            0.25%Greater
                or equal to 1.75:1 but less than 2.50:1
            
            1.50%
            
            0.30%
            
            0.50%Greater
                or equal to 2.50:1
            
            1.75%
            
            0.35%
            
            0.75%





36
 ***Table
          of Contents***


With
      the
      proceeds from the new credit facility, on March 21, 2006 we repaid the $86.0
      million balance outstanding under our 2002 credit facility and terminated the
      related credit and security agreements.





At
      December 31, 2006, our borrowing capacity under the new credit facility was
      $130.6 million, net of $1.6 million for outstanding letters of credit.





We
      were
      in compliance with all the new credit facility’s debt covenants as of December
      31, 2006.





In
      addition, in order to finance its working capital requirements, our U.K.
      subsidiary has a revolving
      credit agreement with HSBC Bank Plc for £0.5 million, or approximately $1.0
      million in U.S. dollars. Amounts advanced are secured by substantially all
      the
      assets of our U.K. subsidiary. Interest accrues at the HSBC Bank prime lending
      rate plus 1.50% and is payable monthly. HSBC Bank may at any time demand
      repayment of all sums owing. At December 31, 2006, there were no amounts
      outstanding under this line of credit.





We
      had
      cash and cash equivalents on hand of $7.8 million at December 31,
      2006.





We
      believe that cash on hand, cash flow from operations and existing borrowing
      capacity will be sufficient to fund ongoing operations and budgeted capital
      expenditures. In pursuing future acquisitions, we will continue to consider
      the
      effect any such acquisition costs may have on liquidity. In order to consummate
      such acquisitions, we may need to seek funds through additional borrowings
      or
      equity financing.





***Other***





On
      February 16, 2006, we announced our intention to commence a program for the
      repurchase of up to approximately 2% of our outstanding common stock during
      the
      balance of 2006 to offset the dilutive impact of new shares issued for stock
      option exercises and restricted stock grants under our stock incentive plans.
      During 2006, we repurchased 501,497 shares of our common stock for approximately
      $10.7 million pursuant to this program. In December 2006, the Board of Directors
      approved a stock repurchase plan for 2007 with the same terms as the 2006 plan.





On
      July
      17, 2006, we completed the sale of our Independent Aftermarket engine business
      and received proceeds of $2.1 million.





***Off-Balance
      Sheet Arrangements***





We
      are
      not engaged in any off-balance sheet arrangements that have a material current
      effect or are reasonably likely to have a material future effect on our
      financial condition or results of operations. However, we are subject to various
      other commitments and contingencies as disclosed in Item 8. "Consolidated
      Financial Statements and Supplementary Data - Note 16."





37
 ***Table
          of Contents***


***Contractual
      Obligations***





The
      following table summarizes our contractual obligations from continuing
      operations expressed in millions of dollars as of December 31,
      2006:




**Total**
            ****
            **Less
                than**
              **1
                year**
            ****
            **1
                - 3 years**
            ****
            **3
                - 5 years**
            ****
            **More
                than**
              5
                yearsDebt
                Obligations:Principal
                balance on credit facility
            
            $
            17.8
            
            $
            −
            
            $
            −
            
            $
            17.8
            
            $
            −Letters
                of credit
            
            
            1.6
            
            
            −
            
            
            −
            
            
            1.6
            
            
            −Interest
                on credit facility (1)
            
            
            5.9
            
            
            1.4
            
            
            2.8
            
            
            1.7
            
            
            −Total
                debt obligations
            
            
            25.3
            
            
            1.4
            
            
            2.8
            
            
            21.1
            
            
            −Operating
                lease obligations
            
            
            23.6
            
            
            7.8
            
            
            9.3
            
            
            2.3
            
            
            4.2Purchase
                obligations
            
            
            11.0
            
            
            10.9
            
            
            0.1
            
            
            −
            
            
            −Executivecompensation agreements (2)
            
            
            1.0
            
            
            0.7
            
            
            0.3
            
            
            −
            
            
            −Nonqualified
                deferredcompensation
                (3)
            
            
            2.0
            
            
            −
            
            
            0.2
            
            
            −
            
            
            1.8Deferred
                compensation (4)
            
            
            0.6
            
            
            0.1
            
            
            0.3
            
            
            0.2
            
            
            −Total
            
            $
            63.5
            
            $
            20.9
            
            $
            13.0
            
            $
            23.6
            
            $
            6.0




(1)
            Amount
                represents estimated interest expense obligations on borrowings
                outstanding under our credit facility at December 31, 2006. Interest
                is
                determined assuming the revolving balance outstanding was paid off
                on
                March 31, 2011, the expiration date of the credit facility. Interest
                on
                floating rate debt is estimated using interest rates in effect at
                December
                31, 2006.




(2)
            Represents
                amounts payable to our former CEO, former CFO and other former executives.




(3)
            Represents
                amounts payable to certain of our employees and directors under a
                nonqualified deferred compensation plan.




(4)
            Relates
                to the 1997 acquisition of ATS, which requires us to make certain
                payments
                to key employees of the seller on various dates subsequent to the
                closing
                date. Through December 31, 2006, we had made $3.0 million of these
                payments (including $0.1 million paid in 2006).








**Impact
      of New Accounting Standards**





In
      June
      2006, the Financial Accounting Standards Board issued Interpretation No.
      48 , *Accounting
      for Uncertainty in Income Taxes - An Interpretation of FASB Statement No.
      109* .
      FIN
      48 clarifies the accounting for uncertainty in income taxes recognized in an
      enterprise’s financial statements in accordance with SFAS No. 109, *Accounting
      for Income Taxes.* This
      Interpretation prescribes a recognition threshold and measurement attribute
      for
      the financial statement recognition and measurement of a tax position taken
      or
      expected to be taken in a tax return. This Interpretation also provides guidance
      on derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure, and transition. This new standard will require several
      new
      disclosures in annual financial statements, including (i) the income statement
      classification of income tax-related interest and penalties, and (ii) a
      reconciliation of the total amount of unrecognized tax benefits. FIN
      48 is
      effective for financial statements issued for fiscal years beginning after
      December 15, 2006. We are currently evaluating FIN 48 and we do not anticipate
      that the initial adoption of this standard will have a material effect on our
      financial statements.





38
 ***Table
          of Contents***


In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* . **** SFAS
      No.
      157 provides guidance for using fair value to measure assets and liabilities.
      In
      addition, this statement defines fair value, establishes a framework for
      measuring fair value, and expands disclosures about fair value measurements.
      Where applicable, this statement simplifies and codifies related guidance within
      generally accepted accounting principles. This statement is effective for
      financial statements issued for fiscal years beginning after November 15, 2007,
      and interim periods within those fiscal years. The adoption of SFAS No. 157
      is
      not expected to have a material effect on our financial statements.








**Inflation;
      Lack of Seasonality**





Although
      we are 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 us from increasing the prices of our products to offset the inflationary
      pressures that may increase our costs in the future. Historically, there has
      been little aggregate seasonal fluctuation in our business.








**Environmental
      Matters**





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








**ITEM
      7A.** **QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





*Derivative
      Financial Instruments.* We do
      not hold or issue derivative financial instruments for trading purposes. We
      have
      used derivative financial instruments to manage our exposure to fluctuations
      in
      interest rates. Neither the aggregate value of these derivative financial
      instruments nor the market risk posed by them has been material to our business.
      At December 31, 2006, we were not using any derivative financial instruments.





*Interest
      Rate Exposure.* Based on
      our overall interest rate exposure during the year ended December 31, 2006
      and assuming similar interest rate volatility in the future, a near-term
      (12 months) change in interest rates would not materially affect our
      consolidated financial position, results of operation or cash flows. As of
      December 31, 2006, interest rate movements of 100 basis points would result
      in
      an approximate $0.2 million increase or decrease in interest expense over a
      one-year period.





*Foreign
      Exchange Exposure.* Our
      revenue, expense and capital purchasing activities are primarily transacted
      in
      U.S. dollars. We have one foreign operation that exposes us to translation
      risk
      when the local currency financial statements are translated to U.S. dollars.
      Since changes in translation risk are reported as adjustments to stockholders'
      equity, a 10% change in the foreign exchange rate would not have a material
      effect on our financial position, results of operation or cash flows. For the
      year ended December 31, 2006, a 10% change in the foreign exchange rate would
      increase or decrease our consolidated net income by approximately
      $0.6 million.


39
 ***Table
          of Contents***


**ITEM
        8.** **CONSOLIDATED
        FINANCIAL STATEMENTS** **AND SUPPLEMENTARY DATA**
  **Contents**
  Management’s
                  Report on Internal Control Over Financial
                  Reporting
              41Report
                  of Independent Registered Public Accounting
                  Firm
              42Report
                  of Independent Registered Public Accounting
                  Firm on Internal Control Over Financial Reporting
              43Consolidated
                  Balance Sheets as of December 31, 2006 and
                  2005
              44Consolidated
                  Statements of Income for the years ended
                  December 31, 2006, 2005 and 2004
              45Consolidated
                  Statements of Stockholders' Equity
                  for the years ended December 31, 2006, 2005 and 2004
              46Consolidated
                  Statements of Cash Flows for the years ended
                  December 31, 2006, 2005 and 2004
              47Notes
                  to Consolidated Financial
                  Statements
              48
  40
 ***Table
            of Contents***
  **Management’s
        Report on Internal Control Over Financial Reporting**
 
 Management
        of Aftermarket
        Technology Corp. is
        responsible for establishing and maintaining adequate internal control over
        financial reporting, as such term is defined in Securities Exchange Act of
        1934
        Rule 13a-15(f).




The
          Company's internal control over financial reporting is supported by written
          policies and procedures that (i) pertain to the maintenance of records
          that, in
          reasonable detail, accurately and fairly reflect the transactions and
          dispositions of the Company's assets; (ii) provide reasonable assurance
          that
          transactions are recorded as necessary to permit preparation of financial
          statements in accordance with generally accepted accounting principles,
          and that
          receipts and expenditures of the Company are being made only in accordance
          with
          authorizations of the Company's management and directors; and (iii) provide
          reasonable assurance regarding prevention or timely detection of unauthorized
          acquisition, use or disposition of the Company's assets that could have
          a
          material effect on the financial statements.
 
 Because
          of its inherent limitations, internal control over financial reporting
          may not
          prevent or detect misstatements. Projections of any evaluation of effectiveness
          to future periods are subject to the risk that control may become inadequate
          because of changes in conditions, or that the degree of compliance with
          the
          policies or procedures may deteriorate.


Under
      the
      supervision and with the participation of our management, including our
      principal executive officer and principal financial officer, we conducted an
      evaluation of the effectiveness of the Company’s internal control over financial
      reporting as of December 31, 2006 as required by Securities Exchange Act of
      1934
      Rule 13a-15(c). In making this assessment, we used the criteria set forth in
      the
      framework in *Internal
      Control-Integrated Framework* issued
      by
      the Committee of Sponsoring Organizations of the Treadway Commission. Based
      on
      our evaluation under the framework in *Internal
      Control-Integrated Framework* ,
      our
      management concluded that our internal control over financial reporting was
      effective as of December 31, 2006.




Our
      management’s assessment of the effectiveness of our internal control over
      financial reporting as of December 31, 2006 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, as stated in their
      report which appears on page 43.








Aftermarket
      Technology Corp.





Downers
      Grove, Illinois


February
      26, 2007




41
 ***Table
            of Contents***





**Reportof
      Independent Registered Public Accounting
      Firm**





To
      the
      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, 2006 and 2005, and
      the related consolidated statements of income, stockholders' equity, and cash
      flows for each of the three years in the period ended
      December 31, 2006. Our audits also included the financial statement
      schedule listed in the Index of Item 15 (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 the standards of the Public Company
      Accounting Oversight Board (United States). 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, 2006 and 2005, and the
      consolidated results of their operations and their cash flows for each of the
      three years in the period ended December 31, 2006, in conformity with U.S.
      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.





As
      discussed in Note 2 to the consolidated
      financial statements, effective January 1, 2006, the Company changed
      its method of accounting for stock-based compensation.





We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the effectiveness of Aftermarket Technology
      Corp.’s internal control over financial reporting as of December 31, 2006, based
      on criteria established in Internal Control—Integrated Framework issued by the
      Committee of Sponsoring Organizations of the Treadway Commission and our report
      dated February 26, 2007 expressed an unqualified opinion thereon.











/s/
      ERNST & YOUNG LLP





Chicago,
      Illinois


February
      26, 2007




42
 ***Table
            of Contents***





**Reportof
      Independent Registered Public Accounting Firm
      on Internal Control Over Financial Reporting**





To
      the
      Stockholders and Board of Directors


Aftermarket
      Technology Corp.





We
      have
      audited management’s assessment, included in the accompanying Management’s
      Report on Internal Control Over Financial Reporting, that Aftermarket
      Technology Corp. maintained
      effective internal control over financial reporting as of December 31, 2006,
      based on criteria established in Internal Control-Integrated Framework issued
      by
      the Committee of Sponsoring Organizations of the Treadway Commission (the COSO
      criteria). Aftermarket Technology Corp.’s management is responsible for
      maintaining effective internal control over financial reporting and for its
      assessment of the effectiveness of internal control over financial reporting.
      Our responsibility is to express an opinion on management’s assessment and an
      opinion on the effectiveness of the company’s internal control over financial
      reporting based on our audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether effective
      internal control over financial reporting was maintained in all material
      respects. Our audit included obtaining an understanding of internal control
      over
      financial reporting, evaluating management’s assessment, testing and evaluating
      the design and operating effectiveness of internal control, and performing
      such
      other procedures as we considered necessary in the circumstances. We believe
      that our audit provides a reasonable basis for our opinion.





A
      company’s internal control over financial reporting is a process designed to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles. A company’s internal control over
      financial reporting includes those policies and procedures that (1) pertain
      to
      the maintenance of records that, in reasonable detail, accurately and fairly
      reflect the transactions and dispositions of the assets of the company; (2)
      provide reasonable assurance that transactions are recorded as necessary to
      permit preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company are
      being made only in accordance with authorizations of management and directors
      of
      the company; and (3) provide reasonable assurance regarding prevention or timely
      detection of unauthorized acquisition, use, or disposition of the company’s
      assets that could have a material effect on the financial statements.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.





In
      our
      opinion, management’s assessment that Aftermarket Technology Corp. maintained
      effective internal control over financial reporting as of December 31, 2006,
      is
      fairly stated, in all material respects, based on the COSO criteria. Also,
      in
      our opinion, Aftermarket Technology Corp. maintained, in all material respects,
      effective internal control over financial reporting as of December 31, 2006,
      based on the COSO criteria.





We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the consolidated
      balance sheets of Aftermarket Technology Corp. as
      of
      December 31, 2006 and 2005, and the related consolidated
      statements of income, stockholders’ equity, and cash flows for
      each
      of the three years in the period ended December 31, 2006, and our report dated
      February 26, 2007 expressed an unqualified opinion thereon.








/s/
      ERNST
& YOUNG LLP





Chicago,
      Illinois


February
      26, 2007




43
 ***Table
            of Contents***


**AFTERMARKET
                  TECHNOLOGY CORP.****CONSOLIDATED
                  BALANCE SHEETS****(In
                  thousands, except share and per share data)****December
                  31,**
              ****
              **December
                  31,**********
              **2006**
              ****
              **2005****Assets**Current
                  Assets:Cash
                  and cash equivalents
              $
              7,835
              
              $
              45,472Accounts
                  receivable, net
              
              77,720
              
              
              71,881Inventories
              
              56,904
              
              
              50,058Prepaid
                  and other assets
              
              3,788
              
              
              4,396Refundable
                  income taxes
              
              1,382
              
              
              689Deferred
                  income taxes
              
              7,771
              
              
              11,446Assets
                  of discontinued operations
              
              766
              
              
              18,562Total
                  current assets
              
              156,166
              
              
              202,504Property,
                  plant and equipment, net
              
              53,008
              
              
              54,153Debt
                  issuance costs, net
              
              664
              
              
              1,981Goodwill
              
              132,375
              
              
              146,176Intangible
                  assets, net
              
              1,327
              
              
              292Long-term
                  investments
              
              1,966
              
              
              347Other
                  assets
              
              171
              
              
              80Assets
                  of discontinued operations
              
              -
              
              
              2,247Total
                  assets
              $
              345,677
              
              $
              407,780**Liabilities
                  and Stockholders' Equity**Current
                  Liabilities:Accounts
                  payable
              $
              46,906
              
              $
              41,294Accrued
                  expenses
              
              19,102
              
              
              23,130Credit
                  facility
              
              -
              
              
              10,062Amounts
                  due to sellers of acquired companies
              
              -
              
              
              94Deferred
                  compensation
              
              130
              
              
              136Liabilities
                  of discontinued operations
              
              1,015
              
              
              4,757Total
                  current liabilities
              
              67,153
              
              
              79,473Amount
                  drawn on credit facility, less current portion
              
              17,800
              
              
              80,623Deferred
                  compensation, less current portion
              
              2,352
              
              
              847Other
                  long-term liabilities
              
              2,335
              
              
              2,200Deferred
                  income taxes
              
              23,707
              
              
              23,407Stockholders'
                  Equity:Preferred
                  stock, $.01 par value; shares authorized - 2,000,000; none
                  issued
              
              -
              
              
              -Common
                  stock, $.01 par value; shares authorized - 30,000,000;Issued
                  (including shares held in treasury) - 27,109,709 and 26,539,926as
                  of December 31, 2006 and 2005, respectively
              
              271
              
              
              265Additional
                  paid-in capital
              
              223,288
              
              
              212,678Retained
                  earnings
              
              85,913
              
              
              77,890Accumulated
                  other comprehensive income
              
              3,537
              
              
              1,186Unearned
                  compensation
              
              -
              
              
              (1,160
              )Common
                  stock held in treasury, at cost - 5,303,083 and 4,774,374
                  sharesas
                  of December 31, 2006 and 2005, respectively
              
              (80,679
              )
              
              (69,629
              )Total
                  stockholders' equity
              
              232,330
              
              
              221,230Total
                  liabilities and stockholders' equity
              $
              345,677
              
              $
              407,780*See
                  accompanying notes.*





44
 ***Table
          of Contents***


**AFTERMARKET
                  TECHNOLOGY CORP.****CONSOLIDATED
                  STATEMENTS OF INCOME****(In
                  thousands, except per share data)****For
                  the years ended December 31,******
              **2006**
              ****
              **2005**
              ****
              **2004**Net
                  sales:Products
              $
              234,569
              
              $
              266,398
              
              $
              271,215Services
              
              263,405
              
              
              153,220
              
              
              104,385Total
                  net sales
              
              497,974
              
              
              419,618
              
              
              375,600Cost
                  of sales:Products
              
              183,214
              
              
              200,488
              
              
              202,633Services
              
              210,055
              
              
              115,019
              
              
              72,820Total
                  cost of sales
              
              393,269
              
              
              315,507
              
              
              275,453Gross
                  profit
              
              104,705
              
              
              104,111
              
              
              100,147Selling,
                  general and administrative expense
              
              54,538
              
              
              48,993
              
              
              45,034Amortization
                  of intangible assets
              
              269
              
              
              125
              
              
              125Impairment
                  of goodwill
              
              14,592
              
              
              -
              
              
              -Exit,
                  disposal, certain severance and other charges
              
              1,938
              
              
              523
              
              
              3,766Operating
                  income
              
              33,368
              
              
              54,470
              
              
              51,222Interest
                  income
              
              605
              
              
              2,026
              
              
              2,658Other
                  income, net
              
              262
              
              
              542
              
              
              19Equity
                  in income of investee
              
              -
              
              
              -
              
              
              146Write-off
                  of debt issuance costs
              
              (1,691
              )
              
              -
              
              
              -Interest
                  expense
              
              (4,297
              )
              
              (7,696
              )
              
              (7,271
              )Income
                  from continuing operations before income taxes
              
              28,247
              
              
              49,342
              
              
              46,774Income
                  tax expense
              
              10,506
              
              
              16,344
              
              
              16,698Income
                  from continuing operations
              
              17,741
              
              
              32,998
              
              
              30,076Loss
                  from discontinued operations,net
                  of income taxes
              
              (9,718
              )
              
              (1,990
              )
              
              (24,300
              )Net
                  income
              $
              8,023
              
              $
              31,008
              
              $
              5,776Per
                  common share - basic:Income
                  from continuing operations
              $
              0.82
              
              $
              1.55
              
              $
              1.43Loss
                  from discontinued operations
              $
              (0.45
              )
              $
              (0.09
              )
              $
              (1.15
              )Net
                  income
              $
              0.37
              
              $
              1.45
              
              $
              0.27Per
                  common share - diluted:Income
                  from continuing operations
              $
              0.81
              
              $
              1.53
              
              $
              1.40Loss
                  from discontinued operations
              $
              (0.44
              )
              $
              (0.09
              )
              $
              (1.13
              )Net
                  income
              $
              0.37
              
              $
              1.44
              
              $
              0.27*See
                  accompanying notes.*




45
 ***Table
          of Contents***




**AFTERMARKET
                  TECHNOLOGY CORP.****CONSOLIDATED
                  STATEMENTS OF STOCKHOLDERS' EQUITY****(In
                  thousands, except share data)****Preferred
                  Stock**
              ****
              **Common**
                **Stock**
              ****
              **Additional**
                **Paid-In
                  Capital**
              ****
              **Retained**
                **Earnings**
              ****
              **Accumulated
                  Other Comprehensive**
                **Income**
              ****
              **Unearned**
                **Compensation**
              ****
              **Common
                  Stock in**
                **Treasury**
              ****
              **Total**Balance
                  at January 1, 2004
              $
              -
              
              $
              252
              
              $
              194,204
              
              $
              41,106
              
              $
              1,891
              
              $
              (231
              )
              $
              (7,971
              )
              $
              229,251Net
                  income
              
              -
              
              
              -
              
              
              -
              
              
              5,776
              
              
              -
              
              
              -
              
              
              -
              
              
              5,776Translation
                  adjustments
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,651
              
              
              -
              
              
              -
              
              
              1,651Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              7,427Issuance
                  of 141,500 shares of common stock from incentive stock
                  awards
              
              -
              
              
              1
              
              
              2,039
              
              
              -
              
              
              -
              
              
              (2,040
              )
              
              -
              
              
              -Issuance
                  of 708,063 shares of common stock from exercise of stock
                  options
              
              -
              
              
              7
              
              
              5,753
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              5,760Tax
                  benefit from stock-based award transactions
              
              -
              
              
              -
              
              
              428
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              428Stock-based
                  compensation expense from modification of stock options
              
              -
              
              
              -
              
              
              3,323
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              3,323Amortization
                  of unearned compensation
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,522
              
              
              -
              
              
              1,522Repurchase
                  of 3,820,967 shares of common stock for treasury
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (61,338
              )
              
              (61,338
              )Balance
                  at December 31, 2004
              
              -
              
              
              260
              
              
              205,747
              
              
              46,882
              
              
              3,542
              
              
              (749
              )
              
              (69,309
              )
              
              186,373Net
                  income
              
              -
              
              
              -
              
              
              -
              
              
              31,008
              
              
              -
              
              
              -
              
              
              -
              
              
              31,008Translation
                  adjustments
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (2,356
              )
              
              -
              
              
              -
              
              
              (2,356
              )Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              28,652Issuance
                  of 93,125 shares of common stock from incentive stock
                  awards
              
              -
              
              
              1
              
              
              1,475
              
              
              -
              
              
              -
              
              
              (1,476
              )
              
              -
              
              
              -Issuance
                  of 423,382 shares of common stock from exercise of stock
                  options
              
              -
              
              
              4
              
              
              4,266
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              4,270Tax
                  benefit from stock-based award transactions
              
              -
              
              
              -
              
              
              1,190
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,190Amortization
                  of unearned compensation
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,065
              
              
              -
              
              
              1,065Repurchase
                  of 19,670 shares of common stock
                for
                  treasury
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (320
              )
              
              (320
              )Balance
                  at December 31, 2005
              
              -
              
              
              265
              
              
              212,678
              
              
              77,890
              
              
              1,186
              
              
              (1,160
              )
              
              (69,629
              )
              
              221,230Net
                  income
              
              -
              
              
              -
              
              
              -
              
              
              8,023
              
              
              -
              
              
              -
              
              
              -
              
              
              8,023Translation
                  adjustments
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,337
              
              
              -
              
              
              -
              
              
              2,337Unrealized
                  gain on available-for-sale securities,
                net
                  of income taxes
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              14
              
              
              -
              
              
              -
              
              
              14Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              10,374Issuance
                  of 97,429 shares of common stock from incentive stock
                  awards
              
              -
              
              
              1
              
              
              (1
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Issuance
                  of 472,354 shares of common stock from exercise of stock
                  options
              
              -
              
              
              5
              
              
              7,490
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              7,495Tax
                  benefit from stock-based award transactions
              
              -
              
              
              -
              
              
              1,525
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,525Noncash
                  stock-based compensation
              
              -
              
              
              -
              
              
              2,756
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,756Repurchase
                  of 516,950 shares of common stock for treasury
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (11,050
              )
              
              (11,050
              )Reclassification
                  of unearned compensation upon adoption of SFAS 123R
              
              -
              
              
              -
              
              
              (1,160
              )
              
              -
              
              
              -
              
              
              1,160
              
              
              -
              
              
              -Balance
                  at December 31, 2006
              $
              -
              
              $
              271
              
              $
              223,288
              
              $
              85,913
              
              $
              3,537
              
              $
              -
              
              $
              (80,679
              )
              $
              232,330*See
                  accompanying notes.*
  46
 ***Table
            of Contents***
 **AFTERMARKET
                    TECHNOLOGY CORP.****CONSOLIDATED
                    STATEMENTS OF CASH FLOWS****(In
                    thousands)****For
                    the years ended December 31,******
                **2006**
                ****
                **2005**
                ****
                **2004****Operating
                    Activities:**Net
                    income
                $
                8,023
                
                $
                31,008
                
                $
                5,776Adjustments
                    to reconcile net income to net cash provided byoperating
                    activities - continuing operations:Net
                    loss from discontinued operations
                
                9,718
                
                
                1,990
                
                
                24,300Impairment
                    of goodwill
                
                14,592
                
                
                -
                
                
                -Write-off
                    of debt issuance costs
                
                1,691
                
                
                -
                
                
                -Depreciation
                    and amortization
                
                13,871
                
                
                13,062
                
                
                11,681Noncash
                    stock-based compensation
                
                2,756
                
                
                1,065
                
                
                4,845Amortization
                    of debt issuance costs
                
                412
                
                
                1,254
                
                
                1,323Adjustments
                    to provision for losses on accounts receivable
                
                (23
                )
                
                334
                
                
                204Loss
                    on sale of equipment
                
                160
                
                
                55
                
                
                20Deferred
                    income taxes
                
                3,916
                
                
                9,311
                
                
                3,891Changes
                    in operating assets and liabilities,net
                    of businesses acquired or discontinued/sold:Accounts
                    receivable
                
                (5,262
                )
                
                (24,919
                )
                
                (9,123
                )Inventories
                
                (5,013
                )
                
                12,635
                
                
                (2,697
                )Prepaid
                    and other assets
                
                (244
                )
                
                2,715
                
                
                (500
                )Accounts
                    payable and accrued expenses
                
                2,920
                
                
                5,489
                
                
                (5,693
                )Net
                    cash provided by operating activities - continuing
                    operations
                
                47,517
                
                
                53,999
                
                
                34,027Net
                    cash provided by operating activities - discontinued
                    operations
                
                4,425
                
                
                257
                
                
                3,208**Investing
                    Activities:**Purchases
                    of property, plant and equipment
                
                (11,910
                )
                
                (17,292
                )
                
                (10,820
                )Purchases
                    of available-for-sale securities
                
                (3,981
                )
                
                (561
                )
                
                -Purchase
                    of assets of a business
                
                (1,746
                )
                
                -
                
                
                -Purchase
                    of intangible assets
                
                (950
                )
                
                -
                
                
                -Proceeds
                    from sales of available-for-sale securities
                
                2,511
                
                
                218
                
                
                -Proceeds
                    from redemption of note receivable from sale of business
                
                -
                
                
                8,365
                
                
                -Proceeds
                    from sale of property, plant and equipment
                
                57
                
                
                42
                
                
                3,882Net
                    cash used in investing activities - continuing operations
                
                (16,019
                )
                
                (9,228
                )
                
                (6,938
                )Net
                    cash provided by (used in) investing activities - discontinued
                    operations
                
                2,161
                
                
                155
                
                
                (1,694
                )**Financing
                    Activities:**Payments
                    on term debt
                
                (90,685
                )
                
                (19,188
                )
                
                (10,018
                )Borrowings
                    on revolving credit facility, net
                
                17,800
                
                
                -
                
                
                -Debt
                    issuance costs
                
                (786
                )
                
                118
                
                
                -Payments
                    on capital lease obligation
                
                -
                
                
                -
                
                
                (351
                )Proceeds
                    from exercise of stock options
                
                7,495
                
                
                4,270
                
                
                5,760Tax
                    benefit from stock-based award transactions
                
                1,329
                
                
                -
                
                
                -Repurchases
                    of common stock for treasury
                
                (11,050
                )
                
                (320
                )
                
                (61,338
                )Payments
                    on amounts due to sellers of acquired companies
                
                (29
                )
                
                (2,450
                )
                
                (4,067
                )Payments
                    of deferred compensation related to acquired company
                
                (136
                )
                
                (142
                )
                
                (148
                )Net
                    cash used in financing activities
                
                (76,062
                )
                
                (17,712
                )
                
                (70,162
                )Effect
                    of exchange rate changes on cash and cash equivalents
                
                341
                
                
                (84
                )
                
                16Increase
                    (decrease) in cash and cash equivalents
                
                (37,637
                )
                
                27,387
                
                
                (41,543
                )Cash
                    and cash equivalents at beginning of year
                
                45,472
                
                
                18,085
                
                
                59,628Cash
                    and cash equivalents at end of year
                $
                7,835
                
                $
                45,472
                
                $
                18,085Cash
                    paid during the year for:Interest
                $
                4,682
                
                $
                6,733
                
                $
                5,300Income
                    taxes, net
                
                809
                
                
                4,821
                
                
                1,828*See
                    accompanying notes.*


47
 ***Table
          of Contents***


**AFTERMARKET
      TECHNOLOGY CORP.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(In
      thousands, except share and per share data)**





**Note
      1.** **The
      Company**





The
      Company has two reportable segments: the Drivetrain segment and the Logistics
      segment. The Drivetrain segment primarily sells remanufactured transmissions
      to
      Honda, Ford, DaimlerChrysler, Allison and certain foreign Original Equipment
      Manufacturers (“OEMs”), primarily for use as replacement parts by their domestic
      dealers during the warranty and/or post-warranty periods following the sale
      of a
      vehicle. In addition, the Drivetrain segment sells select remanufactured engines
      primarily to certain European OEMs. The Company’s Logistics segment provides
      value-added warehousing and distribution, reverse logistics, turnkey order
      fulfillment, electronic equipment testing, and refurbishment and repair
      services. Our principal customers are currently in the wireless, consumer
      electronics and automotive industries and include AT&T Mobility (formerly
      Cingular Wireless), Nokia, General Motors, LG, Magellan, T-Mobile, Delphi,
      Visteon, TiVo and TomTom. Established in 1994, the Company maintains manufacturing facilities and
      logistics operations in the United States and a manufacturing facility in the
      United Kingdom.




During
      the first quarter of 2006, the Company discontinued its Independent Aftermarket
      businesses. These
      businesses were reported as “Other” in segment information previously disclosed. The
      results of these businesses are presented as part of discontinued operations
      in
      the accompanying financial statements. As a result of the discontinuance of
      the
      Independent Aftermarket businesses, for the years ended December 31, 2006,
      2005
      and 2004, (i) revenues of $8,030, $22,345 and $19,977 and (ii) after-tax losses
      of $9,734, $1,119 and $3,281, respectively, were reported as part of
      discontinued operations. (See Note 15 - Discontinued Operations.)







**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 accounting principles
      generally accepted in the United States 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 effective
      maturities of three months or less to be cash equivalents.




48
 ***Table
            of Contents***





*Inventories*





Inventories
      are stated at the lower of cost (first-in, first-out method) or market and
      consist primarily of (i) new and used transmission parts, cores and finished
      goods for the Drivetrain segment and (ii) component electronic equipment repair
      parts for the Logistics segment. Consideration is given to deterioration,
      obsolescence and other factors in evaluating the estimated market value of
      inventory based upon management’s judgment and available information which
      includes assumptions
      about market conditions, future demand and expected usage rates which may vary
      from those estimated .





*Property,
      Plant and Equipment*





Property,
      plant and equipment are stated at cost less accumulated depreciation. Depreciation
      is computed using straight-line methods over the estimated useful lives of
      the
      assets for financial reporting purposes, as follows: three to ten years for
      machinery and equipment, three to seven years for autos and trucks, four to
      seven years for furniture and fixtures, one to 13 years for leasehold
      improvements and up to 39 years for buildings. Depreciation expense was $13,602,
      $12,937 and $11,556 for the years ended December 31, 2006, 2005 and 2004,
      respectively.





*Internal
      Use Computer Software*





The
      Company accounts for these costs in accordance with the provisions of Statement
      of Position (“SOP”) 98-1, *Accounting
      for the Costs of Computer Software Developed or Obtained for Internal
      Use.* Accordingly, the Company expenses costs incurred in the preliminary stage and,
      thereafter, capitalizes costs incurred in developing or obtaining internal
      use
      software and Web site development. Such capitalized costs are included in
      property, plant and equipment as part of machinery and equipment and are
      amortized over a period of not more than five years.





*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 rates 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, which were reported in income, were not material
      for the periods presented.





*Debt
      Issuance Costs*





Debt
      issuance costs of $786 were incurred during 2006 in connection with the Credit
      Facility (see Note 9 - Credit Facility) and are being amortized on a
      straight-line basis over the life of the Credit Facility. As of December 31,
      2006 and 2005, debt issuance costs of $664
      and $1,981 are reflected net of accumulated amortization of $122 and $4,644,
      respectively. During 2006, the Company terminated its old credit facility and
      recorded a non-cash charge of $1,691 related to the write off of unamortized
      deferred debt issuance costs associated with the facility.




49
 ***Table
            of Contents***





*Goodwill
      and Other Intangible Assets*





In
      accordance with the provisions of Statement of Financial Accounting Standards
      (“SFAS”) No. 142, *Goodwill
      and Other Intangible Assets,* the
      Company tests its goodwill and indefinite lived intangible assets for impairment
      annually as of September 30 th of each
      year unless events or circumstances would require an immediate review. Goodwill
      is tested for impairment at a level of reporting referred to as a reporting
      unit, which generally is an operating segment or a component of an operating
      segment as defined in paragraph 10 of SFAS No. 131, *Disclosures
      about Segments of an Enterprise and Related Information* and
      paragraph 30 of SFAS No. 142. In accordance with paragraph 30 of SFAS No. 142,
      certain components of an operating segment with similar economic characteristics
      are aggregated and deemed a single reporting unit. In estimating the fair value
      of its reporting units, the Company utilizes a valuation technique based on
      multiples of projected cash flow, giving consideration to unusual items, cost
      reduction initiatives, new business initiatives and other factors that generally
      would be considered in determining value. Impairments are recorded (i) if the
      fair value is less than the carrying value or (ii) when an individual reporting
      unit is disposed of. Goodwill amounts are generally allocated to the reporting
      units based upon the amounts allocated at the time of their respective
      acquisition, adjusted for significant transfers of business between reporting
      units.





Because
      key new business opportunities considered in the prior year goodwill assessment
      in both the Drivetrain segment’s United Kingdom-based operation and the
      Logistics segment’s automotive materials reclamation operation did not
      materialize, and other near-term growth opportunities were considered limited,
      the Company concluded that the fair value of these reporting units no longer
      supported the assigned goodwill. Accordingly, based upon on the Company’s annual
      goodwill impairment tests made as of September 30, 2006, the Company recorded
      goodwill impairment charges of $11,722 and $2,870 in its Drivetrain and
      Logistics segments, respectively. The fair value of the reporting units were
      estimated by applying a range of multiples to adjusted EBITDA.





Per
      the
      provisions of SFAS No. 142, the Company’s definite lived intangible assets,
      consisting of non-compete agreements and a licensing agreement, are amortized
      over their estimated useful lives. (See Note 6 - Goodwill and Intangible
      Assets.)





*Impairment
      of Long-Lived and Intangible Assets*





Long-lived
      assets and identifiable intangibles are reviewed for impairment whenever 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. For a
      discussion of impairments to property, plant and equipment recorded by the
      Company, see Note 15 − Discontinued Operations and Note 18 − Exit, Disposal,
      Certain Severance and Other Charges.





*Asset
      Retirement Obligations*





The
      Company follows FASB Interpretation No. 47 (“FIN 47”), *Accounting
      for Conditional Asset Retirement Obligations - An Interpretation of FASB
      Statement No. 143* ,
      which
      requires entities to record a liability equal to the fair value of the estimated
      future cost to retire an asset, if the liability’s fair value can be reasonably
      estimated. The Company’s asset retirement obligation (“ARO”) liabilities are
      associated with estimated costs to restore certain leased facilities to a
      condition specified in the lease agreement. The Company estimates the fair
      value
      of these liabilities based on the current condition of the property. In future
      periods, we may make adjustments to the ARO liability as a result of the
      availability of new information, changes in labor costs and other factors.
      The
      estimate of the ARO liability is based on a number of assumptions requiring
      professional judgment, and we cannot predict what revisions to these assumptions
      will be required in future periods. In connection with property leases, we
      record the ARO as a liability and also record a related asset in an amount
      equal
      to the estimated fair value of the liability. The capitalized asset is then
      depreciated on a straight-line basis over the estimated useful life of the
      asset. Upon retirement of





50
 ***Table
            of Contents***


the
      asset, any difference between the actual retirement costs incurred and the
      previously recorded estimated ARO liability is recognized as a gain or loss
      in
      the Consolidated Statements of Income. As of December 31, 2006 and 2005, the
      fair value of ARO liabilities was $387 and $50, respectively.





*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 including
      AT&T, Honda, Ford, General Motors, Nokia and DaimlerChrysler, which are
      located throughout the United States and, to a lesser extent, the United
      Kingdom. The estimated fair value of these financial instruments approximate
      their carrying values as of their respective balance sheet dates. The
      Company performs ongoing credit evaluation of its customers and maintains
      sufficient allowances for potential credit losses. The Company evaluates the
      collectibility of its accounts receivable based on the length of time the
      receivable is past due and the anticipated future write-off based on historic
      experience. Accounts receivable balances are written off against allowance
      for
      doubtful accounts after a final determination of uncollectibility has been
      made. The
      credit risk associated with the Company's accounts receivable is mitigated
      by
      its credit evaluation process, although collateral is not required. The Company
      grants credit to certain customers who meet pre-established credit requirements.





Accounts
      receivable is recorded at the time of revenue recognition and is
      reflected net of an allowance for doubtful accounts of $871 and $963 at
      December 31, 2006 and 2005, respectively.





*Revenue
      Recognition*





The
      Company recognizes revenues when all of the following conditions are satisfied:
      (i) persuasive evidence of an arrangement exists; (ii) the price is fixed or
      determinable; (iii) collectibility is reasonably assured; and (iv) delivery
      has
      occurred or when services have been rendered. In
      addition, the Company separately classifies its shipping and handling costs
      reimbursed by its customers as revenue and cost of sales in its Consolidated
      Statements of Income.





*Warranty
      Cost Recognition*





The
      Company accrues for estimated warranty costs as revenue is recognized.





*Costs
      Associated with Exit or Disposal Activities*





In
      accordance with the provisions of SFAS No. 146, *Accounting
      for Costs Associated with Exit or Disposal Activities,* the
      Company recognizes a liability for costs associated with exit or disposal
      activities in the period in which the liability is incurred. The Company
      classifies the costs associated with exit or disposal activities as a part
      of
      Exit, Disposal, Certain Severance and Other Charges on its Consolidated
      Statements of Income. (See Note 18 - Exit,
      Disposal, Certain Severance and Other Charges.)





*New
      Product Research and Development Expenses*





The
      cost
      related to research, design and development of new products charged to expense
      was $5,566, $1,238 and $- for the years ended December 31, 2006, 2005
      and 2004, respectively.




51
 ***Table
            of Contents***





*Stock-
      Based Compensation*





Effective
      January 1, 2006, the Company adopted the fair value recognition provisions
      of
      SFAS No. 123R, *Share-Based
      Payment* (“SFAS
      No. 123R”), using the modified prospective transition method. Under the modified
      prospective method, (i) compensation expense for share-based awards granted
      prior to January 1, 2006 are recognized over the remaining service period using
      the compensation cost calculated for pro forma disclosure purposes under SFAS
      No. 123, *Accounting for Stock-Based Compensation,* and (ii)
      compensation expense for all share-based awards granted subsequent to December
      31, 2005 are based on the grant date fair value estimated in accordance with
      the
      provisions of SFAS No. 123R. Results for periods prior to January 1, 2006 have
      not been restated. Prior to January 1, 2006, the Company applied the intrinsic
      value method of accounting for the stock options granted to its employees and
      directors under the provisions of Accounting Principles Board (“APB”) Opinion
      No. 25, *Accounting
      for Stock Issued to Employees* ,
      and
      related interpretations, as permitted by SFAS No. 123. Accordingly, employee
      and
      director compensation expense was recognized only for those options whose
      exercise price was less than the market value of the Company’s common stock at
      the measurement date.





During
      November 2005, the Financial Accounting Standards Board (“FASB”) issued FASB
      Staff Position No. FAS 123R-3, *Transition
      Election Related to Accounting for the Tax Effects of Share-Based Payment
      Awards* (“FAS
      123R-3”). During the fourth quarter of 2006, the Company elected to adopt the
      alternative method provided in FAS 123R-3 for calculating the tax effects of
      stock-based compensation pursuant to SFAS No. 123R. The alternative transition
      (i) provides a simplified method to establish the beginning balance of the
      additional paid-in capital pool (“APIC Pool”) available to absorb tax
      deficiencies recognized subsequent to the adoption of SFAS No. 123R related
      to
      the tax effects of stock-based compensation, and (ii) determines the subsequent
      impact on the Consolidated Statements of Cash Flows of the tax effects of
      stock-based compensation awards that were partially vested upon adoption of
      SFAS
      No. 123R.





SFAS
      No.
      123R prohibits recognition of a deferred tax asset for an excess tax benefit
      that has not been realized. The Company recognizes a benefit from stock-based
      compensation in equity if an incremental tax benefit is realized by following
      the ordering provisions of the tax law.





As
      a
      result of adopting SFAS No. 123R on January 1, 2006, the Company’s income from
      continuing operations for the three and twelve months ended December 31, 2006
      was lowered by $229 (net of income taxes of $131) and $787 (net of income taxes
      of $460), respectively. The Company classified the pre-tax stock options
      compensation cost of $1,247 for 2006, as part of selling, general and
      administrative expense in its Consolidated Statements of Income. The impact
      on
      both basic and diluted earnings per share for the year ended December 31, 2006
      was $0.04 per share. In addition, prior to the adoption of SFAS No. 123R, the
      Company presented the tax benefit of stock option exercises as operating cash
      flows in the Consolidated Statements of Cash Flows. Upon the adoption of SFAS
      No. 123R, tax benefits resulting from tax deductions in excess of the
      compensation cost recognized for those options are classified as financing
      cash
      inflows.




The
      fair
      value of stock options granted was estimated by using the Black-Scholes option
      pricing model assuming no expected dividends and the following weighted-average
      assumptions during the time periods indicated:


**For
                the years ended December 31,******
            **2006**
            ****
            **2005**
            ****
            **2004**Expected
                volatility
            38.11
            %
            
            39.39
            %
            
            65.71
            %Risk-free
                interest rates
            5.01
            %
            
            3.69
            %
            
            3.05
            %Expected
                term
            3.7
                years
            
            
            2.5
                years
            
            
            3.7
                years





*Expected
      volatility:* For all
      periods presented, the expected volatility assumption is based on the historical
      volatility of the Company’s stock over a term equal to the expected term of the
      option granted.





*Risk-free
      interest rates* :
      For all
      periods presented, the risk-free interest rate is based on the implied yield
      on
      a U.S Treasury constant maturity with a remaining term equal to the expected
      term of the option granted.





52
 ***Table
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*Expected
      term:* The
      Company’s expected term represents the period that the Company’s stock option
      awards are expected to be outstanding, and in 2006 the Company performed a
      review of past stock option exercise and forfeiture activity and identified
      two
      groups of optionees for purposes of applying the Black-Scholes option-pricing
      model. The expected term of stock option awards granted is derived from
      historical exercise and forfeiture experience for each of the two groups of
      optionees and represents the period of time that stock option awards are
      expected to be outstanding for each optionee group. The expected term assumption
      incorporates the contractual term of an option grant as well as the vesting
      period of an award.





*Forfeitures
      rate:* Compensation
      expense recognized in the consolidated statements of income for the year ended
      December 31, 2006 is based on awards ultimately expected to vest and it reflects
      estimated forfeitures. SFAS No. 123R requires forfeitures to be estimated at
      the
      time of grant and revised, if necessary, in subsequent periods if actual
      forfeitures differ from those estimates. Prior to adoption of SFAS No. 123R,
      the
      Company made estimates of forfeitures at the time of grant and adjusted the
      estimates as stock options were actually forfeited.





For
      stock-based awards granted by the Company with graded vesting provisions, the
      Company applies an accelerated attribution method and separately amortizes
      each
      vesting tranche over its particular vesting period.





The
      Company also awards shares of its common stock to certain directors and
      employees in the form of unvested stock (“Restricted Stock”). These awards are
      measured at the market value of
      the
      Company’s common stock on
      the
      date of issuance.





Pro
      Forma Information under SFAS No. 123





Had
      compensation cost for the Company’s stock-based award plans been determined in
      accordance with SFAS No. 123, ** and
      recognized as compensation expense on a ratable basis over the applicable
      vesting period, the Company’s reported income from continuing operations and
      earnings per share would have been adjusted to the pro forma amounts indicated
      below:





**For
                the years ended December 31,******
            ****
            ******2005**
            ****
            ******2004**Income
                from continuing operations as reported
            
            $
            32,998
            
            
            $
            30,076Stock-based
                employee compensation costs included in the determination of income
                from
                continuing operations as
              reported,
                net of income taxes
            
            
            670
            
            
            
            2,981Stock-based
                employee compensation costs that would have been included in the
                determination of income from
              continuing
                operations if the fair value based method had been applied to all
                awards,
                net of income taxes
            
            
            (3,392
            )
            
            
            (4,459
            )Pro
                forma income from continuing operations as if the fair value based
                method
                had been applied to all awards
            
            $
            30,276
            
            
            $
            28,598Basic
                earnings per common share:Income
                from continuing operations as reported
            
            $
            1.55
            
            
            $
            1.43Pro
                forma as if the fair value based method had been applied to all
                awards
            
            $
            1.42
            
            
            $
            1.36Diluted
                earnings per common share:Income
                from continuing operations as reported
            
            $
            1.53
            
            
            $
            1.40Pro
                forma as if the fair value based method had been applied to all awards
            
            $
            1.40
            
            
            $
            1.34




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During
      June 2005, the Company granted 406,125 stock options to certain directors and
      employees at an exercise price equal to the market price of the Company’s common
      stock on the grant date. These options became fully exercisable after a six
      month vesting period. For the year ended December 31, 2005, the Company
      recognized pro forma compensation expense related to this grant of $1,128,
      net
      of tax. Also during June 2005, the Company accelerated the vesting of 74,672
      stock options whose exercise prices were above the Company’s closing stock price
      on the date the vesting of the options was accelerated. As a result, included
      in
      pro forma compensation expense for the twelve months ended December 31, 2005
      is
      a charge of $376, net of tax, resulting from the accelerated vesting of such
      options. The accelerated vesting of these stock options was intended to
      eliminate a possible compensation expense associated with these options in
      future periods due to the adoption of SFAS No. 123R *.*





During
      2004, in accordance with APB No. 25 and related interpretations, the Company
      recorded compensation expense of $3,323 ($2,044 net of income taxes) from the
      effective modification of stock options held by the Company’s former Chief
      Executive Officer and former Chief Financial Officer.





*New
      Accounting Standards*





In
      June
      2006, the FASB issued Interpretation No. 48 (“FIN 48 ”), *Accounting
      for Uncertainty in Income Taxes - An Interpretation of FASB Statement No.
      109* .
      FIN
      48 clarifies the accounting for uncertainty in income taxes recognized in an
      enterprise’s financial statements in accordance with SFAS No. 109, *Accounting
      for Income Taxes.* This
      Interpretation prescribes a recognition threshold and measurement attribute
      for
      the financial statement recognition and measurement of a tax position taken
      or
      expected to be taken in a tax return. This Interpretation also provides guidance
      on derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure, and transition. This new standard will require several
      new
      disclosures in annual financial statements, including (i) the income statement
      classification of income tax-related interest and penalties, and (ii) a
      reconciliation of the total amount of unrecognized tax benefits. FIN
      48 is
      effective for financial statements issued for fiscal years beginning after
      December 15, 2006. The Company is currently evaluating FIN 48 and does not
      anticipate that the initial adoption of this standard will have a material
      effect on its financial statements.





In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* . **** SFAS
      No.
      157 provides guidance for using fair value to measure assets and liabilities.
      In
      addition, this statement defines fair value, establishes a framework for
      measuring fair value, and expands disclosures about fair value measurements.
      Where applicable, this statement simplifies and codifies related guidance within
      generally accepted accounting principles. This statement is effective for
      financial statements issued for fiscal years beginning after November 15, 2007,
      and interim periods within those fiscal years. The Company’s adoption of SFAS
      No. 157 is not expected to have a material effect on its financial
      statements.





*Reclassifications*





Certain
      prior-year amounts have been reclassified to conform to the 200 6
      presentation.








**Note
      3.** **Related-Party
      Transactions**





During March
      2005, partnerships controlled by Aurora Capital Group (“Aurora Capital”), which
      partnerships were among the Company’s largest stockholders, sold all of their
      shares of the Company’s common stock as part of a public offering pursuant to a
      shelf registration statement previously filed by the Company. The Company
      received no proceeds from the sale of the shares. As a result of the sale,
      the
      management services agreement between the Company and Aurora Capital terminated
      and as such, the Company was no longer obligated to pay management fees to
      Aurora Capital. During 2005 and 2004 the Company paid management fees to Aurora
      Capital of $32 and $348, respectively. The Company also reimbursed Aurora
      Capital for out-of-pocket expenses incurred in connection with providing
      management services.




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**Note
      4.** **Inventories**





Inventories
      of continuing operations consist of the following:





**December 31,******
            ****
            ******2006**
            ****
            ******2005**Raw
                materials, including core inventories
            
            $
            49,984
            
            $
            42,743Work-in-process
            
            
            1,717
            
            
            1,538Finished
                goods
            
            
            5,203
            
            
            5,777$
            56,904
            
            $
            50,058








**Note
      5.** **Property,
      Plant and Equipment**





Property,
      plant and equipment of
      continuing operations are
      summarized as follows:





**December 31,******
            ****2006****
            ****
            ****2005****Land
            $
            2,520
            
            
            $
            2,433Buildings
            
            12,888
            
            
            
            12,684Machinery
                and equipment
            
            100,438
            
            
            
            89,672Autos
                and trucks
            
            2,063
            
            
            
            2,103Furniture
                and fixtures
            
            2,664
            
            
            
            2,549Leasehold
                improvements
            
            15,076
            
            
            
            14,192Construction
                in process
            
            844
            
            
            
            1,064136,493
            
            
            
            124,697Less:
                Accumulated depreciation and amortization
            
            (83,485
            )
            
            
            (70,544
            )$
            53,008
            
            
            $
            54,153





Note
      6.Goodwill and Intangible
      Assets




Goodwill





The
      change in the carrying amount of goodwill of continuing operations by reportable
      segment and a reconciliation to the consolidated financial statements is
      summarized as follows:





**Drivetrain**
            ****
            ****
              **Logistics**
            ****
            ****
              **Other**
            ****
            ****
              **Consolidated**Balance
                at December 31, 2004
            $
            128,096
            
            
            $
            18,973
            
            
            $
            135
            
            $
            147,204Effect
                of exchange rate changes from the translation of U.K.
                subsidiary
            
            (1,028
            )
            
            
            −
            
            
            
            −
            
            
            (1,028
            )Balance
                at December 31, 2005
            
            127,068
            
            
            
            18,973
            
            
            
            135
            
            
            146,176Impairment
            
            (11,722
            )
            
            
            (2,870
            )
            
            
            −
            
            
            (14,592
            )Effect
                of exchange rate changes from the translation of U.K.
                subsidiary
            
            791
            
            
            
            −
            
            
            
            −
            
            
            791Balance
                at December 31, 2006
            $
            116,137
            
            
            $
            16,103
            
            
            $
            135
            
            $
            132,375




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Intangible
      Assets





The
      Company’s intangible assets of continuing operations, consisting of non-compete
      agreements and a licensing agreement, are being amortized over their estimated
      useful lives and are summarized as follows:





**December
                31,****2006**
            ****
            **2005**Intangible
                assets
            $
            2,575
            
            
            $
            1,261Less:
                Accumulated amortization
            
            (1,248
            )
            
            
            (969
            )$
            1,327
            
            
            $
            292





During
      June 2006, the Company purchased assets valued at $1,746 from one of its
      suppliers, acquiring a business which the Company had previously outsourced
      to
      this supplier. As part of the asset purchase agreement, the Company received
      from the supplier a three year non-compete agreement valued at $348.





In
      August
      2006, the Company paid a $950 license fee to Fallbrook Technologies Inc to
      license the right to develop, manufacture and sell Fallbrook’s *NuVinci* TM
      continuously variable planetary (“CVP”) technology in specified fields of use.
      The provisions of the license agreement provide for an initial term expiring
      in
      2011 with rights to renew the license with respect to certain products at the
      discretion of the Company for three additional renewal terms of five years
      each,
      by paying additional license fees. The Company is amortizing the license fee
      over the initial five year term.





Estimated
      amortization expense for the five succeeding fiscal years is as
      follows:





**Estimated
                Amortization Expense**2007
            $
            4322008
            
            3282009
            
            2452010
            
            1912011
            
            112






Note
      7.**Accrued
      Expenses**




Accrued
      expenses of continuing operations are summarized as follows:





**December 31,******
            **2006**
            ****
            **2005**Payroll,
                employee benefits and related costs
            $
            11,648
            
            $
            13,913Customer
                related allowances, discounts and other credits
            
            714
            
            
            863Warranty
            
            1,985
            
            
            2,499Exit,
                disposal, certain severance and other charges
            
            423
            
            
            343Interest
                payable
            
            37
            
            
            840Other
            
            4,295
            
            
            4,672$
            19,102
            
            $
            23,130




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**Note
      8.**Warranty
      Liability****




The
      Company offers various product warranties for transmissions and engines sold
      to
      its customers in the Drivetrain segment. The specific terms and conditions
      of
      the warranties vary depending upon the customer and the product sold. Factors
      that affect the Company’s warranty liability include number of products sold,
      historical and anticipated rates of warranty claims and cost per claim. The
      Company accrues for estimated warranty costs as sales are made and periodically
      assesses the adequacy of its recorded warranty liability, included in accrued
      expenses, and adjusts the amount as necessary.





Changes
      to the Company’s warranty liability of continuing operations during the years
      ended December 31, 2004, 2005 and 2006 are summarized as follows:





Balance
                at December 31, 2003
            $
            3,195Warranties
                issued
            
            3,449Claims
                paid / settlements
            
            (3,742
            )Changes
                in liability for pre-existing warranties
            
            (136
            )Balance
                at December 31, 2004
            
            2,766Warranties
                issued
            
            1,334Claims
                paid / settlements
            
            (1,471
            )Changes
                in liability for pre-existing warranties
            
            (130
            )Balance
                at December 31, 2005
            
            2,499Warranties
                issued
            
            1,292Claims
                paid / settlements
            
            (1,297
            )Changes
                in liability for pre-existing warranties
            
            (509
            )Balance
                at December 31, 2006
            $
            1,985








**Note
      9.** **Credit
      Facility**





On
      March
      21, 2006, the Company entered into a new credit agreement and related security
      agreement with certain banks (the “Credit Facility”). The Credit Facility
      provides the Company with a $150,000 five-year senior secured revolving credit
      facility. The Credit Facility can be increased by up to $75,000 under certain
      circumstances and subject to certain conditions (including the receipt from
      one
      or more lenders of the additional commitment).





Amounts
      outstanding under the Credit Facility generally bear interest at LIBOR plus
      a
      specified margin or the prime rate plus a specified margin, depending on the
      type of borrowing being made. The applicable margin is based on the Company’s
      ratio of debt to EBITDA from time to time.  Currently, the Company’s LIBOR
      margin is 1.0% and its prime rate margin is zero. Additionally, the Company
      is
      required to pay quarterly in arrears a commitment fee based on the average
      daily
      unused portion of the Credit Facility during such quarter, currently at a rate
      0.20% per annum. The Company must also pay fees on outstanding letters of credit
      at a rate per annum equal to the applicable LIBOR margin then in
      effect.





Amounts
      advanced under the Credit Facility are guaranteed by all of the Company’s
      domestic subsidiaries and secured by substantially all of the Company’s assets
      and its domestic subsidiaries' assets. The Credit Facility contains several
      covenants, including ones that require the Company to maintain specified levels
      of net worth, leverage and interest coverage and others that may limit its
      ability to create liens, make investments, incur indebtedness, make fundamental
      changes, make asset dispositions, make restricted payments (including dividends)
      and engage in transactions with the Company’s affiliates and affiliates of its
      subsidiaries. The Company was in compliance with all debt covenants at
      December 31,
      2006 .





Amounts
      outstanding under the Credit Facility are generally due and payable on the
      March 31, 2011 expiration date of the credit agreement. The Company can
      elect to prepay some or all of the outstanding balance from time to time without
      penalty or capacity reduction.





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As
      of
      December 31,
      2006 ,
      $17,800
      was outstanding under the Credit Facility and the Company had $1,615 of letters
      of credit issued against the Credit Facility, resulting in a borrowing capacity
      of $130,585.





On
      March
      21, 2006, the Company used $57,000 of borrowings under the Credit Facility
      plus
      available cash on hand to repay the $85,985 balance under its 2002 credit
      facility and terminated the related credit and security agreements.





The
      following table summarizes the balances outstanding under its credit
      facilities:





**December
                31,****2006**
            ****
            **2005**A-Loan
            $
            −
            
            $
            10,273B-Loans
            
            −
            
            
            80,412Revolver
            
            17,800
            
            
            −17,800
            
            
            90,685Less
                current portion of credit facility
            
            −
            
            
            (10,062
            )Total
                long-term portion of credit facility
            $
            17,800
            
            $
            80,623





As
      of
      December 31, 2006 and 2005, the carrying amount of the Company’s current and
      long-term debt, approximates its fair value.




**Note
        10.**Income
        Taxes****




Income
      tax expense (benefit) from continuing operations consists of the
      following:





**For
                the years endedDecember
                31,******
            **2006**
            ****
            **2005**
            ****
            **2004**Current:Federal
            $
            8,012
            
            
            $
            7,178
            
            
            $
            5,541State
            
            679
            
            
            
            435
            
            
            
            (57
            )Foreign
            
            241
            
            
            
            206
            
            
            
            519Total
                current
            
            8,932
            
            
            
            7,819
            
            
            
            6,003Deferred:Federal
            
            4,870
            
            
            
            8,537
            
            
            
            9,005State
            
            (409
            )
            
            
            142
            
            
            
            1,529Foreign
            
            (2,887
            )
            
            
            (154
            )
            
            
            161Total
                deferred
            
            1,574
            
            
            
            8,525
            
            
            
            10,695$
            10,506
            
            
            $
            16,344
            
            
            $
            16,698





Income
      from continuing operations before income taxes is summarized as
      follows:





**For
                the years endedDecember
                31,******
            ****
            ******2006**
            ****
            ******2005**
            ****
            ******2004**Domestic
            
            $
            37,399
            
            
            $
            49,338
            
            $
            44,655Foreign
            
            
            (9,152
            )
            
            
            4
            
            
            2,119Total
            
            $
            28,247
            
            
            $
            49,342
            
            $
            46,774




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The
      reconciliation of income tax expense computed at the U.S. federal statutory
      tax
      rates to income tax expense from continuing operations is as
      follows:




**For
                the years ended December 31,******
            **2006**
            ****
            **2005**
            ****
            **2004********Amount**
            ****
            ******Percent**
            ****
            ******Amount**
            ****
            ******Percent**
            ****
            ******Amount**
            ****
            ******Percent**Tax
                at U.S. statutory rates
            $
            9,886
            
            
            
            35.0
            %
            
            $
            17,270
            
            
            
            35.0
            %
            
            $
            16,371
            
            
            
            35.0
            %State
                income taxes, net of federal tax benefit
            
            442
            
            
            
            1.6
            
            
            
            578
            
            
            
            1.2
            
            
            
            1,079
            
            
            
            2.3Foreign
                income taxes
            
            458
            
            
            
            1.6
            
            
            
            −
            
            
            
            −
            
            
            
            (106
            )
            
            
            (0.2
            )Increase
                (decrease) in valuation allowance
            
            54
            
            
            
            0.1
            
            
            
            -
            
            
            
            −
            
            
            
            (8
            )
            
            
            −Nondeductible
                expenses
            
            108
            
            
            
            0.4
            
            
            
            91
            
            
            
            0.2
            
            
            
            96
            
            
            
            0.2Federal
                and state credits
            
            (183
            )
            
            
            (0.6
            )
            
            
            (1,558
            )
            
            
            (3.2
            )
            
            
            −
            
            
            
            −Federal
                and state impact of IRS audit resolution
            
            −
            
            
            
            −
            
            
            
            −
            
            
            
            −
            
            
            
            (441
            )
            
            
            (1.0
            )Other
            
            (259
            )
            
            
            (0.9
            )
            
            
            (37
            )
            
            
            (0.1
            )
            
            
            (293
            )
            
            
            (0.6
            )$
            10,506
            
            
            
            37.2
            %
            
            $
            16,344
            
            
            
            33.1
            %
            
            $
            16,698
            
            
            
            35.7
            %





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. The Company evaluates its deferred
      tax
      assets and liabilities at each reporting period in order to properly reflect
      their tax effects at the currently e nacted
      tax rates. Based
      on
      the current expectations for the mix of income by state, the Company recorded
      an
      income tax benefit of $274 in 2006. Significant
      components of the Company's deferred tax assets and liabilities are as follows:





**December
                31,******
            **2006**
            ****
            **2005**Deferred
                tax assets:Inventory
                obsolescence reserve
            $
            1,677
            
            
            $
            2,358Product
                warranty accruals
            
            660
            
            
            
            1,114Exit,
                disposal, certain severance and other charges accruals
            
            299
            
            
            
            187Other
                nondeductible accruals
            
            3,541
            
            
            
            2,155Credit
                carryforwards
            
            3,547
            
            
            
            2,431Net
                operating loss carryforwards
            
            13,754
            
            
            
            18,871Goodwill
                impairment
            
            4,868
            
            
            
            −Total
                deferred tax assets
            
            28,346
            
            
            
            27,116Deferred
                tax liabilities:Amortization
                of intangible assets
            
            28,703
            
            
            
            23,926Property,
                plant and equipment
            
            3,000
            
            
            
            3,103Other
                deferred items
            
            336
            
            
            
            289Total
                deferred tax liabilities
            
            32,039
            
            
            
            27,318Valuation
                allowance
            
            (12,243
            )
            
            
            (11,759
            )Net
                deferred tax (liability) asset
            $
            (15,936
            )
            
            $
            (11,961
            )





As
      of
      December 31, 2006, the Company had federal operating loss carryforwards of
      approximately $4,789 ($1,219 expiring in 2020 with the remainder expiring in
      2024) and state loss carryforwards of approximately $3,874 (expiring in varying
      amounts from 2009 to 2025) attributable to states in which the Company’s primary
      operations are located. These loss carryforwards are available as an offset
      to
      the future taxable income of the Company and its subsidiaries. In addition,
      the
      Company has state loss carryforwards attributable to states in which the Company
      no longer conducts business that are subject to a full valuation allowance.
      During 2006 and 2005, the Company utilized income tax benefits associated with
      continuing operations of $4,854 and $4,738 from federal operating loss
      carryforwards, and $84 and $328 from state operating loss carryforwards,
      respectively. In 2004, the Company incurred a tax loss and did not utilize
      any
      operating loss carryforwards.





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The
      Company also has Alternative Minimum Tax (“AMT”) credit carryforwards of
      approximately $815 available to offset regular income tax payable in future
      years. During 2006, the Company completed a study of research and development
      credits and recorded a tax benefit of $183 available to offset federal tax
      payable in future years. The Company, through its subsidiary in the U.K., has
      surplus Advance Corporate Tax (“ACT”) of approximately $437 available as a
      direct offset to future U.K. tax liability. The Company’s AMT credit and surplus
      ACT can be carried forward indefinitely. The Company did not utilize any tax
      benefits associated with its ACT carryforward in 2006, 2005 or
      2004.





A
      valuation allowance has been established for certain federal tax benefits due
      to
      limitations in the carryforward period. Also, a valuation allowance has been
      established for the tax benefits associated with certain state loss
      carryforwards as realization is not deemed likely due to limitations imposed
      by
      certain states on the Company’s ability to utilize these benefits. A valuation
      allowance has also been established for certain foreign tax benefits due to
      similar limitations imposed by the foreign tax jurisdiction. The Company
      believes that, consistent with accounting principles generally accepted in
      the
      United States, it is more likely than not that the tax benefits associated
      with
      the balance of loss carryforwards and other deferred tax assets will be realized
      through future taxable earnings or alternative tax strategies.





During
      2006, the Company’s income tax valuation allowance increased by $484 to $12,243
      from $11,759 due to (i) an additional valuation allowance of $431 placed on
      state net operating loss carryforwards due to a change in business structure
      that left losses in states in which the Company no longer conducts business,
      and
      (ii) an increase of $53 to reflect changes to the valuation of foreign
      carryforwards due to exchange rate fluctuation .





As
      of
      December 31, 2006, there were approximately $5,203 of accumulated unremitted
      earnings from the Company’s U.K. subsidiary with respect to which deferred tax
      has not been provided because the undistributed earnings of the U.K. subsidiary
      are indefinitely reinvested.




**Note
      11.**Stock-Based
      Awards****




The
      Company provides stock options and other incentive stock awards (“Stock Awards”)
      to employees, non-employee directors and independent contractors under its
      2006
      Stock Incentive Plan (the “2006 Plan”), its 2004 Stock Incentive Plan (the “2004
      Plan”), its 2002 Stock Incentive Plan (the “2002 Plan”), its 2000 Stock
      Incentive Plan (the “2000 Plan”), its 1998 Stock Incentive Plan (the “1998
      Plan”) and its 1996 Stock Incentive Plan, which expired on July 29, 2004, (the
“1996 Plan”) (collectively the “Plans”), all of which have been approved by the
      Company’s shareholders. The 1996, 1998, 2000 and 2002 plans provide for granting
      of non-qualified and incentive stock option awards while the 2004 and 2006
      plans
      provide for the granting of non-qualified stock option awards but not incentive
      options. Stock options under the Plans are generally granted with an exercise
      price equal to the market price of the Company’s common stock on the date of
      grant with vesting periods that have ranged from six months to five years,
      as
      determined by the Board of Directors or the Compensation and Nominating
      Committee of the Board of Directors. Options under the Plans expire 10 years
      from the date of grant. Upon exercise of stock options or granting of Restricted
      Stock, the Company issues new shares of its common stock. The 2006, 2004, 2002,
      2000 and 1998 plans authorize the issuance of 1,100,000, 1,000,000, 1,000,000,
      750,000 and 1,200,000 shares of the Company’s common stock, respectively. Shares
      available for grant under the Plans in the aggregate were 1,195,679, 346,559
      and
      746,248 as of December 31, 2006, 2005 and 2004, respectively.




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Stock
      Options





A
      summary
      of the Plans’ stock option activities during the year ended December 31, 2006 is
      presented below:


**Shares**
            ****
            ****
              **Weighted-**
              **Average**
              **Exercise**
              **Price**
            ****
            **Weighted-**
              **Average**
              **Remaining
                Contractual Term (in years)**
            
            ****
              **Aggregate**
              **Intrinsic
                Value**Outstanding
                at January 1, 2006
            1,798,139
            
            
            $
            18.43Granted
                at market price
            200,998
            
            
            $
            24.63Exercised
            (472,354
            )
            
            $
            15.86Forfeited
            (19,502
            )
            
            $
            15.93Expired
            (833
            )
            
            $
            19.70Outstanding
                at December 31, 2006
            1,506,448
            
            
            $
            20.10
            
            6.8
            
            $
            5,735Vested
                and expected to vest at December 31, 2006
            1,484,685
            
            
            $
            20.04
            
            6.7
            
            $
            5,723Exercisable
                at December 31, 2006
            1,131,780
            
            
            $
            20.19
            
            6.2
            
            $
            4,522





The
      aggregate intrinsic value in the table above represents the difference between
      the Company’s closing stock price on December 29, 2006 and the exercise price of
      each stock option, multiplied by the number of in-the-money stock options.
      This
      amount changes based upon the fair market value of the Company’s common stock.





The
      total
      intrinsic value of options exercised during the years ended December 31, 2006,
      2005 and 2004 was $3,778, $3,167 and $4,387. The weighted average fair value
      of
      stock options granted during the years ended December 31, 2006, 2005 and 2004
      is
      estimated at $8.67, $4.50 and $7.49, respectively.





The
      following summarizes information about options outstanding as of
      December 31, 2006:





**Options
                Outstanding**
            ****
            **Options
                Exercisable****Range
                of**
              **Exercise**
              **Prices**
            ****
            **Shares**
            ****
            **Weighted-**
              **Average**
              **Remaining**
              **Contractual**
              **Life**
            ****
            **Weighted-**
              **Average**
              **Exercise**
              **Prices**
            ****
            **Shares**
            ****
            **Weighted-**
              **Average**
              **Exercise**
              **Prices**$4.56
                - $7.00
            
            
            40,999
            
            
            4.3
                years
            
            $
            5.01
            
            
            40,999
            
            $
            5.01$7.01
                - $12.00
            
            
            95,832
            
            
            5.3
                years
            
            $
            10.05
            
            
            86,499
            
            $
            10.10$12.01
                - $15.00
            
            
            385,161
            
            
            7.1
                years
            
            $
            14.48
            
            
            221,824
            
            $
            14.42$15.01
                - $20.00
            
            
            290,458
            
            
            7.7
                years
            
            $
            16.56
            
            
            286,458
            
            $
            16.51$20.01
                - $30.00
            
            
            693,998
            
            
            6.5
                years
            
            $
            26.97
            
            
            496,000
            
            $
            27.911,506,448
            
            
            6.7
                years
            
            $
            20.10
            
            
            1,131,780
            
            $
            20.19




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Restricted
      Stock





The
      following summarizes the status of the Restricted Stock as of
      December 31, 2006 and
      changes during the year ended December 31,
      2006 :




**Number
                of**
              **Shares**
            ****
            ******Weighted
                Average Grant-Date Fair Value**Unvested
                balance at January 1, 2006
            144,121
            
            
            $
            15.38Granted
            97,429
            
            
            $
            24.51Vested
            (57,792
            )
            
            $
            15.16Forfeited
            (11,759
            )
            
            $
            16.42Unvested
                balance at December 31, 2006
            171,999
            
            
            $
            20.56





The
      Company estimates that as of December 31, 2006 it had $1,845 of total
      unrecognized compensation cost related to Restricted Stock granted under the
      Plans. That cost is expected to be recognized over the weighted-average period
      of 1.4 years. The total fair value of shares that vested during the years ended
      December 31, 2006, 2005 and 2004 was $1,375, $1,082 and $641,
      respectively **.** During
      the years ended December 31, 2006, 2005 and 2004, the Company recognized
      compensation expense of $1,509 ($953 net of income taxes), $1,065 ($670 net
      of
      income taxes) and $1,522 ($937 net of income taxes), respectively, related
      to
      Restricted Stock awards. The weighted average grant-date fair value of
      Restricted Stock granted during 2005 and 2004 was $15.85 and $14.41,
      respectively.




**Note
      12.**Repurchases
      of Common Stock****




On
      February 16, 2006, the Company announced its intention to commence a program
      for
      the repurchase of up to approximately 2% of its outstanding common stock during
      the balance of 2006. As part of this program, the Company purchased 501,497
      shares of its common stock at an aggregate cost of $10,684 during the year
      ended
      December 31, 2006. These repurchases were made by the Company to offset the
      dilutive impact of new shares issued for stock options exercised and for
      Restricted Stock granted under its stock incentive plans. As of December 31,
      2006, the Company had completed its purchases of shares under this
      program.




During
      the years ended December 31, 2006 and 2005, certain officers and employees
      of
      the Company delivered to the Company 15,453 and 19,670 shares of the Company’s
      common stock in payment of $366 and $320, respectively, of withholding tax
      obligations arising from the vesting of Restricted Stock awards. Per
      the
      stock incentive plan under which the stock awards were granted, (i) the
      withholding tax obligation was based upon the fair market value of the Company’s
      common stock on the vesting date and (ii) the shares returned to the Company
      in
      satisfaction of the withholding tax obligation were returned to their respective
      plan and are available for future grant.





In
      addition, 11,759 shares of the Company’s common stock were returned to treasury,
      at no cost, due to the forfeiture of Restricted Stock awards during 2006.




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**Note
        13.**Earnings
        Per Share****





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





**For
                the years endedDecember
                31,******
            ******2006**
            ****
            ******2005**
            ****
            ******2004****Numerator:**Income
                from continuing operations
            $
            17,741
            
            $
            32,998
            
            $
            30,076**Denominator:**Weighted-average
                common shares outstanding
            
            21,714,161
            
            
            21,351,829
            
            
            21,096,921Common
                stock equivalents
            
            213,131
            
            
            227,251
            
            
            314,341Denominator
                for diluted earnings per common share
            
            21,927,292
            
            
            21,579,080
            
            
            21,411,262Per
                common share-basic
            $
            0.82
            
            $
            1.55
            
            $
            1.43Per
                common share-diluted
            $
            0.81
            
            $
            1.53
            
            $
            1.40




**Note
        14.**Employee
        Retirement Plans****




The
      Company’s defined contribution plan provides 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. As
      determined by the provision of the plan, contributions are made on a before-tax
      basis and the Company matches a portion of the employees' basic voluntary
      contributions. Company matching contributions to defined contribution plans
      were
      approximately $1,156, $1,103 and $1,060 for the years ended December 31, 2006,
      2005, and 2004, respectively.





During
      2005, the Company adopted a nonqualified deferred compensation plan for certain
      employees and directors. Under the terms of this plan, funds are withheld from
      the participant’s pre-tax earnings, a portion of which are matched by the
      Company, and are placed into a trust in which
      the use of the trust assets by the Company is restricted to future distributions
      to plan participants. Distributions, as specified by the plan participants,
      are
      made upon the participants’ termination from the plan or over contractually
      defined pay dates ranging from less than one year to thirteen years from
      December 31, 2006. The assets of the trust primarily consist of mutual fund
      securities and are available to satisfy claims of the Company’s general
      creditors in the event of its bankruptcy. At December 31, 2006 and 2005, the
      trust’s assets were $1,966 and $347 and the corresponding compensation
      liability, included in the long term portion of deferred compensation, was
      $1,948 and $346, respectively.





The
      Company classifies these investments as available-for-sale securities, with
      unrealized holding gains and losses reported net of tax in accumulated other
      comprehensive income. The following is a summary of the trust’s
      assets:





**December
                31,******
            ******2006**
            ****
            ******2005**Cost
                basis of investments
            $
            1,945
            
            
            $
            350Gross
                unrealized holding gains
            
            30
            
            
            
            1Gross
                unrealized holding losses
            
            (9
            )
            
            
            (4
            )Aggregate
                fair value
            $
            1,966
            
            
            $
            347





In
      addition, the Company’s subsidiary located in the U.K. provides a voluntary
      retirement benefits plan for its employees. Company-matching contributions
      to
      this plan were approximately $466,
      $519 and $562 for the years ended December 31, 2006, 2005 and 2004,
      respectively.





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**Note
      15.**Discontinued
      Operations****




The
      Company’s Independent Aftermarket businesses remanufactured engines and
      distributed non-OEM branded remanufactured engines and transmissions directly
      to
      independent transmission and general repair shops and certain aftermarket parts
      retailers. These businesses had incurred operating losses since their beginning.
      On February 15, 2006, the Company made the decision to exit its Independent
      Aftermarket transmission and engine businesses. The transmission business ceased
      operations during the first quarter of 2006 and on July 17, 2006 the Company
      completed the sale of its Independent Aftermarket engine business to Proformance
      Technologies, LLC. As part of the sale, the Company received proceeds of $2,051.
      The Independent Aftermarket businesses were not reportable segments and were
      reported as “Other” in segment information previously disclosed.





During
      2006, the Company recorded a pre-tax charge of $13,261 related to the exit
      from
      these businesses including (i) $9,779 for the write-down of inventory to
      estimated net realizable value, (ii) $1,385 for the impairment of goodwill,
      (iii) $775 for the write-down of property, plant and equipment, (iv) $707 of
      severance costs, (v) $398 for the write-down of accounts receivable, and (vi)
      $217 of other costs primarily related to a settlement with a customer.





Net
      sales
      for the Independent Aftermarket businesses were $8,030, $22,345 and $19,977
      for
      the years ended December 31, 2006, 2005 and 2004, respectively. As of December
      31, 2006, the current assets of discontinued operations included a promissory
      note, accounts receivable and inventory of $459, $158 and $149, respectively.
      As
      of December 31, 2005, the current assets of discontinued operations included
      accounts receivable and inventory of $3,414 and $15,093, respectively.





During
      2004, General Motors resourced its remanufactured transmission program from
      the
      Company’s facility located in Gastonia, North Carolina, and correspondingly, the
      Company closed this facility. Upon the closure of the facility in the fourth
      quarter of 2004, the operations of this operating unit within the Company’s
      Drivetrain segment were reclassified as discontinued operations. In connection
      with the Gastonia facility closure, the Company recorded a pre-tax charge of
      $28,773 during 2004. During 2005 and 2006, the Company recorded additional
      charges of $727 (net of income taxes of $416) and $44 (net of income taxes
      of
      $24), respectively, related to the closure of this operating unit.





In
      October 2000, the Company sold the Distribution Group (a distributor of
      remanufactured transmissions and related drivetrain components to independent
      aftermarket customers now known as Axiom Automotive Technologies), classified
      the results of this business as part of discontinued operations and recorded
      a
      pre-tax loss of $141,429 from the sale of this business. During 2004, the
      Company recorded a loss of $794 related to the Distribution Group including
      (i)
      a charge of $2,218 for a valuation allowance related to the expected expiration
      of a capital loss carryforward, (ii) a non-cash tax benefit of $1,368 based
      upon
      the resolution of prior year income tax issues with respect to the tax basis
      of
      the Distribution Group, and (iii) income of $56 (net of income taxes of $37)
      based upon updated information regarding obligations and other costs related
      to
      the sale of the Distribution Group. During 2005, the Company recorded a charge
      of $144 for an adjustment to the valuation allowance related to the expected
      expiration of a capital loss carryforward, and during 2006 the Company recorded
      income of $60 (net of income taxes of $30) based upon updated information
      regarding obligations for certain costs related to the sale of this business.




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Details
      of the loss recorded from discontinued operations are as follows:





**For
                the years ended December 31,******
            ****
            **2006**
            ****
            **2005**
            ****
            **2004****Exit
                from Independent Aftermarket:**Loss
                from closure and sale of businesses
            
            $
            (13,261
            )
            
            $
            −
            
            
            $
            −Operating
                loss
            
            
            (1,576
            )
            
            
            (1,795
            )
            
            
            (5,029
            )Non-operating
                income
            
            
            143
            
            
            
            43
            
            
            
            5Loss
                before income taxes
            
            
            (14,694
            )
            
            
            (1,752
            )
            
            
            (5,024
            )Income
                tax benefit
            
            
            4,960
            
            
            
            633
            
            
            
            1,743Loss
                from Independent Aftermarket, net of income taxes
            
            
            (9,734
            )
            
            
            (1,119
            )
            
            
            (3,281
            )**Disposal
                of Gastonia Operations:**Sales
            
            $
            −
            
            
            $
            −
            
            
            $
            19,992Impairment
                of goodwill
            
            
            −
            
            
            
            −
            
            
            
            (22,114
            )Exit,
                disposal, certain severance and other charges
            
            
            −
            
            
            
            (1,012
            )
            
            
            (6,906
            )Other
                costs and expenses
            
            
            (68
            )
            
            
            (131
            )
            
            
            (21,788
            )Loss
                before income taxes
            
            
            (68
            )
            
            
            (1,143
            )
            
            
            (30,816
            )Income
                tax benefit
            
            
            24
            
            
            
            416
            
            
            
            10,591Loss
                from Gastonia operation, net of income taxes
            
            
            (44
            )
            
            
            (727
            )
            
            
            (20,225
            )**Sale
                of Distribution Group:**Income
                before income taxes
            
            
            90
            
            
            
            −
            
            
            
            93Income
                tax expense
            
            
            (30
            )
            
            
            −
            
            
            
            (37
            )Adjustment
                to valuation allowance on capital losses
            
            
            −
            
            
            
            (144
            )
            
            
            (2,218
            )Adjustment
                to income tax benefit
            
            
            −
            
            
            
            −
            
            
            
            1,368Gain
                (loss) from Distribution Group, net of income taxes
            
            
            60
            
            
            
            (144
            )
            
            
            (794
            )Loss
                from discontinued operations, net of income taxes
            
            $
            (9,718
            )
            
            $
            (1,990
            )
            
            $
            (24,300
            )





Details
      of assets and liabilities of discontinued operations are as follows:


**December 31,******
            **2006**
            ****
            **2005*****Assets:***Exit
                from Independent Aftermarket:Accounts
                receivable
            $
            158
            
            $
            3,414Promissory
                note receivable
            
            459
            
            
            −Inventory
            
            149
            
            
            15,093Other
                current assets
            
            −
            
            
            55Total
                current assets of discontinued operations
            
            766
            
            
            18,562Property,
                plant and equipment
            
            −
            
            
            862Goodwill
            
            −
            
            
            1,385Total
                long term assets of discontinued operations
            
            −
            
            
            2,247Total
                assets of discontinued operations
            $
            766
            
            $
            20,809***Liabilities:***Exit
                from Independent Aftermarket:Accounts
                payable
            $
            −
            
            $
            1,557Accrued
                expenses
            
            847
            
            
            2,969Disposal
                of Gastonia Operations:Current
                liabilities
            
            148
            
            
            105Sale
                of Distribution Group:Obligations
                from the sale of the distribution group
            
            20
            
            
            126Total
                liabilities of discontinued operations
            $
            1,015
            
            $
            4,757




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**Note
        16.**Commitments
        and Contingencies****





The
      Company leases certain facilities and equipment under various operating lease
      agreements, which expire on various dates through 2019. 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:





**For
                the years ended December 31,**
            **Operating**
              **Leases**2007
            $
            7,8302008
            
            5,7452009
            
            3,4962010
            
            1,5662011
            
            7702012
                and thereafter
            
            4,177Total
                minimum lease payments
            $
            23,584





Rent
      expense for all operating leases approximated $8,805, $8,522 and $8,726 for
      the
      years ended December 31, 2006, 2005 and 2004, respectively.





From
      time
      to time, the Company has been, and currently is, involved in various legal
      claims arising in connection with its business. While the results of these
      claims cannot be predicted with certainty, as of December 31, 2006, there were
      no asserted claims against the Company that, in the opinion of management,
      if
      adversely decided, would have a material effect on the Company’s financial
      position, results of operations or cash flows.





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 damages resulting from, past spills, disposals or other releases of
      hazardous substances.





In
      connection with the acquisition of certain subsidiaries, some of which have
      been
      subsequently divested or relocated, 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 various distribution
      facilities, found that a number of these 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 reporting and other
      regulatory requirements, including 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 or since 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.





In
      connection with the sale of the Distribution Group, a former segment of the
      Company’s business discontinued and sold during 2000 (the "DG Sale") and now
      known as Axiom Automotive Technologies, the Company agreed to certain matters
      with the buyer that could result in contingent liability to the Company in
      the
      future. These include the Company's indemnification of the buyer against
      (i) environmental liability at former Distribution Group facilities that
      had been closed prior to the DG Sale, including
      former manufacturing facilities in Azusa, California, Mexicali, Mexico and
      Dayton, Ohio, (ii) any other environmental liability of the Distribution
      Group relating to periods prior to the DG Sale, in most cases subject to a
      $750
      deductible and a $12,000 cap except with respect to closed facilities, and
      (iii) any tax liability of the Distribution Group relating to periods prior
      to the




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DG
      Sale.
      During 2002, the Company negotiated an additional $100 deductible applicable
      to
      all Distribution Group claims for indemnification. In addition, prior to the
      DG
      Sale several of the Distribution Group's real estate and equipment leases with
      terms ending on various dates through 2007, were guaranteed by the Company.
      These guarantees, which originated prior to the time of the DG Sale, remain
      in
      effect after the DG Sale so the Company continues to be liable for the
      Distribution Group's obligations under such leases in the event that the
      Distribution Group does not honor those obligations. As of December 31, 2006,
      minimum lease obligations related to these leases totaled $226 for which the
      Company has no liability recognition requirement. The Distribution Group has
      indemnified the Company against any damages relating to the Company’s
      guarantees; however, the Company holds no assets as collateral for these
      obligations.






**Note
        17.**Segment
        Information****




Within
      the Company, financial performance is measured by lines of business. The Company
      aggregates certain of its operating units to form two reportable segments:
      the
      Drivetrain segment and the Logistics segment. The
      Drivetrain segment primarily sells remanufactured transmissions to Honda, Ford,
      DaimlerChrysler, Allison and certain foreign OEMs, primarily for use as
      replacement parts by their domestic dealers during the warranty and/or
      post-warranty periods following the sale of a vehicle. In addition, the
      Drivetrain segment sells select remanufactured engines primarily to certain
      European OEMs. The Company’s Logistics segment provides value-added warehousing
      and distribution, reverse logistics, turnkey order fulfillment, electronic
      equipment testing, and refurbishment and repair services. Our principal
      customers are currently in the wireless, consumer electronics and automotive
      industries and include AT&T, Nokia, General Motors, LG, Magellan, T-Mobile,
      Delphi, Visteon, TiVo and TomTom. The reportable segments are each managed
      and
      measured separately primarily due to the differing customers and distribution
      channels.





The
      Company evaluates performance based upon operating income. The reportable
      segments’ accounting policies are the same as those described in the summary of
      significant accounting policies (see Note 2 - Summary of Significant
      Accounting Policies). The Company fully allocates (i) corporate overhead
      generally based upon budgeted full year profit before tax, and (ii) internal
      information systems costs based upon usage estimates.




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Financial
      information relating to the Company’s reportable segments and a reconciliation
      to the consolidated financial statements are as follows as of and for the years
      ended December 31:





**Drivetrain**
            ****
            **Logistics**
            ****
            **Corporate**
            ****
            **Discontinued**
              **Assets**
            ****
            **Consolidated****2006:**Net
                sales from external customers
            $
            234,569
            
            
            $
            263,405
            
            $
            −
            
            
            $
            −
            
            $
            497,974Depreciation
                and amortization expense
            
            8,416
            
            
            
            5,455
            
            
            −
            
            
            
            −
            
            
            13,871Impairment
                of goodwill
            
            11,722
            
            
            
            2,870
            
            
            −
            
            
            
            −
            
            
            14,592Exit,
                disposal, certain severance and other charges
            
            1,479
            
            
            
            459
            
            
            −
            
            
            
            −
            
            
            1,938Operating
                income
            
            8,976
            
            
            
            24,392
            
            
            −
            
            
            
            −
            
            
            33,368Total
                assets
            
            236,430
            
            
            
            90,604
            
            
            17,877
            
            
            
            766
            
            
            345,677Goodwill
            
            116,137
            
            
            
            16,103
            
            
            135
            
            
            
            −
            
            
            132,375Expenditures
                of long-lived assets, net
            
            5,932
            
            
            
            5,871
            
            
            107
            
            
            
            −
            
            
            11,910**2005:**Net
                sales from external customers
            $
            266,398
            
            
            $
            153,220
            
            $
            −
            
            
            $
            −
            
            $
            419,618Depreciation
                and amortization expense
            
            8,040
            
            
            
            5,022
            
            
            −
            
            
            
            −
            
            
            13,062Exit,
                disposal, certain severance and other charges (credits)
            
            (20
            )
            
            
            543
            
            
            −
            
            
            
            −
            
            
            523Operating
                income
            
            36,418
            
            
            
            18,052
            
            
            −
            
            
            
            −
            
            
            54,470Total
                assets
            
            253,348
            
            
            
            75,033
            
            
            58,590
            
            
            
            20,809
            
            
            407,780Goodwill
            
            127,068
            
            
            
            18,973
            
            
            135
            
            
            
            −
            
            
            146,176Expenditures
                of long-lived assets, net
            
            5,758
            
            
            
            11,053
            
            
            481
            
            
            
            −
            
            
            17,292**2004:**Net
                sales from external customers
            $
            271,215
            
            
            $
            104,385
            
            $
            −
            
            
            $
            −
            
            $
            375,600Depreciation
                and amortization expense
            
            7,786
            
            
            
            3,895
            
            
            −
            
            
            
            −
            
            
            11,681Exit,
                disposal, certain severance and other charges (credits)
            
            (705
            )
            
            
            156
            
            
            4,315
            
            
            
            −
            
            
            3,766Operating
                income (loss)
            
            40,045
            
            
            
            15,492
            
            
            (4,315
            )
            
            
            −
            
            
            51,222Total
                assets
            
            270,243
            
            
            
            48,352
            
            
            47,823
            
            
            
            23,859
            
            
            390,277Goodwill
            
            128,096
            
            
            
            18,973
            
            
            135
            
            
            
            −
            
            
            147,204Expenditures
                of long-lived assets
            
            8,051
            
            
            
            2,253
            
            
            516
            
            
            
            −
            
            
            10,820




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Geographic
      information for revenues, determined by destination of sale and long-lived
      assets, determined by the location of the Company’s facilities is as
      follows:




**As
                of and for the******
            **Years
                ended December 31,******
            **2006**
            ****
            **2005**
            ****
            **2004****Net
                sales:**United
                States
            $
            471,513
            
            $
            388,849
            
            $
            342,418Europe
                and Canada
            
            26,461
            
            
            30,769
            
            
            33,182Consolidated
                net sales
            $
            497,974
            
            $
            419,618
            
            $
            375,600**Long-lived
                assets:**United
                States
            $
            185,319
            
            $
            186,254
            
            $
            182,254Europe
            
            3,528
            
            
            14,794
            
            
            17,188Assets
                of discontinued operations
            
            −
            
            
            2,247
            
            
            2,804Consolidated
                long-lived assets
            $
            188,847
            
            $
            203,295
            
            $
            202,246





During
      the year ended December 31, 200 6,
      net
      sales from each of three customers amounted to 10 percent or more of the
      Company’s net sales. For the years ended December 31, 2006, 2005 and 2004, sales
      to AT&T (Logistics segment) accounted for $208,008, $124,878 and $88,233,
      Ford (Drivetrain and Logistics segments) accounted for $76,659, $102,281 and
      $117,083, Honda (Drivetrain segment) accounted for $77,630, $81,049 and $76,671,
      and DaimlerChrysler (Drivetrain segment) accounted for $36,588, $64,609 and
      $58,220, respectively.





Note
      18.**Exit,
      Disposal, Certain Severance and Other
      Charges**




The
      Company has periodically
      incurred certain costs, primarily associated with restructuring and other
      initiatives that include consolidation of operations or facilities, management
      reorganization and cost-outs, rationalization of certain products, product
      lines
      and services and asset impairments. Examples of these costs include severance
      benefits for terminated employees, lease termination and other facility exit
      costs, moving and relocation costs, losses on impairments of fixed assets,
      and
      write-down of inventories.





General
      Activities Relating to Exit, Disposal, Certain Severance and Other
      Charges:





In
      2003,
      the Company recorded compensation costs payable to its former CEO of $1,953,
      related to his conversion from full-time to part-time employment. During 2006,
      the Company paid the remaining amounts related to this obligation.





In
      2004,
      the Company recorded a net charge of $3,779 consisting of (i) $3,323 of non-cash
      compensation expense related to modifications to unexercised stock options
      previously granted to the Company’s former CEO and former CFO, (ii) $530 of exit
      and other costs primarily related to the termination of an independent
      contractor agreement and costs related to the closure of two facilities, (iii)
      $525 of
      certain stock-based compensation costs related to the hiring of the
      Company’s current
      CEO ,
      (iv)
      $292 of s everance
      and related costs for 10 management and operational support personnel associated
      with the reorganization and upgrade of certain management
      functions and other cost reduction initiatives, and (v) $260 of
      relocation costs primarily related to the hiring of the
      Company’s current
      CFO ,
      partially offset by a gain of $1,151 related to the reversal of a previously
      established provision related to the Drivetrain segment for a potential
      non-income state tax liability that was reduced through the finalization of
      an
      audit by the state tax authorities .





In
      2005,
      in order to accommodate increased service volumes within its Logistics segment,
      the Company expanded its capacity by moving certain of its operations to a
      larger facility and recorded a charge of $543 consisting of (i) $282 related
      to
      the write-down of certain fixed assets, and (ii) $261 of exit and other costs
      related to the move. The Company completed this facilities transition during
      2005. In addition, the Company recorded a gain of $20 during 2005 primarily
      due
      to the adjustment of estimated exit costs.





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In
      2006,
      the Company incurred severance and related charges primarily related to cost
      reduction initiatives of (i) $844 for its Drivetrain segment manufacturing
      facilities in the United States, (ii) $209 for its Logistics segment, and (iii)
      $106 at its manufacturing facility in the United Kingdom.





Additionally,
      the Company recorded (i) third-party acquisition diligence and other costs
      of
      $496 related to potential acquisitions that the Company ultimately decided
      not
      to pursue, and (ii) $283 of costs for asset retirement obligations the Company
      is contractually obligated to perform in order to restore certain leased
      facilities to a condition specified in the lease agreement.





Following
      is an analysis of the reserves relating to these activities:





**Termination**
              **Benefits**
            ****
            ******Exit
                / Other**
              **Costs**
            ****
            ******Loss
                on**
              **Write-Down**
              **Of
                Assets**
            ****
            ******Total**Reserve
                as of December 31, 2003
            $
            3,690
            
            
            $
            1,584
            
            
            $
            −
            
            
            $
            5,274Provision
                2004
            
            3,615
            
            
            
            164
            
            
            
            −
            
            
            
            3,779Payments
                2004
            
            (2,166
            )
            
            
            (1,220
            )
            
            
            −
            
            
            
            (3,386
            )Non-cash
                stock-based compensation write-offs 2004
            
            (3,323
            )
            
            
            (525
            )
            
            
            −
            
            
            
            (3,848
            )Reserve
                as of December 31, 2004
            
            1,816
            
            
            
            3
            
            
            
            −
            
            
            
            1,819Provision
                2005
            
            (17
            )
            
            
            258
            
            
            
            282
            
            
            
            523Payments
                2005
            
            (1,539
            )
            
            
            (261
            )
            
            
            −
            
            
            
            (1,800
            )Asset
                write-offs 2005
            
            −
            
            
            
            −
            
            
            
            (282
            )
            
            
            (282
            )Reserve
                as of December 31, 2005
            
            260
            
            
            
            −
            
            
            
            −
            
            
            
            260Provision
                2006
            
            1,159
            
            
            
            779
            
            
            
            −
            
            
            
            1,938Payments
                2006
            
            (999
            )
            
            
            (496
            )
            
            
            −
            
            
            
            (1,495
            )Adjustment
                2006
            
            3
            
            
            
            104
            
            
            
            −
            
            
            
            107Reserve
                as of December 31, 2006
            $
            423
            
            
            $
            387
            
            
            $
            −
            
            
            $
            810





Facilities
      Consolidation Costs - Drivetrain Segment





On
      June
      23, 2003, the Company announced its decision to consolidate one of its transmission
      remanufacturing operations from a leased facility located in Mahwah, New Jersey
      into a Company-owned under utilized facility in Oklahoma City, Oklahoma. This
      decision was primarily driven by an expectation of lower operating costs
      (primarily labor and facility related). The relocation from the Mahwah facility
      to the Oklahoma City facility was completed during November 2003 and the Mahwah
      lease expired on December 31, 2003. Following is an analysis of the reserves
      related to this activity:





**Termination**
              **Benefits**
            ****
            ****
              **Exit
                / Other**
              **Costs**
            ****
            ****
              **Loss
                on**
              **Write-Down**
              **of
                Assets**
            ****
            ****
              **Total**Total
                amount expected to be incurred
            $
            1,186
            
            
            $
            2,065
            
            
            $
            817
            
            
            $
            4,068Total
                amount incurred to date
            $
            1,186
            
            
            $
            2,065
            
            
            $
            817
            
            
            $
            4,068Reserve
                as of December 31, 2003
            $
            571
            
            
            $
            399
            
            
            $
            200
            
            
            $
            1,170Provision
                2004
            
            (24
            )
            
            
            11
            
            
            
            −
            
            
            
            (13
            )Payments
                - 2004
            
            (547
            )
            
            
            (99
            )
            
            
            −
            
            
            
            (646
            )Reserve
                as of December 31, 2004
            
            −
            
            
            
            311
            
            
            
            200
            
            
            
            511Payments
                - 2005
            
            −
            
            
            
            (228
            )
            
            
            −
            
            
            
            (228
            )Reserve
                as of December 31, 2005
            
            −
            
            
            
            83
            
            
            
            200
            
            
            
            283Payments
                2006
            
            −
            
            
            
            (23
            )
            
            
            −
            
            
            
            (23
            )Asset
                write-offs 2006
            
            −
            
            
            
            −
            
            
            
            (200
            )
            
            
            (200
            )Adjustment
                2006
            
            −
            
            
            
            (60
            )
            
            
            −
            
            
            
            (60
            )Reserve
                as of December 31, 2006
            $
            −
            
            
            $
            −
            
            
            $
            −
            
            
            $
            −




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Note
      19.**Selected
      Quarterly Financial Data (Unaudited)**




**Quarter****First**
            ****
            ****
            **Second**
            ****
            **Third**
            ****
            ****
            **Fourth****2006**Net
                sales
            $
            119,406
            
            
            $
            122,021
            
            $
            128,952
            
            
            $
            127,595Gross
                profit
            
            24,239
            
            
            
            26,446
            
            
            24,887
            
            
            
            29,133Exit,
                disposal, certain severance and other charges
            
            106
            
            
            
            581
            
            
            918
            
            
            
            333Impairment
                of goodwill
            
            -
            
            
            
            -
            
            
            14,592
            
            
            
            -Income
                (loss) from continuing operations
            
            5,729
            
            
            
            6,812
            
            
            (3,941
            )
            
            
            9,141Net
                income (loss)
            
            (3,200
            )
            
            
            6,764
            
            
            (4,625
            )
            
            
            9,084Income
                from continuing operations per common share - basic and
                diluted
            $
            0.26
            
            
            $
            0.31
            
            $
            (0.18
            )
            
            $
            0.42**2005**Net
                sales
            $
            87,921
            
            
            $
            99,094
            
            $
            117,536
            
            
            $
            115,067Gross
                profit
            
            21,733
            
            
            
            24,966
            
            
            27,605
            
            
            
            29,807Exit,
                disposal, certain severance and other charges
            
            86
            
            
            
            348
            
            
            89
            
            
            
            -Income
                from continuing operations
            
            5,687
            
            
            
            7,430
            
            
            9,053
            
            
            
            10,828Net
                income
            
            5,350
            
            
            
            7,454
            
            
            7,967
            
            
            
            10,237Income
                from continuing operations per common share - basic and
                diluted
            $
            0.27
            
            
            $
            0.35
            
            $
            0.42
            
            
            $
            0.50





During
      the third quarter of 2006, the Company recorded goodwill impairment charges
      of
      $11,722 ($8,050 net of income taxes) related to the Drivetrain segment’s United
      Kingdom-based operation and $2,870 ($1,812 net of income taxes) related to
      the
      automotive materials reclamation business within the Logistics
      segment.





During
      the fourth quarter of 2005, the Company recorded income on an after-tax basis
      of
      $874 (tax benefits of $1,365 offset by fees and related expenses of $491, net
      of
      tax) related primarily to previously unclaimed research and development tax
      credits.





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




None.






ITEM
      9A.**CONTROLS
      AND PROCEDURES**




**(i)** **Disclosure
      Controls and Procedures.**





Our
      Chief
      Executive Officer and Chief Financial Officer conducted an evaluation of the
      effectiveness of our disclosure controls and procedures. Based on that
      evaluation, the Chief Executive Officer and Chief Financial Officer concluded
      that our disclosure controls and procedures were effective as of December 31,
      2006.





**(ii)** **Internal
      Control Over Financial Reporting.**





**(a)** **Management’s
      annual report on internal control over financial reporting.**





Our
      management report on internal control over financial reporting is set forth
      in
      Item 8 "Consolidated
      Financial Statements and Supplementary Data" on page 41 of this Annual
      Report .





**(b)** **Attestation
      report of the registered public accounting firm.**





The
      attestation report of Ernst & Young LLP, our independent registered public
      accounting firm, on management’s assessment of the effectiveness of our internal
      control over financial reporting and the effectiveness of our internal control
      over financial reporting is set forth in Item 8 "Consolidated
      Financial Statements and Supplementary Data" on page 43 of this Annual
      Report .





**(c)** **Changes
      in internal control over financial reporting.**





During
      the second quarter of 2006 we began the process of converting our two U.S.-based
      Drivetrain operations to a general ledger system also used by our Logistics
      business. We converted one of the Drivetrain operations during the second
      quarter of 2006 and the conversion of the other Drivetrain operation was
      completed during the fourth quarter of 2006. We believe these conversions did
      not have a material effect on our internal controls over financial
      reporting.





There
      were no other changes in our internal control over financial reporting during
      the fourth quarter of 2006 that have materially affected, or are reasonably
      likely to materially affect, our internal control over financial reporting.




**ITEM
        9B.**OTHER
        INFORMATION****




None.





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**PART
      III**




**ITEM10.**DIRECTORS,
        EXECUTIVE OFFICERS****AND
        CORPORATE GOVERNANCE****





**Directors
      and Executive Officers**





The
      following lists our executive officers and directors and their respective ages
      and positions as of December 31, 2006:





**Name**
            **Age**
            **Positions**Donald
                T. Johnson, Jr.
            54
            Chairman
                of the Board, President and Chief Executive OfficerTodd
                R. Peters
            44
            Vice
                President and Chief Financial OfficerJohn
                J. Machota
            54
            Vice
                President, Human ResourcesJohn
                M. Pinkerton
            49
            Vice
                President and ControllerMary
                T. Ryan
            53
            Vice
                President, Communications and Investor RelationsJoseph
                Salamunovich
            47
            Vice
                President, General Counsel and SecretaryWilliam
                L. Conley, Jr.
            58
            President,
                ATC LogisticsBrett
                O. Dickson
            42
            Vice
                President, North American Remanufacturing OperationsRobert
                L. Evans
            54
            DirectorCurtland
                E. Fields
            55
            DirectorDr.
                Michael J. Hartnett
            61
            DirectorMichael
                D. Jordan
            60
            Lead
                DirectorS.
                Lawrence Prendergast
            65
            DirectorEdward
                Stewart
            64
            Director





*Donald
      T. Johnson, Jr.* joined
      us as President
      and Chief Operating Officer in January 2004. In February 2004 Mr. Johnson
      became Chief Executive Officer, and became a member of the Board of Directors
      in
      May 2004 and Chairman of the Board in June 2005. Before joining us,
      Mr. Johnson was Global Director, Parts, Supply and Logistics for Ford Motor
      Company since 1999. Prior to that, Mr. Johnson spent 26 years working for
      Caterpillar, Inc. and its subsidiaries, including serving as Vice President
      of
      Caterpillar Logistics Services, Inc. from 1992 until he joined Ford.
      Mr. Johnson is a director and member of the audit committee of Accuride
      Corporation. Mr. Johnson holds a B.A. in Management from the University of
      Illinois.





*Todd
      R. Peters* joined
      us as Vice President, Finance in March 2004 and was appointed Chief Financial
      Officer in May 2004. Before joining us, Mr. Peters served TriMas
      Corporation, a manufacturer of automotive accessories and industrial products,
      as Executive Vice President and Chief Financial Officer from 2002 to 2003 and
      as
      Vice President of Finance from 2001 to 2002. From 1994 to 2001, he held various
      positions with Dana Corporation, a manufacturer in the automotive, commercial
      vehicle, and off-highway markets, including Global Working Capital Team Leader
      from 2000 to 2001, Director of Operations - Long Manufacturing from 1999 to
      2000
      and Vice President of Finance from 1994 to 1999. Prior to that, Mr. Peters
      worked for Coopers & Lybrand for over eight years. Mr. Peters holds a
      B.S. in Business Administration from Central Michigan University and is a
      certified public accountant.





*John
      J. Machota* joined
      us as Vice President, Human Resources in 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. Mr. Machota holds an M.S. in Industrial Relations
      from Loyola University, Chicago.




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*John
      M. Pinkerton* joined
      us as Manager, Planning and Analysis in 1999, became Corporate Controller in
      2000 and became an executive officer in June 2005 when he was appointed Vice
      President and Controller. Prior to joining us, he was an independent financial
      consultant during 1998 and prior to that he spent ten years with Grimes
      Aerospace Company ,
      an
      international engineering, manufacturing and distribution company, where he
      held various financial analysis and planning related positions, including
      Director, Strategic Planning. From 1980 to 1988, Mr. Pinkerton worked for
      Cooper Industries (Power Systems Division) in various accounting and related
      positions. Mr. Pinkerton holds an M.B.A. from the University of
      Wisconsin-Milwaukee and is a certified public accountant
      (inactive).





*Mary
      T. Ryan* joined
      us as Vice President, Communications and Investor Relations in 1999. From 1996
      to 1998, Ms. Ryan served as Vice President, Corporate Affairs for American
      Disposal Services, Inc. From 1995 to 1996, she was a self-employed public
      relations consultant. Prior to that, Ms. Ryan was employed for more than
      ten years with Waste Management, Inc. Ms. Ryan holds an M.B.A. from
      DePaul University.





*Joseph
      Salamunovich* joined
      us as Vice President, General Counsel and Secretary in 1997. From 1986 to 1994
      Mr. Salamunovich was an associate, and from 1995 to 1997 he was a partner,
      in
      the law firm of Gibson, Dunn & Crutcher LLP, where he specialized in
      corporate and securities law matters. Mr. Salamunovich holds a J.D. from
      Loyola Law School, Los Angeles.





*William
      L. Conley, Jr.* joined
      us in 2002 as President of our ATC Logistics business. Prior to joining us
      Mr. Conley spent nearly 24 years with FedEx Corporation in a series of
      increasingly responsible sales and leadership positions. Most recently, Mr.
      Conley served as Vice President and General Manager - Europe, Middle East and
      Africa for FedEx Supply Chain Services (FedEx’s logistics operations).
      Mr. Conley holds a B.S. in Aeronautics from Parks College of Aeronautical
      Technology of St. Louis University.





*Brett
      O. Dickson* joined
      us in 2001 as Director of Lean and Continuous Improvement. That same year he
      became Vice President and General Manager of our Autocraft Industries business
      and became an executive officer in 2004 when he was promoted to Vice President
      of our North American Remanufacturing Operations. Prior to joining us, Mr.
      Dickson held increasingly responsible positions in operations, supply chain
      management and repositioning within Grimes Aerospace Company from
      1995 to 2000, most recently serving as the Business Unit Manager for Grimes’
Exterior Lighting business. Between 1985 and 1995 he held various positions
      with
      Honeywell (formerly AlliedSignal) including Plant Manager, Production
      Engineering Manager and Six Sigma specialist. Mr. Dickson holds a B.S. in
      Electronic Engineering Technology from the DeVry Institute of
      Technology.





*Robert
      L. Evans*  became
      a
      director of Aftermarket Technology Corp. in December 2004. Since August 2006,
      Mr. Evans has serves as President, Chief Executive Officer and a member of
      the
      Board of Directors of Churchill Downs Inc., a publicly held owner and operator
      of horse racing venues. Previously, Mr. Evans was Managing
      Director of Symphony Technology Group (a strategic holding company that invests
      primarily in software and services firms) and a predecessor firm, the Valent
      Group, from 2001 until October 2004. Prior to that, he was President and Chief
      Operating Officer of Aspect Development, Inc. from 1999 until its acquisition
      by *i2* Technologies, Inc. in 2000, after which he served as Chief Operating Officer
      of *i2* Technologies. Mr. Evans was employed by Accenture (formerly Andersen Consulting)
      from 1993 to 1999, where he held a variety of positions, including Managing
      Partner of the Americas Supply Chain practice. From 1990 to 1993 Mr. Evans
      served as Vice President, Customer Support (Parts & Service) for Mazda Motor
      of America, and between 1975 and 1990 he held various positions with Caterpillar
      Inc., including President of Caterpillar Logistics Services. Mr. Evans serves on our Compensation and Nominating Committee.





*Curtland
      E. Fields*  became
      a
      director of Aftermarket Technology Corp. in December 2004. Mr. Fields is the Executive
      Director and chief executive officer and a trustee of the Turrell Fund, a $130
      million foundation. Prior to joining the Turrell Fund in 2003, Mr. Fields was
      employed by AT&T Corporation for over 30 years, serving most recently as
      President of the Consumer Transactions Services Group between 2000 and 2003,
      as
      President of the Consumer Markets Group (Central Region) from 1999 to 2000
      and
      Vice President, Strategy and Marketing for the Business Markets Group from
      1998
      to 1999. Prior to that he held other positions with AT&T including Financial
      Vice President for Investor Relations. Mr. Fields is Chairman of our Compensation and Nominating
      Committee.




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*Dr. Michael
      J. Hartnett* became a
      director of
      Aftermarket Technology Corp. in 1994.
      Since 1992, Dr. Hartnett has been President and Chief Executive Officer,
      and since 2005 has been Chairman of the Board, of RBC Bearings Incorporated,
      a
      publicly held manufacturer of ball and roller bearings. Prior to joining RBC
      in
      1990 as General Manager of its Industrial Tectonics subsidiary, he spent
      18 years with The Torrington Company, a subsidiary of Ingersoll-Rand.
      Dr. Hartnett serves on our Audit Committee.





*Michael
      D. Jordan* became a
      director of Aftermarket Technology Corp. in May 2004 and Lead Director in June
      2005. Prior to retirement in 2001, he was employed by Ford Motor Company for
      over 30 years, serving most recently as President of Ford’s Automotive Consumer
      Services Group since 1997. Prior to that he was President of the Ford Customer
      Service Division—Europe for three years. Mr. Jordan
      serves on our Compensation and Nominating Committee.





*S.
      Lawrence Prendergast* became a
      director of Aftermarket Technology Corp. in May 2004. Between 1999 and his
      retirement in June 2005, he was Executive Vice President of Finance of
      LaBranche & Co. Inc., a New York Stock Exchange specialist firm. Prior
      to that he spent over 30 years with AT&T Corporation, including serving as
      Chairman of the Board and Chief Executive Officer of AT&T Investment
      Management Corp. from 1997 to 1999 and as Vice President and Treasurer of
      AT&T Corporation for 14 years before that. Mr. Prendergast is Chairman
      of our Audit Committee.





*Edward
      Stewart*  became
      a
      director of Aftermarket Technology Corp. in December 2004. Prior to his
      retirement in 2002, he was
      employed by General Electric Company for 37 years, serving most recently as
      Executive Vice President of GE Capital and Chief Executive Officer of GE Card
      Services from 1997, and prior to that he was a Vice President of General
      Electric since 1991. Mr.
      Stewart serves on our Audit Committee.





Directors
      serve one-year terms and are elected annually. Executive officers serve until
      they resign or replacements are appointed by the Board of
      Directors.





**Audit
      Committee**





We
      have
      an Audit Committee, established in accordance with Section 3(a)(58)(A) of
      the Exchange Act, composed of S. Lawrence Prendergast (Chairman),
      Dr. Michael J. Hartnett, and Edward Stewart. The Board has determined
      that Mr. Prendergast is an audit committee financial expert for purposes of
      Item
      407(d)(5) of Regulation S-K under the Exchange Act and that Mr. Prendergast
      and
      each of the other members of the Audit Committee is an independent director
      as
      defined in the Nasdaq listing standards.





**Section
      16(a) Beneficial Ownership Reporting Compliance**





Section 16(a)
      of the Exchange Act requires our officers, directors and persons who own more
      than 10% of our outstanding common stock to file reports of ownership and
      changes in ownership with the Securities and Exchange Commission and to furnish
      copies of these reports to us. Based solely on a review of the copies of the
      forms that we have received, we believe that all such forms required during
      2006
      were filed on a timely basis except for a Form 4 regarding the sale of 469
      shares on May 17 by Mr. Pinkerton, which was filed one day late.





**Code
      of Ethics**





We
      have
      adopted a code of ethics that applies to our directors, officers and employees.
      The code of ethics contains written standards that we believe are reasonably
      designed to deter wrongdoing and to promote (i) honest and ethical conduct,
      including the ethical handling of actual or apparent conflicts of interest,
      (ii) full, fair, accurate, timely and understandable disclosure in the
      reports that we file with or submit to the Securities and Exchange Commission
      and our other public communications, (iii) compliance with applicable
      governmental laws, rules and regulations, (iv) prompt internal reporting of
      violations of the code of ethics to an appropriate person, and
      (v) accountability for adherence to the code.




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The
      full
      text of our code of ethics was filed as an exhibit to our 2003 Annual Report
      on
      Form 10-K and is posted on our website at www.goATC.com .
      A copy
      of the code of ethics may be obtained without charge by sending a written
      request to us at 1400 Opus Place, Suite 600, Downers Grove, Illinois 60515,
      attention: Corporate Secretary. We intend to disclose future amendments to
      certain provisions of our code of ethics, or waivers of such provisions granted
      to executive officers and directors, on our website within five business days
      following the date of such amendment or waiver.






**ITEM
        11.**EXECUTIVE
        COMPENSATION****




**Compensation
      Discussion and Analysis**





***Overview
      of Compensation Program***





The
      Compensation and Nominating Committee of our Board of Directors (the
“Committee”) has responsibility for establishing, implementing and monitoring
      adherence with our compensation philosophy. The Committee’s goal is that the
      total compensation paid to our executive officers is fair, reasonable and
      competitive. The types of compensation and benefits provided to the actively
      employed named executive officers are similar to those provided to other
      executive officers. The “named executive officers” are the five persons who
      were, as of December 31, 2006, the principal executive officer (CEO), the
      principal financial officer (CFO), and the three most highly compensated
      executive officers, other than the CEO and CFO, of Aftermarket Technology Corp.
      and its subsidiaries.





***Compensation
      Philosophy and Objectives***





Our
      executive compensation philosophy is as follows:





•
            to
                align compensation with shareholder value
                creation;


•
            to
                provide market competitive compensation to attract and retain talented
                executives; and


•
            to
                link incentive compensation to continuous improvements in strategic
                and
                operating performance.





The
      Committee believes the current compensation arrangements provide the CEO and
      our
      other executive officers incentive to perform at superior levels and in a manner
      directly aligned with the economic interests of our shareholders. The Committee
      approves and continually evaluates our compensation policies applicable to
      the
      executive officers so that (i) we maintain the ability to attract and
      retain excellent employees in key positions, and (ii) compensation provided
      to executive officers remains competitive relative to the compensation paid
      to
      similarly situated executives in the competitive market. To this end, the
      Committee believes that executive compensation should include both cash and
      stock-based compensation that rewards performance as measured against
      established goals.





***Independent
      Consultant***





The
      Committee periodically uses the services of an independent executive
      compensation consulting firm (the “independent compensation consultant”),
      currently Watson Wyatt Worldwide, which reports directly to the Committee and
      works with management on behalf of the Committee as the Committee determines
      is
      necessary. During 2006, the independent compensation consultant provided the
      Committee with relevant market data and alternatives to consider when making
      compensation decisions for the CEO and the other executive officers. The
      independent compensation consultant also provided the Committee with input
      on
      items including long-term incentive plan design and the CEO’s new employment
      agreement.





***2006
      Executive Compensation Components***





The
      existing executive compensation program consists of four primary elements:





•
            base
                salary;


•
            performance
                based incentive compensation;


•
            long-term
                incentive/stock-based awards; and


•
            supplemental
                benefits.





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Each
      of
      these compensation elements is described in detail in this discussion and
      analysis.





*Competitive
      Benchmarking - Definition of Market*





The
      Committee periodically reviews compensation data for comparable executive
      positions in the competitive market. The independent compensation consultant
      assists with this analysis. An extensive competitive compensation analysis
      was
      last completed in December 2005 for all executive officers, with a market review
      of the CEO position conducted in August 2006 as part of the Committee’s
      negotiations with the CEO on his new employment agreement. The Committee
      reviewed updated market data for all other executive officers in December
      2006.





For
      purposes of competitive market analysis, the Committee reviews compensation
      data
      provided by the independent compensation consultant regarding a “comparator
      group” of general manufacturing companies that produce both durable and
      nondurable goods, rather than data from a peer group of selected companies.
      Due
      to our current business mix (remanufacturing and logistics) and revenue size,
      there is no peer group of selected companies that could provide more direct
      competitive compensation data. The general manufacturing data provides a broad
      view of the executive labor market against which we compete for executive-level
      talent. All compensation data is size-adjusted to reflect our business size
      of
      approximately $450 million in annual revenues.





*Competitive
      Compensation Objectives*





Our
      executive compensation is based on a pay-for-performance philosophy, emphasizing
      performance against measures that correlate with increases in shareholder value.
      It is the policy of the Committee to set compensation targets for fixed pay
      (base salary and benefits) at approximately the 50 th percentile of the market as defined by the comparator group. Variable
      compensation (annual incentives and long-term incentives) is targeted at the
      50 th to
      75 th percentile of the market. Any variable compensation awards targeted above the
      50 th percentile are tied to the expected achievement of “stretch” performance
      goals.





The
      Committee has begun to periodically review the various elements of our total
      compensation using a tally sheet approach.





*Pay-for-Performance
      - “Variable Pay At Risk”*





The
      percentage of pay at risk increases as the level of employment position
      increases. This provides additional upside potential and downside risk for
      senior positions, recognizing that these roles have greater influence on our
      overall performance. In the case of the CEO, over 72% of total compensation
      is
      at risk in the form of variable pay, and approximately 48% of his total
      compensation is in the form of long-term incentives. In the case of the other
      named executive officers, approximately 50%-60% of total compensation is in
      the
      form of variable pay, and 22%-25% of their total compensation is in the form
      of
      long-term incentives. The Committee believes this compensation structure aligns
      the financial interests of the named executive officers and other executive
      officers with the interests of our shareholders because it rewards management
      for the achievement of long-term financial results and shareholder value
      creation.





*Base
      Salary*





We
      provide named executive officers and other executive officers with base salary
      to compensate them for services rendered during the fiscal year. For each
      position, the Committee establishes a base salary range that takes into
      consideration the position and its responsibility and the market data and
      recommendations provided by the independent compensation consultant. Within
      that
      range a specific base salary is then determined. It is our policy to provide
      base salary for a given position that is between 75% and 125% of the midpoint
      of
      the base salary range established for that position.





During
      its review of base salaries for executives, the Committee primarily
      considers:





•
            market
                data provided by the independent compensation
                consultant;


•
            internal
                review of the executive’s compensation, both individually and relative to
                other officers;





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•
            recommendations
                of the CEO; and


•
            individual
                performance.





Salary
      levels are typically reviewed annually as well as upon promotion or other
      changes in job responsibilities. Increases for named executive officers other
      than the CEO are reviewed and approved by the Committee based on the criteria
      listed above. Increases for the CEO are recommended by the Committee and
      reviewed and approved by the full Board.





For
      2006,
      the CEO received a base salary increase of 7% effective January 1, which
      reflected the Committee’s evaluation of his performance during the prior year
      and the competitive market. The average salary increase in 2006 for the other
      named executive officers was 3.5%, which closely reflected the average salary
      movement within the comparator group.





Base
      salary adjustments for 2007 for the named executive officers other than the
      CEO
      became effective January 1, 2007 and are noted in the footnotes to the Summary
      Compensation Table below. The CEO’s base salary for 2007 was set as part of the
      negotiation of his new employment agreement and also became effective January
      1,
      2007.





*Performance-Based
      Incentive Compensation*





We
      provide annual incentive opportunities through our Management Incentive
      Compensation Plan (IC plan), which rewards executive officers and other senior
      management for the achievement of annual financial results. All of the
      performance measures in the plan reflect our business strategy and key financial
      metrics.





Performance
      Metrics .
      The
      primary corporate financial measure in the IC plan for 2006 was earnings per
      share (EPS). For business segment leadership, adjusted earnings before interest
      and taxes (EBIT) served as the primary financial metric. We believe that these
      two financial metrics are key indicators of long-term shareholder value.
      Corporate officer positions are measured entirely on EPS while business segment
      leadership is measured 70% on such segment’s adjusted EBIT and 30% on EPS. For
      business segment leadership, we believe this weighting provides the appropriate
      incentive to drive business segment performance.





In
      addition, we believe all employees must be fully committed to customer quality
      and service. Therefore, the plan includes a “quality and service” component
      pursuant to which the Committee may reduce plan awards by up to 20% if we or
      a
      business segment or a business unit do not achieve established quality and
      service objectives. The quality and service objectives include items such as
      service levels required by customer contracts, failure rates and warranty costs,
      and are reviewed regularly by the CEO with the appropriate business team. At
      the
      conclusion of the year, the Committee (or the Board in the case of the CEO)
      reviews the quality and service performance and, based on the recommendations
      from the CEO, determines whether any bonus reduction is to be implemented.





Award
      Opportunities .
      The
      target awards under the IC plan have been established based on recommendations
      from the independent compensation consultant to reflect the 50 th percentile of annual target incentive awards for similar positions within the
      comparator group. For 2006, the target incentive award was 90% of base salary
      for the CEO, 60% of base salary for the CFO, and 45% or 50% of base salary
      for
      our other executive officers, in each case with a “cut-off” award equal to 75%
      of the target award and a “stretch” award equal to 300% of the target
      award.





Actual
      2006 Results . **** The
      actual financial performance against targets for 2006 was as
      follows:


**IC
                  Plan****Financial
                  Measure**
              **2006
                  IC Goal**
              **2006
                  Actual**Corporate
                  EPS
              $1.55
              $0.81Drivetrain
                  adjusted EBIT
              $42.4
                  million
              $18.7
                  millionLogistics
                  adjusted EBIT
              $23.2
                  million
              $29.1
                  million




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Based
      on
      the 2006 financial performance against goals, four of the five named executive
      officers did not earn a bonus under the IC plan for the year. The only named
      executive officer to earn a 2006 plan bonus was William Conley, President of
      ATC
      Logistics, whose earned bonus represented 226% of his target bonus award because
      the actual financial performance of the Logistics segment significantly exceeded
      its financial target. However, due to service problems associated with certain
      2006 program launches within the Logistics segment, the Committee reduced Mr.
      Conley’s 2006 earned bonus by the full 20% reduction factor described
      above.





*Long-Term
      Incentives*





Our
      long-term incentive program is a key element of our total compensation program.
      Long-term incentives are the largest component of variable compensation and
      provide the strongest tie to long-term shareholder value. Our long-term
      incentive compensation historically has consisted of awards of stock options
      and
      restricted stock.





Stock
      Options .
      Stock
      options reward management for increases in our stock price above the price
      at
      the time the options are granted and thus provide a direct link to shareholder
      value creation. The annual awards of stock options for 2006 took place at the
      Committee’s and the Board’s regularly scheduled meetings on June 1, 2006.
      These stock option grants have an exercise price of $24.69, which represented
      the closing stock price on the date of grant. The Committee and the Board have
      never granted options with an exercise price that is less than the closing
      price
      of our common stock on the grant date, nor have they granted options that are
      priced on a date other than the grant date. Since the end of 1998, we have
      maintained a policy against repricing stock options without shareholder
      approval. All awards of stock options require approval of the Committee (or
      the
      Board in the case of an award to the CEO).





All
      stock
      option grants are granted in the form of nonqualified stock options and vest
      at
      the rate of 331⁄3% per year over the first three years of the ten-year option
      term. Vesting and exercise rights cease in connection with termination of
      employment except in the case of death or disability.





It
      is the
      Committee’s intent to generally grant stock options at approximately the same
      time each year - at the time of our annual meeting, which typically takes place
      in late May or early June. However, the annual grant to our CEO for 2007 took
      place in January 2007. We do not have a formal policy with regards to the timing
      of stock option or restricted stock grants and the release of material
      non-public information.





Restricted
      Stock .
      Restricted stock grants build executive stock ownership and focus executives
      on
      long-term company performance. Furthermore, awards of restricted stock are
      consistent with current market practice. Restricted shares were granted to
      named
      executive officers on June 1, 2006 when the stock price was $24.69. These
      restricted stock awards are nontransferable and will vest at the rate of 331⁄3%
      per year. All restricted stock awards have dividend and voting rights. Awards
      of
      all restricted stock require approval of the Committee (or the Board in the
      case
      of an award to the CEO).





Award
      Opportunities .
      The
      target long-term incentive opportunities have been established based on the
      independent compensation consultant’s review of comparator group long-term
      incentive practices and our compensation philosophy described above. For 2006,
      the economic value of long-term incentive grants ranged from 175% of salary
      for
      the CEO to 85% of salary for the CFO to an average of 55% of salary for the
      other executive officers. For 2006, these award sizes were consistent with
      the
      75 th percentile of the competitive marketplace. The stock-based compensation expense
      associated with the equity awards is disclosed in the Summary Compensation
      Table
      below.





For
      2006,
      the value of long-term incentive awards for named executive officers consisted
      of approximately 50% in stock options and 50% in restricted stock. The Committee
      believes this balanced long-term incentive portfolio will further align
      management’s interests with the interests of our shareholders by focusing
      management on achieving the value targets outlined in the Company’s strategic
      plan.




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New
      Long-Term Incentive Plan .
      Effective January 1, 2007 we implemented a long-term incentive plan (LTIP)
      with
      a stock component (both options and restricted stock) and a cash component
      to
      reward management for achieving value targets over a three-year period. The
      financial performance metrics for this plan are compounded annual growth rate
      (CAGR) for both revenue and operating income for the 2006-2008 LTIP performance
      period, and return on invested capital (ROIC) for the same period. The current
      intention is to target a value mix in the LTIP of approximately 70% for the
      stock component and 30% for the cash component with the target opportunities
      for
      the cash component ranging from 90% of base salary for the CEO to an average
      of
      25% of base salary for the other named executive officers.





***Performance
      Evaluation and Role of Officers in Setting
      Compensation***





The
      Committee makes all final decisions regarding compensation for all executive
      officers other than the CEO. The CEO evaluates the performance of each of the
      other executive officers, discusses his assessments with the Committee and
      makes
      recommendations to the Committee for base salary adjustments and incentive
      award
      targets, which are reviewed and approved by the Committee.





In
      the
      case of the CEO, the Committee evaluates his performance against a detailed
      list
      of performance objectives that have been mutually agreed upon by the Committee
      and the CEO at the beginning of the year. These objectives include specific
      measurable financial performance metrics, business strategy implementation
      milestones, and leadership development/succession planning goals. The Committee
      monitors the performance of the CEO against these goals throughout the year
      and
      determines the final year-end evaluation. Based on this evaluation, the
      Committee submits a compensation recommendation to the full Board for review
      and
      approval.





***Retirement
      and Other Benefits***





*Retirement
      Savings Plan and Deferral Plan*





Unlike
      many of our competitors, we do not offer a defined benefit retirement plan.
      Executive officers participate in our Retirement Savings Plan, a tax-qualified
      401(k) plan pursuant to which all our U.S.-based employees, including the named
      executive officers, are able to contribute the lesser of (i) up to 75% of
      their annual compensation (salary and bonus) or (ii) the limit prescribed
      by the Internal Revenue Service. We match up to 50% on the first 6% of
      compensation that is contributed by an employee to the plan. All employee
      contributions are fully vested upon contribution, while the matching
      contribution vests at the rate of 20% per year. However, due to the legal
      contribution limits on defined contribution retirement plans, the actual benefit
      to executive officers under the plan is severely limited.





To
      provide somewhat more competitive retirement benefits, we offer our executive
      officers and selected U.S.-based key employees the right to participate in
      a
      nonqualified deferred compensation plan. Under this plan, key employees are
      eligible to defer up to 75% of annual base salary and 100% of cash incentive
      compensation and/or commission awards. For 2006, the Committee (and the Board
      in
      the case of the CEO) approved a matching contribution of 50% of the first 10%
      of
      base salary deferred during the year. The matching contribution vests at the
      rate of 20% per year. Outside directors are also eligible to defer up to 100%
      of
      their annual retainer but without a matching contribution.





All
      of
      the compensation associated with these plans for 2006 is included in the “Other
      Compensation” column of the Summary Compensation Table below.





*Perquisites
      and other Personal Benefits*





We
      provide a car allowance of $20,000 per year for the CEO and $9,600 per year
      for
      the other executive officers, except for one executive officer who has the
      use
      of a drive audit vehicle (i.e., a vehicle provided to an employee, without
      charge, for the purpose of testing our remanufactured products). The Committee
      believes this auto allowance is consistent with typical market practices for
      company car programs and is part of offering a market competitive total
      compensation program.




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Each
      executive officer also receives an annual allowance equal to 2% of base salary
      for expenses related to financial counseling, tax and legal services, club
      dues,
      home office and the like. This flexible structure enables executives to select
      benefits based on their specific circumstances and thereby raises the perceived
      value of the program.





These
      perquisites and benefits are offered in order to (i) provide executives
      with certain conveniences so that they can focus more on our business matters,
      and (ii) offer a market-competitive total compensation package. The
      Committee periodically reviews the levels of perquisites and other personal
      benefits to the named executive officers and believes they are reasonable and
      consistent with our overall compensation program.





All
      of
      the compensation to the named executive officers associated with these
      perquisites and other personal benefits for 2006 is included in the “Other
      Compensation” column of the Summary Compensation Table below.





***Executive
      Compensation Employment Agreements***





We
      have
      entered into written employment agreements with each of our executive officers,
      which provide for various benefits, including severance payable under certain
      circumstances. These employment agreements are designed to promote stability
      and
      continuity among our senior management team. For information regarding these
      agreements for the named executive officers, see “Summary Compensation Table”
and “Potential Payments Upon Termination or Change-in-Control”
below.





***Tax
      and Accounting Implications***





*Deductibility
      of Executive Compensation - Section 162(m) Compliance*





Section
      162(m) of the Internal Revenue Code generally disallows the corporate tax
      deduction for certain compensation paid in excess of $1 million annually to
      each of the chief executive officer and the four other most highly compensated
      executive officers of publicly-held companies. There is an exception to this
      rule for “performance-based compensation.”





The
      Committee’s long-term objective is that our compensation programs qualify as
      performance-based compensation for purposes of Section 162(m) in order to
      maximize our corporate tax deduction. Therefore, as required by Section 162(m)
      both the annual incentive plans and long-term incentive plans were approved
      by
      shareholders to qualify applicable compensation as “performance based.”
Furthermore, the incentive plans are administered by the Committee in order
      to
      be compliant with Section 162(m). Since May 2004, the Committee has been
      composed solely of outside directors for purposes of Section 162(m). While
      the
      Committee’s general policy is to preserve the deductibility of most compensation
      paid to our covered executives, it may from time to time authorize payments
      that
      might not be deductible if the Committee believes that those payments are in
      the
      best interests of shareholders.





*Nonqualified
      Deferred Compensation - IRC Section 409A Compliance*





The
      American Jobs Creation Act, which became effective January 1, 2005, changed
      those tax rules applicable to nonqualified deferred compensation arrangements.
      While final regulations under the Act have not yet become effective, we believe
      we are operating in good faith compliance with the statutory provisions as
      currently in effect. For a more detailed discussion of our nonqualified deferred
      compensation arrangements, see “Nonqualified Deferred Compensation”
below.




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**Summary
      Compensation Table**





The
      following table sets forth the compensation for 2006, for services to us in
      all
      capacities, of the named executive officers:




**Name
                    and Principal Position**
                
                **Year**
                
                **Salary**
                  **($)**
                
                **Bonus**
                  **($**)****
                
                **Stock
                    Awards**
                  **($**)******(1)**
                
                **Option
                    Awards**
                  **($)****(2)**
                
                **Non-Equity
                    Incentive**
                  **Plan**
                  **Compen-sation**
                  **($**)******(3)**
                
                **Change
                    in Pension Value and Non-qualified Deferred Compensation
                    Earnings**
                  **($**)****
                
                **All
                    Other Compen-**
                  **sation**
                  **($**)****
                
                **Total**
                  **($)****(a)**
                
                **(b)**
                
                **(c)**
                
                **(d)**
                
                **(e)**
                
                **(f)**
                
                **(g)**
                
                **(h)**
                
                **(i)**
                
                **(j)**Donald
                    T. Johnson, Jr.
                  Chairman,
                    President,CEO
                
                2006
                
                $
                535,000
                **(4)**
                
                $
                0
                
                $
                330,557
                
                $
                281,421
                
                $
                0
                
                
                $
                0
                
                $
                66,178
                **(5)**
                
                $
                1,213,156Todd
                    R. Peters
                  Vice
                    President andCFO
                
                2006
                
                $
                324,500
                **(6)**
                
                $
                0
                
                $
                151,876
                
                $
                125,414
                
                $
                0
                
                
                $
                0
                
                $
                17,009
                **(7)**
                
                $
                618,799William
                    L. Conley, Jr.
                  President,
                    ATC Logistics & Electronics
                
                2006
                
                $
                252,000
                **(8)**
                
                $
                0
                
                $
                55,964
                
                $
                37,796
                
                $
                159,472
                **(9)**
                
                $
                0
                
                $
                36,680
                **(10)**
                
                $
                541,912Brett
                    O. Dickson
                  Vice
                    President, N.A.,
                  Reman
                    Operations
                
                2006
                
                $
                260,000
                **(11)**
                
                $
                0
                
                $
                75,096
                
                $
                44,214
                
                $
                0
                
                
                $
                0
                
                $
                19,735
                **(12)**
                
                $
                399,045Joseph
                    Salamunovich
                  Vice
                    President, General Counsel and Secretary
                
                2006
                
                $
                234,600
                **(13)**
                
                $
                0
                
                $
                68,087
                
                $
                37,796
                
                $
                0
                
                
                $
                0
                
                $
                21,763
                **(14)**
                
                $
                362,246




(1)
            See
                Item 8. "Consolidated Financial Statements and Supplementary Data
                - Note 2
                - *Stock-Based Compensation*" for a description of the assumptions
                used in the computation of our stock award fair
                values.


(2)
            See
                Item 8. "Consolidated Financial Statements and Supplementary Data
                - Note 2
                - *Stock-Based Compensation*" for a description of the assumptions
                used in the computation of our option award fair
                values.


(3)
            Bonuses
                are paid under our incentive compensation plan for a particular year
                if we
                achieve or exceed specified EPS and other financial targets for the
                year,
                and are paid during the first quarter of the following
                year.


(4)
            Mr.
                Johnson deferred $267,500 of this amount pursuant to our executive
                deferred compensation plan. His base salary was increased to $560,000
                effective January 1, 2007.


(5)
            Consists
                of $6,442 Company matching contribution under our 401(k) Plan, $28,076
                Company matching contribution under our executive deferred compensation
                plan, $20,000 automobile allowance, $10,700 reimbursement for club
                dues
                and personal financial planning costs, and $960 Company-paid life
                insurance premiums.


(6)
            Mr.
                Peters' base salary was increased to $337,500 effective January 1,
                2007.


(7)
            Consists
                of $9,600 automobile allowance; $6,490 reimbursement for club dues
                and
                financial planning costs; and $919 Company-paid life insurance
                premiums.


(8)
            Mr.
                Conley deferred $25,200 of this amount pursuant to our executive
                deferred
                compensation plan. His base salary was increased to $260,000 effective
                January 1, 2007.


(9)
            Mr.
                Conley deferred 50% of this amount pursuant to our executive deferred
                compensation plan.


(10)
            Consists
                of $6,600 Company matching contribution under our 401(k) Plan, $14,550
                Company matching contribution under our executive deferred compensation
                plan, $9,600 automobile allowance, $5,040 reimbursement for club
                dues and
                personal financial planning costs; and $890 Company-paid life insurance
                premiums.


(11)
            Mr.
                Dickson deferred $13,000 of this amount pursuant to our executive
                deferred
                compensation plan.


(12)
            Consists
                of $5,418 Company matching contribution under our 401(k) Plan, $8,510
                Company matching contribution under our executive deferred compensation
                plan, $4,900 reimbursement for club dues and personal financial planning
                costs, and $907 Company-paid life insurance
                premiums.


(13)
            Mr.
                Salamunovich's base salary was increased to $244,000 effective January
                1,
                2007.


(14)
            Consists
                of $6,600 Company matching contribution under our 401(k) Plan, $9,600
                automobile allowance, $4,692 reimbursement for club dues and personal
                financial planning costs, and $871 Company-paid life insurance
                premiums.





Based
      on
      the fair value of equity awards granted to named executive officers in 2006
      and
      the base salary of the named executive officers, “Salary” accounted for
      approximately 47% of the total compensation of the named executive officers
      while incentive compensation (i.e., stock awards, option awards and non-equity
      incentive plan compensation) accounted for approximately 53% of the total
      compensation of the named executive officers. Because the value of certain
      equity awards included in the Summary Compensation Table above reflects the
      stock-based compensation expense rather than the total fair value of the awards,
      these percentages may not be able to be derived using the amounts reflected
      in
      the above table.





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During
      2006 we had a written employment agreement with each of our named executive
      officers. These agreements, which are on a year-to-year basis with unlimited
      automatic renewals, provide for a base salary, participation in our various
      incentive and benefit plans, and various perquisites, including an annual car
      allowance ($20,000 for Mr. Johnson, $9,600 for other executive officers) and
      reimbursement of the executive’s expenses for financial planning, club dues and
      similar matters (capped at 2% of annual base salary).





Each
      agreement includes a noncompetition provision that runs for a specified period
      after the executive ceases to be employed by us. The period is 24 months in
      the
      case of Mr. Peters and 18 months in the case of the other executive officers.
      Each agreement also contains a confidentiality provision and a provision that
      prohibits the executive officer from soliciting our employees for employment
      by
      other companies during a specified period after leaving Aftermarket Technology
      Corp.





Each
      of
      the employment agreements provides for severance payments to the executive
      officer in certain circumstances. See “Potential Payments Upon Termination or
      Change-in-Control” below.





In
      January 2007 we entered into a new written employment agreement with Mr. Johnson
      that replaces the agreement described above. The new agreement expires on
      December 31, 2007, subject to two one-year automatic renewals, and provides
      for a base salary, participation in our various incentive and benefit plans,
      and
      various perquisites, including an annual car allowance of $24,000 and
      reimbursement of up to $20,000 per year of Mr. Johnson’s expenses for
      financial planning, club dues and similar matters. The new agreement also
      includes a noncompetition provision that runs for 24 months after Mr. Johnson
      ceases to be employed by us. Like the old agreement, the new agreement also
      contains a confidentiality provision and a provision that prohibits Mr. Johnson
      from soliciting our employees for employment by other companies during a
      specified period after leaving Aftermarket Technology Corp.





83
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**Grants
      of Plan-Based Awards Table**





The
      following table sets forth information regarding each grant of an award made
      in
      2006 to the named executive officers under our various incentive
      plans:




**Estimated
                    Future Payouts under Non-equity Incentive Plan
                    Awards(1)**
                
                **Estimated
                    Future Payouts under Equity Incentive Plan
                    Awards****Name**
                
                **Grant
                    Date**
                
                **Threshold**
                  **$**
                
                **Target**
                  **$**
                
                **Maximum**
                  **$**
                
                **Threshold**
                  **#**
                
                **Target 
                    #**
                
                **Maximum
                    #**
                
                **All
                    Other Stock Awards: Num-**
                  **ber
                    of Shares of Stock or Units**
                  **(#)**
                
                **All
                    Other Option**
                  **Awards:
                    Number**
                  **of
                    Securities Underlying Options**
                  **(#)**
                
                **Exercise
                    or Base Price of Option Awards ($/Share)**
                
                **Grant
                    Date Fair Value of Stock and Option Awards****(a)**
                
                **(b)**
                
                **(c)**
                
                **(d)**
                
                **(e)**
                
                **(f)**
                
                **(g)**
                
                **(h)**
                
                **(i)**
                
                **(j)**
                
                **(k)**
                
                **(l)**Donald
                    T. Johnson, Jr.
                
                
                
                $
                361,125
                
                $
                481,500
                
                $
                1,444,500
                
                -
                
                -
                
                -
                
                -6/1/06
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                18,750
                **(2)**
                
                -
                
                
                
                -
                
                $
                462,9386/1/06
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -
                
                
                56,250
                **(3)**
                
                $
                24.69
                
                $
                465,677Todd
                    R. Peters
                
                
                
                $
                146,025
                
                $
                194,700
                
                $
                584,100
                
                -
                
                -
                
                -
                
                -6/1/06
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                5,625
                **(2)**
                
                -
                
                
                
                -
                
                $
                138,8816/1/06
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -
                
                
                16,875
                **(2)**
                
                $
                24.69
                
                $
                139,703William
                    L. Conley, Jr.
                
                
                
                $
                94,500
                
                $
                126,000
                
                $
                378,000
                
                -
                
                -
                
                -
                
                -6/1/06
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,813
                **(2)**
                
                -
                
                
                
                -
                
                $
                69,4536/1/06
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -
                
                
                8,437
                **(2)**
                
                $
                24.69
                
                $
                69,847Brett
                    O. Dickson
                
                
                
                $
                97,500
                
                $
                130,000
                
                $
                390,000
                
                -
                
                -
                
                -
                
                -6/1/06
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,813
                **(2)**
                
                -
                
                
                
                -
                
                $
                69,4536/1/06
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -
                
                
                8,437
                **(2)**
                
                $
                24.69
                
                $
                69,847Joseph
                    Salamunovich
                
                
                
                $
                79,178
                
                $
                105,570
                
                $
                316,710
                
                -
                
                -
                
                -
                
                -6/1/06
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,813
                **(2)**
                
                -
                
                
                
                -
                
                $
                69,4536/1/06
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -
                
                
                8,437
                **(2)**
                
                $
                24.69
                
                $
                69,847
 (1)
                Established
                    under the annual Incentive Compensation Plan and payable if we
                    achieve or
                    exceed specified EPS and other financial targets for the year
                    ended
                    December 31, 2006 (provided that any bonus may be reduced by
                    up to 20% if
                    certain quality and service metrics are not achieved). The amounts
                    shown
                    in column (c) reflect the minimum payments under the Incentive
                    Compensation Plan which is 75% of the target amount shown in
                    column (d).
                    The amount shown in column (e) is 300% of such target amount.
                    These
                    amounts are based on the individual’s current salary and position. Based
                    on our performance in 2006, none of these amounts are payable
                    except in
                    the case of Mr. Conley.
 (2)
                Awarded
                    under the 2004 Stock Incentive Plan. No consideration was paid
                    for the
                    award.
 (3)
                Awarded
                    under the 2000 Stock Incentive Plan. No consideration was paid
                    for the
                    award.




84
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**Outstanding
      Equity Awards at Fiscal Year-End Table**





The
      following table sets forth information regarding unexercised stock options,
      unvested restricted stock, and equity incentive plan awards for each named
      executive officer outstanding as of December 31, 2006:




**Options
                  Awards**
              
              **Stock
                  Awards****Name**
              
              **Number
                    of Securities Underlying Unexercised Options**
                **(#)**
                **Exercisable**
              
              **Number
                  of Securities Underlying Unexercised Options**
                **(#)**
                **Unexercisable**
              
              **Equity
                  Incentive**
                **Plan
                  Awards Number of Securities Underlying Unexercised Unearned
                  Options**
                **(#)**
              
              **Option**
                **Exercise**
                **Price**
                **($)**
              
              **Option**
                **Expi-ration**
                **Date**
              
              **Number
                  of Shares or Units of Stock That Have Not Vested**
                **(#)**
              
              **Market
                  Value of Shares or Units of Stock That Have Not
                  Vested**
                **($)**
              
              **Equity
                  Incentive Plan Awards: Number of Unearned Shares, Units or Other
                  Rights
                  That Have Not Vested**
                **(#)**
              
              **Equity**
                **Incentive
                  Plan Awards: Market or Payout Value of Unearned Shares, Units or
                  Other
                  Rights That Have Not Vested**
                **($)****(a)**
              
              **(b)**
              
              **(c)**
              
              **(d)**
              
              **(e)**
              
              **(f)**
              
              **(g)**
              
              **(h)**
              
              **(i)**
              
              **(j)**Donald
                  T. Johnson, Jr.
              
              
              
              
              
              
              -
              
              
              
              
              
              
              35,416
              (1)
              
              $
              753,652
              
              -
              
              -93,333
              
              46,667
              (2)
              
              
              
              $
              14.0000
              
              01/02/1475,000
              
              -
              
              
              
              
              $
              15.8500
              
              06/02/15-
              
              56,250
              (3)
              
              
              
              $
              24.6900
              
              06/01/16Todd
                  R. Peters
              
              
              
              
              
              
              -
              
              
              
              
              
              
              18,958
              (4)
              
              $
              403,426
              
              -
              
              --
              
              23,333
              (5)
              
              
              
              $
              14.8500
              
              03/09/14-
              
              16,875
              (3)
              
              
              
              $
              24.6900
              
              06/01/16William
                  L. Conley, Jr.
              
              
              
              
              
              
              -
              
              
              
              
              
              
              6,146
              (6)
              
              $
              130,787
              
              -
              
              -25,000
              
              -
              
              
              
              
              $
              14.1100
              
              08/07/126,667
              
              3,333
              (7)
              
              
              
              $
              14.9000
              
              05/12/1411,250
              
              -
              
              
              
              
              $
              15.8500
              
              06/02/15-
              
              8,437
              (3)
              
              
              
              $
              24.6900
              
              06/01/16Brett
                  O. Dickson
              
              
              
              
              
              
              -
              
              
              
              
              
              
              8,646
              (8)
              
              $
              183,987
              
              -
              
              -5,000
              
              -
              
              
              
              
              $
              22.9000
              
              05/08/12-
              
              5,000
              (7)
              
              
              
              $
              14.9000
              
              05/12/14-
              
              8,437
              (3)
              
              
              
              $
              24.6900
              
              06/01/16Joseph
                  Salamunovich
              
              
              
              
              
              
              -
              
              
              
              
              
              
              6,980
              (9)
              
              $
              148,534
              
              -
              
              -10,000
              
              -
              
              
              
              
              $
              18.1250
              
              05/12/0825,000
              
              -
              
              
              
              
              $
              22.9000
              
              05/08/126,667
              
              3,333
              (7)
              
              
              
              $
              14.9000
              
              05/12/1411,250
              
              -
              
              
              
              
              $
              15.8500
              
              06/02/15-
              
              8,437
              (3)
              
              
              
              $
              24.6900
              
              06/01/16





(1)
            14,583
                vest in June 2007; 14,583 vest in June 2008; and 6,250 vest in June
                2009.


(2)
            Vest
                in January 2007.


(3)
            Vest
                in equal installments in June 2007, June 2008 and June
                2009.


(4)
            8,333
                shares vest in March 2007; 4,375 shares vest in June 2007; 4,375
                vest in
                June 2008; and 1,875 shares vest in June
                2009.


(5)
            Vest
                in March 2007.


(6)
            833
                shares vest in May 2007; 2,188 shares vest in June 2007; 2,188 shares
                vest
                in June 2008; and 937 shares vest in June
                2009.


(7)
            Vest
                in May 2007.


(8)
            3,333
                shares vest in May 2007; 2,188 shares vest in June 2007; 2,188 shares
                vest
                in June 2008; and 937 shares vest in June
                2009.


(9)
            1,667
                shares vest in May 2007; 2,188 shares vest in June 2007; 2,188 shares
                vest
                in June 2008; and 937 shares vest in June
                2009.





85
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**Option
      Exercise and Stock Vesting Table**





The
      following table sets forth information regarding the exercise of stock options
      and vesting of restricted stock in 2006 for the named executive
      officers:




**Option
                    Awards**
                
                **Restricted
                    Stock Awards****Name**
                
                **Number
                    of Shares Acquired on Exercise**
                  **(#)**
                
                **Value
                    Realized Upon Exercise**
                  **($)**
                
                **Number
                    of Shares Acquired on Vesting**
                  **(#)**
                
                **Value
                    Realized Upon Vesting**
                  **($)****(a)**
                
                **(b)**
                
                **(c)**
                
                **(d)**
                
                **(e)**Donald
                    T. Johnson, Jr.
                
                
                -
                
                
                -
                
                
                8,334
                
                $
                207,350Todd
                    R. Peters
                
                
                69,167
                
                $
                769,804
                
                
                10,833
                
                $
                243,859William
                    L. Conley, Jr.
                
                
                -
                
                
                -
                
                
                2,083
                
                $
                51,758Brett
                    O. Dickson
                
                
                33,750
                
                $
                328,299
                
                
                4,583
                
                $
                113,758Joseph
                    Salamunovich
                
                
                -
                
                
                -
                
                
                4,583
                
                $
                101,773


**Nonqualified
      Defined Contribution and Other Nonqualified Deferred Compensation
      Plans**





The
      following table sets forth information regarding the named executive officers’
participation in our deferred compensation plan during 2006:


**Name**
                
                **Executive
                    Contributions in Last FY**
                  **($)****(1)**
                
                **Registrant
                    Contributions in**
                  **Last
                    FY**
                  **($)****(2)(3)**
                
                **Aggregate
                    Earnings**
                  **in
                    Last FY**
                  **($)****(4)(5)**
                
                **Aggregate
                    Withdrawals/ Distributions**
                  **($)**
                
                **Aggregate**
                  **Balance
                    at**
                  **Last
                    FYE**
                  **($)****(a)**
                
                **(b)**
                
                **(c)**
                
                **(d)**
                
                **(e)**
                
                **(f)**Donald
                    T. Johnson, Jr.
                
                $
                956,614
                
                $
                28,076
                (6)
                
                $
                84,784
                
                
                -
                
                $
                1,254,218
                (7)Todd
                    R. Peters
                
                
                -
                
                
                -
                
                
                
                -
                
                
                -
                
                
                -William
                    L. Conley, Jr.
                
                $
                128,200
                
                $
                14,550
                (8)
                
                $
                16,736
                
                
                -
                
                $
                176,617
                (9)Brett
                    O. Dickson
                
                $
                13,000
                
                $
                8,510
                (10)
                
                $
                3,810
                
                
                -
                
                $
                34,603
                (11)Joseph
                    Salamunovich
                
                
                -
                
                
                -
                
                
                
                -
                
                
                -
                
                
                -


(1)
            A
                portion of these amounts were reported as compensation in the Summary
                Compensation Table in prior years.


(2)
            All
                of these amounts are reported as "All Other Compensation" in the
                Summary
                Compensation Table.


(3)
            In
                2006, the Company provided a matching contribution of $0.50 per $1.00
                of
                the first 10% of base salary
                deferred.


(4)
            None
                of these amounts are reported as 2006 compensation in the Summary
                Compensation Table.


(5)
            The
                aggregate earnings for 2006 are based on the returns of externally
                managed
                mutual funds. We maintain a grantor trust underlying the deferred
                compen-
              sationplan
                through which we generally seek to match assets to liabilities under
                the
                plan.


(6)
            Includes
                special Company contribution of $1,393 to replace a forfeited 401(k)
                Plan
                Company matching contribution.


(7)
            Includes
                $885,077 previously reported as compensation in the Summary Compensation
                Table for prior years.


(8)
            Includes
                special Company contribution of $1,973 to replace a forfeited 401(k)
                Plan
                Company matching contribution.


(9)
            Includes
                $119,642 previously reported as compensation in the Summary Compensation
                Table for prior years.


(10)
            Includes
                special Company contribution of $1,760 to replace a forfeited 401(k)
                Plan
                Company matching contribution.


(11)
            Includes
                $9,000 previously reported as compensation in the Summary Compensation
                Table for prior years.




86
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Our
      nonqualified deferred compensation plan, which is designed to comply with the
      requirements of Section 409A of the Internal Revenue Code, enables our
      executive officers and directors to defer a portion of the cash compensation
      payable to them. Officers may defer up to 75% of base salary and up to 100%
      of
      annual incentive bonus and directors may defer up to 100% of annual retainer.
      The plan provides for a Company contribution of 50 cents for each dollar of
      the
      first 10% of base salary deferred by an officer. Plan participants elect to
      invest contributions in assorted mutual funds available under the plan.
      Distributions from the plan can be made in a lump sum payment or in annual
      payments over a period not to exceed 15 years. “In-service” distributions (i.e.,
      distributions made while the participant is still employed by us) may not be
      made prior to two years after the establishment of the in-service account in
      question. “Post-separation” distributions (i.e., distributions made after the
      participant ceases to be employed by us) may not be made until six months after
      the separation. A participant may also receive a one-time distribution of some
      or all of such participant’s deferred account in the event of financial hardship
      caused by certain “unforeseen emergencies” (as defined in the
      plan).





The
      following table shows the funds available under the deferred compensation plan
      and their annual rate of return for the year ended December 31, 2006, as
      reported by the administrator of the plan:





**Name
                of Fund**
            **Rate
                of**
              **Return**
            **Name
                of Fund**
            **Rate
                of**
              **Return**American
                Century Equity Income Adv. Fund
            19.3%
            Principal
                Investors Money Market Pfd. Fund
            4.50%American
                Funds EuroPacific Growth R3 Fund
            21.43%
            Principal
                Investors Partners MidCap Value Pfd. Fund
            13.29%American
                Funds Growth Fund of America R3 Fund
            10.62%
            Principal
                Investors Real Estate Securities Pfd. Fund
            36.16%Calvert
                Social Investment Bond A Fund
            4.28%
            Principal
                Investors SmallCap Blend Pfd. Fund
            13.95%Lord
                Abbett All Value P Fund
            13.62%
            Principal
                Investors SmallCap Value Pfd. Fund
            18.50%Principal
                Investors International Growth Pfd. Fund
            24.01%
            Russell
                LifePoints® Balanced Strategy E Fund
            12.84%Principal
                Investors LargeCap Growth Pfd. Fund
            9.59%
            Russell
                LifePoints® Equity Growth Strategy E Fund
            18.59%Principal
                Investors MidCap Blend Pfd. Fund
            13.81%





**Potential
      Payments Upon Termination or Change-in-Control**





Each
      of
      the employment agreements with our named executive officers as of
      December 31, 2006 provides that we will make severance payments and provide
      severance benefits to the executive if his employment with us terminates under
      certain circumstances. For purposes of the following discussion, the
“termination date” means the date the executive ceases to be our employee,
      whether due to nonrenewal of the employment agreement, termination by us, or
      the
      executive’s resignation, death or disability.





Severance
      for Messrs. Johnson and Peters is equal to 18 months of base salary and the
      severance for each of the other executive officers is equal to 12 months of
      base
      salary. In addition, an executive officer would receive a prorated portion
      of
      the cash bonus that would be payable under our annual incentive compensation
      plan for the year in which the termination date occurs. If the termination
      date
      occurs within 18 months after a “change in control” (see below), the
      executive officer would also receive a payment equal to his target bonus under
      the incentive compensation plan for the year in which the termination date
      occurs. The severance also includes continued medical benefits during the
      severance period. It is a condition to receiving severance payments and benefits
      that the executive officer release us from all legal claims of any nature that
      he has or may have as of the termination date.





Severance
      is payable if (i) the executive is terminated without cause or resigns for
“good reason,” (see below) or (ii) his employment agreement is not renewed.
      In addition, Mr. Johnson would receive severance if (x) he voluntarily
      resigns and the Board determines that he has provided an orderly transition
      to
      his successor, or (y) he becomes disabled.





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Severance
      payments to an executive officer will ordinarily be made over the severance
      period (18 months for Messrs. Johnson and Peters, and 12 months for all other
      executive officers) unless the termination date occurs within 18 months
      after a change in control, in which case the severance will be made in a single
      payment within ten days after the termination date.





If
      the
      employment of an executive officer terminates, all of his unvested stock options
      and shares of restricted stock will terminate on the termination date, unless
      a
      change in control has occurred within 18 months prior to the termination date,
      in which case all such unvested options and restricted stock will vest on the
      termination date. The executive will have 30 days after his termination date
      in
      which to exercise any stock options that vested on or before the executive’s
      termination date, except in the case of termination without cause within 18
      months after a change in control, death or disability, in which case the
      executive (or his estate) has one year from the termination date in which to
      exercise such vested options.





None
      of
      the executive employment agreements in place at December 31, 2006 provides
      for any payments or benefits upon a change in control unless the executive’s
      employment terminates at the time of the change in control. Neither do any
      of
      those agreements provide for a tax “gross-up” to offset the “parachute” excise
      tax under Internal Revenue Code Section 4999.





“Change
      in control” (CIC) occurs if (i) a reorganization, merger or consolidation
      of Aftermarket Technology Corp. or sale of all or substantially all of our
      assets occurs unless after such transaction at least 85% of the total voting
      power of the entity surviving or resulting from such transaction is beneficially
      owned by persons who prior to the transaction beneficially owned 100% of the
      total voting power of Aftermarket Technology Corp., (ii) any shareholder
      (or group of shareholders) becomes the beneficial owner of more than 35% of
      the
      total voting power of Aftermarket Technology Corp., or (iii) during any 12
      month period individuals who at the beginning of such 12-month period
      constituted our Board of Directors (together with any new directors whose
      election by such Board or whose nomination for election by our shareholders
      was
      approved by a vote of a majority of the directors then still in office who
      were
      either directors at the beginning of such period or whose election or nomination
      for election was previously so approved) cease for any reason to constitute
      a
      majority of our Board of Directors.





“Good
      reason” means (i) a material diminution in the executive officer’s
      compensation, authority or responsibilities that is not justified by the
      executive’s performance, or (ii) our material breach of the employment
      agreement, where such diminution or breach is not cured within 30 days after
      notice from the executive officer.




88
 ***Table
            of Contents***




The
      following tables show the payments and benefits
      that the named executive officers could receive in the event of certain
      termination events, based on their employment agreements as in effect on
      December 31, 2006:




**Donald
      T. Johnson, Jr.**


**Executive
                  Benefits****and**
                **Payments
                  Upon Termination**
              
              **Voluntary
                  Termination Without Board- approved Transition**
              
              **Voluntary
                  Termina-tion With Board- approved Transition**
              
              **For
                  Cause Termi-nation**
              
              **Involuntary
                  Termination Without Cause****(1)**
              
              **Involuntary
                  Termination Without Cause Within 18**
                **Months
                  after**
                **CIC****(1)**
              
              **Death**
              
              **Disability**
              
              **Retirement****Compensation:**Base
                  Salary
              
              
              -
              
              $
              802,500
              
              
              -
              
              $
              802,500
              
              $
              802,500
              
              
              -
              
              $
              802,500
              
              
              -Short-term
                  IncentivePro-rated
                  award
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Earned
                  award
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Pro-Forma
                  award
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              $
              481,500
              
              
              -
              
              
              -
              
              
              -Stock
                  Options(2)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              $
              339,736
              
              $
              339,736
              
              $
              339,736
              
              
              -Restricted
                  Stock(3)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              $
              753,652
              
              $
              753,652
              
              $
              753,652
              
              
              -**Benefits
                  and Perquisites:**Medical
                  Plan Coverage(4)
              
              
              -
              
              $
              9,000
              
              
              -
              
              $
              9,000
              
              $
              9,000
              
              
              -
              
              $
              9,000
              
              
              -Life
                  Insurance Proceeds
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              $
              500,000
              
              
              -
              
              
              -Vested
                  Portion of Company
                Match
                  of Deferred Comp.
              
              $
              16,939
              
              $
              16,939
              
              $
              16,939
              
              $
              16,939
              
              $
              42,346
              
              $
              42,346
              
              $
              42,346
              
              $
              42,346Accrued
                  Vacation Pay
              
              $
              5,200
              
              $
              5,200
              
              $
              5,200
              
              $
              5,200
              
              $
              5,200
              
              $
              5,200
              
              $
              5,200
              
              $
              5,200Outplacement
                  Assistance
              
              
              -
              
              $
              25,000
              
              
              -
              
              $
              25,000
              
              $
              25,000
              
              
              -
              
              
              -
              
              
              -280G
                  Tax Gross Up
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -**Total:**
              
              **$**
              **22,139**
              
              **$**
              **858,639**
              
              **$**
              **22,139**
              
              **$**
              **858,639**
              
              **$**
              **2,458,934**
              
              **$**
              **1,640,934**
              
              **$**
              **1,952,434**
              
              **$**
              **47,546**
 
 (1) Includes
        nonrenewal of agreement and resignation for good reason.
 (2) Unvested
        awards that accelerate upon the terminating event multiplied by (i) our
        closing stock price on December 29, 2006 minus (ii) the exercise price of
        such awards.
 (3) Unvested
        awards that accelerate upon the terminating event multiplied by our closing
        stock price on December 29, 2006.
 (4) Estimated
        employer subsidy.
 
 **Todd
        R. Peters**
 **Executive
                  Benefits and**
                **Payments
                  Upon Termination**
              
              **Voluntary
                  Termination**
              
              **For
                  Cause Termination**
              
              **Involuntary
                  Termination Without Cause****(1)**
              
              **Involuntary
                  Termination Without Cause Within 18 Months after CIC****(1)**
              
              **Death**
              
              **Disability**
              
              **Retirement****Compensation:**Base
                  Salary
              
              
              -
              
              
              -
              
              $
              486,750
              
              $
              486,750
              
              
              -
              
              
              -
              
              
              -Short-term
                  IncentivePro-rated
                  award
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Earned
                  award
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Pro-Forma
                  award
              
              
              -
              
              
              -
              
              
              -
              
              $
              194,700
              
              
              -
              
              
              -
              
              
              -Stock
                  Options(2)
              
              
              -
              
              
              -
              
              
              -
              
              $
              150,031
              
              $
              150,031
              
              $
              150,031
              
              
              -Restricted
                  Stock(3)
              
              
              -
              
              
              -
              
              
              -
              
              $
              403,426
              
              $
              403,426
              
              $
              403,426
              
              
              -**Benefits
                  and Perquisites:**Medical
                  Plan Coverage(4)
              
              
              -
              
              
              -
              
              $
              12,200
              
              $
              12,200
              
              
              -
              
              
              -
              
              
              -Life
                  Insurance Proceeds
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              $
              500,000
              
              
              -
              
              
              -Vested
                  Portion of Company
                Match
                  of Deferred Comp.
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Accrued
                  Vacation Pay
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Outplacement
                  Assistance
              
              
              -
              
              
              -
              
              $
              25,000
              
              $
              25,000
              
              
              -
              
              
              -
              
              
              -280G
                  Tax Gross Up
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -**Total:**
              
              
              -
              
              
              -
              
              **$**
              **523,950**
              
              **$**
              **1,272,107**
              
              **$**
              **1,053,457**
              
              **$**
              **553,457**
              
              
              -
 
 (1) Includes
        nonrenewal of agreement and resignation for good reason.
 (2) Unvested
        awards that accelerate upon the terminating event multiplied by (i) our
        closing stock price on December 29, 2006 minus (ii) the exercise price of
        such awards.
 (3) Unvested
        awards that accelerate upon the terminating event multiplied by our closing
        stock price on December 29, 2006.
 (4) Estimated
        employer subsidy.


(1)





89
 ***Table
            of Contents***




**William
        L. Conley, Jr.**
 **Executive
                    Benefits and**
                  **Payments
                    Upon Termination**
                
                **Voluntary
                    Termination**
                
                **For
                    Cause Termination**
                
                **Involuntary
                    Termination Without Cause****(1)**
                
                **Involuntary
                    Termination Without Cause Within 18 Months after CIC****(1)**
                
                **Death**
                
                **Disability**
                
                **Retirement****Compensation:**Base
                    Salary
                
                
                -
                
                
                -
                
                $
                252,000
                
                $
                252,000
                
                
                -
                
                
                -
                
                
                -Short-term
                    IncentivePro-rated
                    award
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Earned
                    award
                
                $
                159,472
                
                $
                159,472
                
                $
                159,472
                
                $
                159,472
                
                $
                159,472
                
                $
                159,472
                
                $
                159,472Pro-Forma
                    award
                
                
                -
                
                
                -
                
                
                -
                
                $
                126,000
                
                
                -
                
                
                -
                
                
                -Stock
                    Options(2)
                
                
                -
                
                
                -
                
                
                -
                
                $
                21,265
                
                $
                21,265
                
                $
                21,265
                
                
                -Restricted
                    Stock(3)
                
                
                -
                
                
                -
                
                
                -
                
                $
                130,787
                
                $
                130,787
                
                $
                130,787
                
                
                -**Benefits
                    and Perquisites:**Medical
                    Plan Coverage(4)
                
                
                -
                
                
                -
                
                $
                6,000
                
                $
                6,000
                
                
                -
                
                
                -
                
                
                -Life
                    Insurance Proceeds
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                $
                500,000
                
                
                -
                
                
                -Vested
                    Portion of Company
                  Match
                    of Deferred Comp.
                
                $
                17,841
                
                $
                17,841
                
                $
                17,841
                
                $
                22,302
                
                $
                22,302
                
                $
                22,302
                
                $
                22,302Accrued
                    Vacation Pay
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Outplacement
                    Assistance
                
                
                -
                
                
                -
                
                $
                25,000
                
                $
                25,000
                
                
                -
                
                
                -
                
                
                -280G
                    Tax Gross Up
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -**Total:**
                
                **$**
                **177,313**
                
                **$**
                **177,313**
                
                **$**
                **460,313**
                
                **$**
                **742,826**
                
                **$**
                **833,826**
                
                **$**
                **333,826**
                
                **$**
                **181,774**
 
 (1) Includes
        nonrenewal of agreement and resignation for good reason.
 (2) Unvested
        awards that accelerate upon the terminating event multiplied by (i) our
        closing stock price on December 29, 2006 minus (ii) the exercise price of
        such awards.
 (3) Unvested
        awards that accelerate upon the terminating event multiplied by our closing
        stock price on December 29, 2006.
 (4) Estimated
        employer subsidy.
 
 **Brett
        O. Dickson**
 **Executive
                  Benefits and**
                **Payments
                  Upon Termination**
              
              **Voluntary
                  Termination**
              
              **For
                  Cause Termination**
              
              **Involuntary
                  Termination Without Cause****(1)**
              
              **Involuntary
                  Termination Without Cause Within 18 Months after CIC****(1)**
              
              **Death**
              
              **Disability**
              
              **Retirement****Compensation:**Base
                  Salary
              
              
              -
              
              
              -
              
              $
              260,000
              
              $
              260,000
              
              
              -
              
              
              -
              
              
              -Short-term
                  IncentivePro-rated
                  award
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Earned
                  award
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Pro-Forma
                  award
              
              
              -
              
              
              -
              
              
              -
              
              $
              130,000
              
              
              -
              
              
              -
              
              
              -Stock
                  Options(2)
              
              
              -
              
              
              -
              
              
              -
              
              $
              31,900
              
              $
              31,900
              
              $
              31,900
              
              
              -Restricted
                  Stock(4)
              
              
              -
              
              
              -
              
              
              -
              
              $
              183,987
              
              $
              183,987
              
              $
              183,987
              
              
              -**Benefits
                  and Perquisites:**Medical
                  Plan Coverage(4)
              
              
              -
              
              
              -
              
              $
              8,100
              
              $
              8,100
              
              
              -
              
              
              -
              
              
              -Life
                  Insurance Proceeds
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              $
              500,000
              
              
              -
              
              
              -Vested
                  Portion of Company
                Match
                  of Deferred Comp.
              
              $
              13,089
              
              $
              13,089
              
              $
              13,089
              
              $
              13,089
              
              $
              13,089
              
              $
              13,089
              
              $
              13,089Accrued
                  Vacation Pay
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Outplacement
                  Assistance
              
              
              -
              
              
              -
              
              $
              25,000
              
              $
              25,000
              
              
              -
              
              
              -
              
              
              -280G
                  Tax Gross Up
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -**Total:**
              
              **$**
              **13,089**
              
              **$**
              **13,089**
              
              **$**
              **306,189**
              
              **$**
              **652,076**
              
              **$**
              **728,976**
              
              **$**
              **228,976**
              
              **$**
              **13,089**
 
 (1) Includes
        nonrenewal of agreement and resignation for good reason.
 (2) Unvested
        awards that accelerate upon the terminating event multiplied by (i) our
        closing stock price on December 29, 2006 minus (ii) the exercise price of
        such awards.
 (3) Unvested
        awards that accelerate upon the terminating event multiplied by our closing
        stock price on December 29, 2006.
 (4) Estimated
        employer subsidy.
  90
 ***Table
            of Contents***
  **Joseph
        Salamunovich**
 **Executive
                  Benefits and**
                **Payments
                  Upon Termination**
              
              **Voluntary
                  Termination**
              
              **For
                  Cause Termination**
              
              **Involuntary
                  Termination Without Cause****(1)**
              
              **Involuntary
                  Termination Without Cause Within 18 Months after CIC****(1)**
              
              **Death**
              
              **Disability**
              
              **Retirement****Compensation:**Base
                  Salary
              
              
              -
              
              
              -
              
              $
              234,600
              
              $
              234,600
              
              
              -
              
              
              -
              
              
              -Short-term
                  IncentivePro-rated
                  award
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Earned
                  award
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Pro-Forma
                  award
              
              
              -
              
              
              -
              
              
              -
              
              $
              105,570
              
              
              -
              
              
              -
              
              
              -Stock
                  Options(2)
              
              
              -
              
              
              -
              
              
              -
              
              $
              21,265
              
              $
              21,265
              
              $
              21,265
              
              
              -Restricted
                  Stock(3)
              
              
              -
              
              
              -
              
              
              -
              
              $
              148,534
              
              $
              148,534
              
              $
              148,534
              
              
              -**Benefits
                  and Perquisites**Medical
                  Plan Coverage(4)
              
              
              -
              
              
              -
              
              $
              8,100
              
              $
              8,100
              
              
              -
              
              
              -
              
              
              -Life
                  Insurance Proceeds
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              $
              469,200
              
              
              -
              
              
              -Vested
                  Portion of Company
                Match
                  of Deferred Comp.
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Accrued
                  Vacation Pay
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Outplacement
                  Assistance
              
              
              -
              
              
              -
              
              $
              25,000
              
              $
              25,000
              
              
              -
              
              
              -
              
              
              -280G
                  Tax Gross Up
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -**Total:**
              
              
              -
              
              
              -
              
              **$**
              **267,700**
              
              **$**
              **543,069**
              
              **$**
              **638,999**
              
              **$**
              **169,799**
              
              
              -
 
 (1) Includes
        nonrenewal of agreement and resignation for good reason.
 (2) Unvested
        awards that accelerate upon the terminating event multiplied by (i) our
        closing stock price on December 29, 2006 minus (ii) the exercise price of
        such awards.
 (3) Unvested
        awards that accelerate upon the terminating event multiplied by our closing
        stock price on December 29, 2006.
 (4) Estimated
        employer subsidy.




Mr.
      Johnson’s new employment agreement entered into in January 2007 changes his
      severance from what is described above to an amount equal to two years of base
      salary and two years of target bonus under our annual incentive compensation
      plan, plus a prorated portion of any cash bonus under our long-term incentive
      plan. These payments are subject to a tax “gross-up” to offset the “parachute”
excise tax under Internal Revenue Code Section 4999 if a change in control
      occurs within 18 months prior to the termination date. Mr. Johnson’s medical
      coverage runs for five years after termination. Mr. Johnson’s severance is
      payable if (i) he is terminated without cause or resigns for good reason,
      (ii) his employment agreement is not renewed within 18 months after a
      change in control, or (iii) he becomes disabled, and payments will be made
      over the 24-month period following his termination date unless the termination
      date occurs within 18 months after a change in control, in which case the
      severance will be made in a single payment within ten days after the termination
      date.





Under
      Mr.
      Johnson’s new agreement, unvested stock options and restricted stock as of his
      termination date will continue to vest according to their vesting schedules
      after the termination date under the following circumstances: (i) the
      expiration of his employment agreement without renewal; (ii) his
      termination without cause or resignation for good reason; (iii) his
      permanent disability; or (iv) his voluntary resignation if the Board
      determines that Mr. Johnson has provided an orderly transition to his
      successor. If
      Mr.
      Johnson ceases to be our employee due to his death, then all his unvested stock
      options and restricted stock will immediately vest. If he ceases to be our
      employee for any other reason, then his stock options and restricted stock
      that
      are unvested as of the termination date will terminate. His options that are
      vested on his termination date or that subsequently vest will be exercisable
      until the tenth anniversary of the date of their grant.




91
 ***Table
            of Contents***





**Compensation
      of Directors**





The
      following table sets forth the compensation for 2006 for those persons who
      served as members of our Board of Directors during 2006 (other than the Chairman
      of the Board, whose compensation is included in the above tables as a named
      executive officer):




**Name**
              
              **Fees**
                **earned
                  or**
                **paid
                  in**
                **cash**
                **($)**
              
              **Stock**
                **Awards**
                **($)****(1)**
              
              **Option**
                **Awards**
                **($)****(2)**
              
              **Non-**
                **Equity
                  Incentive**
                **Plan**
                **Compen-sation**
                **($)**
              
              **Change
                  in Pension Value and Nonqualified Deferred Compensation
                  Earnings**
                **($)**
              
              **All
                  Other Compen-sation**
                **($)**
              
              **Total**
                **($)****(a)**
              
              **(b)**
              
              **(c)**
              
              **(d)**
              
              **(e)**
              
              **(f)**
              
              **(g)**
              
              **(h)**Robert
                  L. Evans
              
              $
              50,000
              
              
              $
              29,750
              (3)
                  (4)
              
              $
              17,954
              (5)
                  (6)
              
              -
              
              -
              
              -
              
              $
              97,704Curtland
                  E. Fields
              
              $
              50,000
              
              
              $
              29,750
              (3)
                  (4)
              
              $
              17,954
              (5)
                  (6)
              
              -
              
              -
              
              -
              
              $
              97,704Michael
                  J. Hartnett
              
              $
              50,000
              
              
              $
              29,750
              (3)
                  (4)
              
              $
              28,552
              (5)
                  (7)
              
              -
              
              -
              
              -
              
              $
              108,302Michael
                  D. Jordan
              
              $
              50,000
              (8)
              
              $
              29,750
              (3)
                  (4)
              
              $
              41,080
              (5)
                  (6)
              
              -
              
              -
              
              -
              
              $
              120,830S.
                  Lawrence Prendergast
              
              $
              50,000
              
              
              $
              29,750
              (3)
                  (4)
              
              $
              41,080
              (5)
                  (6)
              
              -
              
              -
              
              -
              
              $
              120,830Edward
                  Stewart
              
              $
              50,000
              (8)
              
              $
              29,750
              (3)
                  (4)
              
              $
              17,954
              (5)
                  (6)
              
              -
              
              -
              
              -
              
              $
              97,704




(1)
            See
                Item 8. "Consolidated Financial Statements and Supplementary Data
                - Note 2
                -*Stock-Based
                Compensation*"
                for a description of the assumptions used in the computation of our
                stock
                award fair values.


(2)
            See
                Item 8. "Consolidated Financial Statements and Supplementary Data
                - Note 2
                -*Stock-Based
                Compensation*"
                for a description of the assumptions used in the computation of our
                option
                award fair values.


(3)
            The
                grant date fair value of 1,500 shares of restricted stock granted
                on June
                1, 2006 was $37,035.


(4)
            As
                of December 31, 2006, the director held 3,166 shares of restricted
                stock.


(5)
            The
                grant date fair value of 4,500 options to purchase common stock granted
                on
                June 1, 2006 to a director was
                $50,245.


(6)
            As
                of December 31, 2006, the director held 32,000 options to purchase
                common
                stock.


(7)
            As
                of December 31, 2006, the director held 127,000 options to purchase
                common
                stock.


(8)
            Entire
                2006 cash retainer has been deferred in Company's Nonqualified Deferred
                Compensation Plan.





W e
      pay our
      outside directors an annual fee of $50,000 for serving on the Board and we
      reimburse them for
      their expenses in connection with attending Board and committee meetings.
      Directors do not receive any compensation for serving on a committee or serving
      as lead director or a committee chairman.  In
      addition to the annual fee, each outside director receives an annual grant
      of
      restricted stock and options to purchase our common stock. For 2006 the grant
      was 1,500 shares of restricted stock and 4,500 stock options. Each director’s
      restricted stock (for which no consideration was paid) vests in one-third
      increments on the first, second and third anniversaries of the date of grant.
      The option exercise price is $24.69 (the closing price of our common stock
      on
      Nasdaq on the date the options were granted), the options vest in one-third
      increments on the first, second and third anniversaries of the date of grant,
      and they expire in 2016.





**Stock
      Incentive Plans**





Pursuant
      to our 1998, 2000, 2002, 2004 and 2006 stock incentive plans, officers,
      directors, employees and consultants of Aftermarket Technology Corp. and its
      affiliates are eligible to receive stock options, annual incentive bonuses
      and
      incentive stock. In addition, we have stock options outstanding under a 1996
      stock incentive plan under which awards may no longer be made.





The
      stock
      incentive plans are administered by the Compensation and Nominating Committee
      of
      our Board of Directors, although the Board of Directors makes decisions with
      respect to awards for our Chief Executive Officer and may exercise any of the
      Committee’s other authority under the plans in lieu of the Committee’s exercise
      thereof. Subject to the express provisions of the stock incentive plans, the
      Committee has broad authority in administering and interpreting the plans.
      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. Restricted stock
      granted under the stock incentive plans are subject to vesting provisions.
      Stock
      options are also subject to vesting provisions and expire on the tenth
      anniversary of the date of grant.




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As
      of
      February 15, 2007 ***,*** there
      were 200,225 shares of restricted stock issued to our directors, officers and
      employees and 1,584,649 options to purchase common stock granted to our
      directors, officers and employees pursuant to the plans, and the number of
      shares available for future issuance pursuant to the plans was
      1,081,196.





For
      information regarding the number of shares of restricted stock and stock options
      held by our directors and officers, see Item 12. "Security Ownership of
      Certain Beneficial Owners and Management and Related Stockholder
      Matters."





**Compensation
      Committee Interlocks and Insider Participation**





The
      Compensation and Nominating Committee of our Board of Directors is composed
      of
      Robert L. Evans, Curtland E. Fields (Chairman) and Michael D.
      Jordan, none of whom are or have ever been an officer or employee of Aftermarket
      Technology Corp. or its subsidiaries and each of whom is, and at all times
      during 2006 was, independent as defined in the Nasdaq listing standards and
      the
      regulations of the Securities and Exchange Commission. During 2006 none of
      our
      executive officers served on the board of directors or compensation committee
      of
      any entity with which any of Messrs. Evans, Fields or Jordan or any other member
      of our Board of Directors had any affiliation.





**Compensation
      Committee** **Report**





The
      Compensation and Nominating Committee of our Board of Directors has reviewed
      and
      discussed the Compensation Discussion and Analysis appearing elsewhere in this
      Item 11 with our management and based on such review and discussions, the
      Compensation and Nominating Committee has recommended to the Board of Directors
      that the Compensation Discussion and Analysis be included in this Annual Report
      on Form 10-K.





Compensation
      and Nominating Committee


Curtland
      E. Fields, Chairman


Robert
      L.
      Evans


Michael
      D. Jordan





The
      foregoing report of the Compensation and Nominating Committee shall not be
      deemed incorporated by reference by any general statement incorporating by
      reference this Annual Report on Form 10-K into any filing under the
      Securities Act of 1933 or under the Exchange Act, except to the extent that
      we
      specifically incorporate this information by reference, and shall not otherwise
      be deemed filed under such Acts.




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**ITEM
        12.**SECURITY
        OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
        MATTERS****




**Security
      Ownership**




The
      following table sets forth the beneficial ownership of our common stock (the
      only class of our issued and outstanding voting securities), as of
      February 15, 2007 by each of our directors, our Chief Executive Officer,
      our Chief Financial Officer, each of our three other most highly compensated
      executive officers as of December 31, 2006, our directors and executive
      officers as a group, and each person who at February 15, 2007 was known to
      us to beneficially own more than 5% of our outstanding common
      stock.





**Beneficial
                Owner (1)**
            
            **Number
                of**
              **Shares**(2)****
            
            **Voting**
              **Percentage**Wells
                Fargo & Company **(3)**
            
            1,939,108
            
            8.9Daruma
                Asset Management, Inc. **(4)**
            
            1,703,300
            
            7.8Pzena
                Investment Management, LLC **(5)**
            
            1,645,394
            
            7.5FMR
                Corp. **(6)**
            
            1,381,702
            
            6.3Donald
                T. Johnson, Jr. **(7)**
            
            338,607
            
            1.5Todd
                R. Peters **(8)**
            
            55,429
            
            *Brett
                O. Dickson **(9)**
            
            13,646
            
            *William
                L. Conley, Jr. **(10)**
            
            51,980
            
            *Joseph
                Salamunovich **(11)**
            
            66,656
            
            *Robert
                L. Evans **(12)**
            
            31,500
            
            *Curtland
                E. Fields **(12)**
            
            31,500
            
            *Dr.
                Michael J. Hartnett **(13)**
            
            126,500
            
            *Michael
                D. Jordan **(14)**
            
            24,833
            
            *S.
                Lawrence Prendergast **(14)**
            
            25,833
            
            *Edward
                Stewart **(12)**
            
            48,500
            
            *All
                directors and officers as a group (14 persons)
                **(15)**
            
            975,307
            
            4.3


_______________


*
      Less
      than 1%.





(1)
            Unless
                otherwise noted, the address of each beneficial owner is 1400 Opus
                Place,
                Suite 600, Downers Grove, IL 60515.


(2)
            The
                shares of common stock underlying options granted under our stock
                incentive plans that are exercisable as of February 15, 2007 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,
                but
                are not deemed to be outstanding for the purpose of computing the
                beneficial ownership of any other person.


(3)
            Wells
                Fargo & Company’s address is 420 Montgomery Street, San Francisco, CA
                94104.


(4)
            Daruma
                Asset Management, Inc.’s address is 80 West 40thStreet, 9thFloor, New York, NY 10018.


(5)
            Pzena
                Investment Management, LLC’s address is 120 West 45thStreet, 20thFloor, New York, NY 10036.


(6)
            FMR
                Corp.’s address is 82 Devonshire Street, Boston, MA
                02109.


(7)
            Includes
                64,816 shares of restricted stock and 215,000 shares subject to
                exercisable options. Excludes 143,950 shares subject to options that
                are
                not exercisable.


(8)
            Includes
                18,958 shares of restricted stock and 23,333 shares subject to exercisable
                options. Excludes 16,875 shares subject to options that are not
                exercisable.


(9)
            Consists
                of 8,646 shares of restricted stock and 5,000 shares subject to
                exercisable options. Excludes 13,437 shares subject to options that
                are
                not exercisable.


(10)
            Includes
                6,146 shares of restricted stock and 42,917 shares subject to exercisable
                options. Excludes 11,770 shares subject to options that are not
                exercisable.


(11)
            Includes
                6,980 shares of restricted stock and 52,917 shares subject to exercisable
                options. Excludes 11,770 shares subject to options that are not
                exercisable.


(12)
            Includes
                3,166 shares of restricted stock and 27,500 shares subject to exercisable
                options. Excludes 4,500 shares subject to options that are not
                exercisable.


(13)
            Includes
                3,166 shares of restricted stock and 122,500 shares subject to exercisable
                options. Excludes 4,500 shares subject to options that are not
                exercisable.


(14)
              Includes
                  3,166 shares of restricted stock and 20,833 shares subject to exercisable
                  options. Excludes 11,167 shares subject to options that are not
                  exercisable.
 (15)
              Includes
                  144,482 shares of restricted stock and 714,167 shares subject to
                  exercisable options. Excludes 272,780 shares subject to options
                  that are
                  not exercisable.


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**Securities
      Authorized for Issuance Under Equity Compensation Plans**





The
      following table sets forth certain information regarding our equity compensation
      plans as of December 31, 2006:





**Plan
                category**
            
            **Number
                of securities**
              **to
                be issued**
              **upon
                exercise of**
              **outstanding
                options,**
              **warrants
                and rights**
            
            **Weighted-average**
              **exercise
                price of**
              **outstanding
                options,**
              **warrants
                and rights**
            
            **Number
                of securities**
              **remaining
                available for**
              **future
                issuances under**
              **equity
                compensation plans**
              **(excluding
                securities**
              **reflected
                in column (a))****(a)**
            
            **(b)**
            
            **(c)**Equity
                compensation plans
              approved
                by security holders
            
            1,506,448
            
            $     20.10
            
            1,195,679Equity
                compensation plans not approved by security holders
            
            -
            
            -
            
            -Total
            
            1,506,448
            
            
            
            1,195,679






**ITEM
        13.**CERTAIN
        RELATIONSHIPS AND RELATED TRANSACTIONS****AND DIRECTOR INDEPENDENCE****





Our
      Board
      of Directors presently consists, and at all times during 2006 consisted, of
      Chairman Donald T. Johnson, Jr., lead director Michael D. Jordan, and
      directors Robert L. Evans, Curtland E. Fields,
      Dr. Michael J. Hartnett, S. Lawrence Prendergast and Edward
      Stewart. The Board has determined that all of our directors, with the exception
      of Mr. Johnson (who is also an employee of Aftermarket Technology Corp.), are
      independent as defined in the Nasdaq listing standards and the regulations
      of
      the Securities and Exchange Commission. Our Compensation and Nominating
      Committee and our Audit Committee are composed entirely of independent
      directors.





Since
      the
      beginning of 2006, we have not engaged in, nor is there any current proposal
      that we engage in, any transaction or series of related transactions with any
      of
      our directors, executive officers, anyone known by us to own (of record or
      beneficially) more than 5% of our outstanding common stock, or any member of
      the
      immediate family of any of the foregoing.





The
      Audit
      Committee of our Board of Directors is responsible for reviewing and approving
      all “related party transactions” (as defined in the applicable Nasdaq listing
      standards). Before approving such a transaction, the Audit Committee would
      take
      into account all relevant factors that it deems appropriate, including whether
      the related party transaction is on terms no less favorable to us than terms
      generally available from an unaffiliated third party under the same or similar
      circumstances, and the extent of the related person’s interest in the
      transaction. The Audit Committee’s responsibility for related party transactions
      is set forth in the Committee’s written charter (a copy of which was attached to
      the proxy statement for our 2006 annual meeting and is available on our website
      at www.goATC.com ).
      The
      Committee’s policy regarding related party transactions is not in writing, but
      is the result of the oral consensus of the members of the
      Committee.




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**ITEM
        14.PRINCIPAL ACCOUNTANT
        FEES AND
        SERVICES**





Our
      principal outside accountant is Ernst & Young LLP. Set forth below are the
      fees and expenses for Ernst & Young for each of the last two years for
      the following services provided to us:





**2006**
            
            
            **2005**Audit
                Fees **(1)**
            $
            1,101,430
            
            $
            1,088,424Audit-Related
                Fees **(2)**
            
            178,896
            
            
            120,537Tax
                Fees **(3)**
            
            44,958
            
            
            69,081All
                Other Fees **(4)**
            
            6,600
            
            
            -Total
                Fees
            $
            1,331,884
            
            $
            1,278,042


_______________


(1)
            The
                fees for 2005 are $39,024 higher than reported in our Annual Report
                on
                Form 10-K for the year ended December 31, 2005 due to audit fees
                incurred
                but notcommunicated
                until after the filing of the 2005 Annual
                Report.





(2)
            For
                2006 consists of fees and expenses for services relating to (i) a
                Statement of Auditing Standards No. 70 review ($128,896) and (ii)
                diligence for a potential acquisition
                ($50,000). For 2005 consists of fees and expenses for services relating
                to
                a Statement of Auditing Standards No. 70 review and was reclassified
                from
                "All OtherFees"
                as reported in the 2005 Annual Report.





(3)
            For
                2006 consists of fees and expenses for assistance with (i) state,
                federal and foreign tax returns ($35,939) and (ii) other foreign tax
                related assistance ($9,019).For2005
                consists of fees and expenses for assistance with (i) state, federal
                and foreign tax returns ($63,712) and (ii) other tax audits
                ($5,369).




(4)
            For
                2006 consists of fees and expenses for services relating to assurance
                services for a customer.





The
      Audit
      Committee of our Board of Directors pre-approves each non-audit engagement
      or
      service with or by our independent auditor. Prior to pre-approving any such
      non-audit engagement or service, it is the Committee's practice to first receive
      information regarding the engagement or service that (i) is detailed as to
      the
      specific engagement or service, and (ii) enables the Committee to make a
      well-reasoned assessment of the impact of the engagement or service on the
      auditor’s independence. In addition, the Chairman of the Audit Committee is
      authorized to pre-approve any non-audit service between regularly scheduled
      meetings of the Audit Committee provided that the fees for such service do
      not
      exceed $50,000 and the Chairman’s approvals are reported to the full Audit
      Committee at the next Audit Committee meeting. The Audit Committee or the Audit
      Committee Chairman pre-approved all non-audit engagements with, and services
      provided by, our independent auditor during 2006 and 2005.




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**PART
      IV**


ITEM15.**EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES**




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





1.
            Financial
                Statements IndexSee
                Index to Financial Statements and Supplemental Data on page
                40.2.
            Financial
                Statement Schedules IndexII
                - Valuation and Qualifying
                Accounts
            S-1All
                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.3.
            Exhibit
                IndexThe
                following exhibits are filed as part of this Annual Report on Form
                10-K,
                or are incorporated herein by reference:**Exhibit**
              **Number**
            **Description**3.1
            Restated
                Certificate of Incorporation of Aftermarket Technology Corp (previously
                filed as Exhibit 3.1 to the Company's Current Report on Form 8-K
                filed on
                December 21, 2001 and incorporated herein by this
                reference)3.2
            Bylaws
                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, 2005 and incorporated herein by this
                reference)10.1
            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)10.2†
            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)10.3†
            Form
                of Non-Qualified Stock Option Agreementunder the Aftermarket Technology Corp. 1996 Stock Incentive
                Plan(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)10.4†
            Aftermarket
                Technology Corp. 1998 Stock Incentive Plan (previously filed as
                Exhibit 10.55 to the Company's Annual Report on Form 10-K for
                the year ended December 31, 1998 and incorporated herein by this
                reference)10.5†
            Aftermarket
                Technology Corp. 2000 Stock Incentive Plan (previously filed as
                Exhibit 10.57 to the Company's Annual Report on Form 10-K for
                the year ended December 31, 2000 and incorporated herein by this
                reference)10.6†
            Aftermarket
                Technology Corp. 2002 Stock Incentive Plan (previously filed as
                Exhibit 10.31 to the Company's Annual Report on Form 10-K for
                the year ended December 31, 2002 and incorporated herein by this
                reference)10.7†
            Aftermarket
                Technology Corp. 2004 Stock Incentive Plan(previously filed as Exhibit 10.1 to the Company's Current Report
                on Form
                8-K filed on December 14, 2004 and incorporated herein by this
                reference)





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10.8†
            Standard
                Terms and Conditions Governing Nonemployee Director Stock Options
                Granted
                on or after May 12, 2004 under the Aftermarket Technology Corp. 1998,
                2000, 2002, and 2004 Stock Incentive Plans(previously filed as Exhibit 10.2 to the Company's Current Report
                on Form
                8-K filed on December 14, 2004 and incorporated herein by this
                reference)10.9†
            Standard
                Terms and Conditions Governing Employee Non-Qualified Stock Options
                Granted on or after May 12, 2004 under the Aftermarket Technology
                Corp. 1998, 2000, 2002, and 2004 Stock Incentive Plans(previously filed as Exhibit 10.3 to the Company's Current Report
                on Form
                8-K filed on December 14, 2004 and incorporated herein by this
                reference)10.10†
            Standard
                Terms and Conditions Governing Nonemployee Director Stock Options
                under
                the Aftermarket Technology Corp. 1998, 2000 and 2002 Stock Incentive
                Plans(previously filed as Exhibit 10.4 to the Company's Current Report
                on Form
                8-K filed on December 14, 2004 and incorporated herein by this
                reference)10.11†
            Standard
                Terms and Conditions Governing Employee Non-Qualified Stock Options
                under
                the Aftermarket Technology Corp. 1998, 2000 and 2002 Stock Incentive
                Plans(previously filed as Exhibit 10.5 to the Company's Current Report
                on Form
                8-K filed on December 14, 2004 and incorporated herein by this
                reference)10.12†
            Aftermarket
                Technology Corp. 2006 Stock Incentive Plan(previously filed as Exhibit 10.1 to the Company's Current Report
                on Form
                8-K filed on June 6, 2006 and incorporated herein by this
                reference)10.13†
            Standard
                Terms and Conditions Governing Nonemployee Director Stock Options
                under
                the Aftermarket Technology Corp. 2006 Stock Incentive Plan(previously filed as Exhibit 10.2 to the Company's Current Report
                on Form
                8-K filed on June 6, 2006 and incorporated herein by this
                reference)10.14†
            Standard
                Terms and Conditions Governing Employee Non-Qualified Stock Options
                under
                the Aftermarket Technology Corp. 2006 Stock Incentive Plan(previously filed as Exhibit 10.3 to the Company's Current Report
                on Form
                8-K filed on June 6, 2006 and incorporated herein by this
                reference)10.15†
            Form
                of Restricted Stock Agreement for Nonemployee Directorsunder
                the Aftermarket Technology Corp. 1998, 2000, 2002, 2004 and 2006
                Stock
                Incentive Plans(previously filed as Exhibit 10.4 to the Company's Current Report
                on Form
                8-K filed on June 6, 2006 and incorporated herein by this
                reference)10.16†
            Form
                of Restricted Stock Agreement for Employeeunder
                the Aftermarket Technology Corp. 1998, 2000, 2002, 2004 and 2006
                Stock
                Incentive Plans(previously filed as Exhibit 10.5 to the Company's Current Report
                on Form
                8-K filed on June 6, 2006 and incorporated herein by this
                reference)10.17†
            Aftermarket
                Technology Corp. Executive Nonqualified Excess Plan (previously filed
                as
                Exhibit 10 to the Company's Current Report on Form 8-K filed on
                June 6, 2005 and incorporated herein by this
                reference)10.18†
            Aftermarket
                Technology Corp. Executive Nonqualified Excess Plan Adoption Agreement
                (previously filed as Exhibit 10 to the Company's Current Report on
                Form
                8-K filed on September 18, 2006 and incorporated herein by this
                reference)10.19†*
            Executive
                Employment Agreement, dated as of
                January 19, 2007, between Aftermarket Technology Corp. and Donald T.
                Johnson, Jr.10.20†
            Executive
                Employment Agreement, dated as of March 9, 2004, between Aftermarket
                Technology Corp. and Todd R. Peters (previously filed as
                Exhibit 10.22 to the Company's Annual Report on Form 10-K for
                the year ended December 31, 2004 and incorporated herein by this
                reference)10.21†
            Form
                of Executive Employment Agreement between Aftermarket Technology
                Corp. and
                certain of its officers (previously filed as Exhibit 10.27 to the
                Company's Annual Report on Form 10-K for the year ended
                December 31, 2002 and incorporated herein by this
                reference)10.22†
            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)10.23
            Stock
                Purchase Agreement dated as of September 1, 2000 between Aftermarket
                Technology Corp. and ATCDG Acquisition Corp., Inc.(previously
                filed as Exhibit 10.1 to the Company's Current Report on
                Form 8-K dated October 27, 2000 and incorporated herein by this
                reference)10.24
            Amendment
                to Stock Purchase Agreement dated as of October 27, 2000 between
                Aftermarket Technology Corp. and ATCDG Acquisition Corp., Inc.(previously
                filed as Exhibit 10.2 to the Company's Current Report on
                Form 8-K dated October 27, 2000 and incorporated herein by this
                reference)10.25
            Amendment
                No. 2 to Stock Purchase Agreement dated as of May 25, 2001
                between Aftermarket Technology Corp. and ATC Distribution Group (as
                the
                successor to ATCDG Acquisition Corp., Inc.) (previously filed as
                Exhibit
                10.1 to the Company's Current Report on Form 8-K filed on
                December 21, 2001 and incorporated herein by this
                reference)





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10.26
            Agreement
                dated as of July 2, 2001 between Aftermarket Technology Corp. and ATC
                Distribution Group (as the successor to ATCDG Acquisition Corp.,
                Inc.)
                (previously filed as Exhibit 10.2 to the Company's Current Report
                on Form
                8-K filed on December 21, 2001 and incorporated herein by this
                reference)10.27
            Amendment
                No. 3 to Stock Purchase Agreement dated as of October 19, 2001
                between Aftermarket Technology Corp. and ATC Distribution Group (as
                the
                successor to ATCDG Acquisition Corp., Inc.) (previously filed as
                Exhibit
                10.3 to the Company's Current Report on Form 8-K filed on
                December 21, 2001 and incorporated herein by this
                reference)10.28
            Amendment
                No. 4 to Stock Purchase Agreement dated as of December 28, 2001
                between Aftermarket Technology Corp. and ATC Distribution Group (as
                the
                successor to ATCDG Acquisition Corp., Inc.)(previously filed as Exhibit 10.40 to the Company's Annual Report on
                Form 10-K for the year ended December 31, 2001 and incorporated
                herein by this reference)10.29
            Amendment
                No. 5 to Stock Purchase Agreement dated as of August 2, 2002 between
                Aftermarket Technology Corp. and ATC Distribution Group (as the successor
                to ATCDG Acquisition Corp., Inc.)(previously
                filed as Exhibit 10.29 to the Company's Annual Report on
                Form 10-K for the year ended December 31, 2002 and incorporated
                herein by this reference)10.30
            Credit
                Agreement dated as of March 21, 2006 among Aftermarket Technology
                Corp.,
                Bank of America, N.A., as Administrative Agent, and the other Lenders
                party thereto, Banc of America Securities LLC, J.P. Morgan Securities
                Inc., JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A. and Charter
                One
                Bank, N.A. (previously filed as Exhibit 10.1 to the Company’s Quarterly
                Report on Form 10-Q for the quarter ended March 31, 2006 and incorporated
                herein by reference)10.31
            Guaranty
                and Collateral Agreement dated as of March 21, 2006 made by Aftermarket
                Technology Corp. and certain of its subsidiaries in favor of Bank
                of
                America, N.A., as Administrative Agent (previously filed as Exhibit
                10.2
                to the Company’s Quarterly Report on Form 10-Q for the quarter ended March
                31, 2006 and incorporated herein by reference)14
            Code
                of Ethics (previously filed as Exhibit 14 to the Company's Annual
                Report on Form 10-K for the year ended December 31, 2003 and
                incorporated herein by this reference)21*
            List
                of Subsidiaries23*
            Consent
                of Independent Registered Public Accounting
                Firm31.1*
            Rule
                13a-14(a)/15d-14(a) Certification of Chief
                Executive Officer31.2*
            Rule
                13a-14(a)/15d-14(a) Certification of Chief
                Financial Officer32.1*
            Section
                1350 Certification of Chief Executive
                Officer32.2*
            Section
                1350 Certification of Chief Financial
                Officer





______________


† Compensation
      plan or arrangements in which directors or executive officers are eligible
      to
      participate.


*
      Filed
      herewith.





(b)
            Refer
                to (a) 3 above.





(c)
            Refer
                to (a) 2 above.




99
 ***Table
            of Contents***




**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.







**AFTERMARKET
              TECHNOLOGY CORP.**By:
            /s/
                Donald T. Johnson, Jr.Donald
                T. Johnson, Jr.
              Chairman,
                President and Chief Executive OfficerMarch
                1, 2007





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 on behalf of the
      registrant and in the capacities and on the dates indicated.






March
                1, 2007
            /s/
                Donald T. Johnson, Jr.Donald
                T. Johnson, Jr.
              Chairman,
                President and Chief Executive Officer
              (principal
                executive officer)March
                1, 2007
            /s/
                Todd R. PetersTodd
                R. Peters
              Vice
                President and Chief Financial Officer
              (principal
                financial officer)March
                1, 2007
            /s/
                John M. PinkertonJohn
                M. Pinkerton
              Vice
                President and Controller
              (principal
                accounting officer)March
                1, 2007
            /s/
                Robert L. EvansRobert
                L. Evans, DirectorMarch
                1, 2007
            /s/
                Curtland E. FieldsCurtland
                E. Fields, DirectorMarch
                1, 2007
            /s/
                Michael J. HartnettMichael
                J. Hartnett, DirectorMarch
                1, 2007
            /s/
                Michael D. JordanMichael
                D. Jordan, DirectorMarch
                1, 2007
            /s/
                S. Lawrence PrendergastS.
                Lawrence Prendergast, DirectorMarch
                1, 2007
            /s/
                Edward StewartEdward
                Stewart, Director




100
 ***Table
            of Contents***





**Aftermarket
      Technology Corp.**





**Schedule
      II - Valuation and Qualifying Accounts**


**(In
      Thousands)**





**Additions****Balance
                at**
              **Beginning**
              **of
                Period**
            
            **Charge**
              **(Income)
                to**
              **Costs
                and**
              **Expenses**
            
            **Adjustments**
              **to
                Other**
              **Accounts**
            
            **Deductions**
            
            **Balance
                at**
              **End
                of Period**Year
                ended December 31, 2004:Reserve
                and allowances deducted from asset accounts:Allowance
                for uncollectible accounts
            $
            365
            
            $
            204
            
            $
            −
            
            $
            95
            **(1)**
            $
            474Reserve
                for excess and obsolete inventory
            
            3,421
            
            
            1,859
            
            
            −
            
            
            224
            
            
            5,056Valuation
                allowance on deferred tax assets
            
            10,086
            
            
            3,795
            
            
            −
            
            
            −
            
            
            13,881Year
                ended December 31, 2005:Reserve
                and allowances deducted from asset accounts:Allowance
                for uncollectible accounts
            
            474
            
            
            334
            
            
            194(2
            )
            
            39
            **(1)**
            
            963Reserve
                for excess and obsolete inventory
            
            5,056
            
            
            847
            
            
            −
            
            
            826
            
            
            5,077Valuation
                allowance on deferred tax assets
            
            13,881
            
            
            96
            
            
            −
            
            
            2,218
            **(3)**
            
            11,759Year
                ended December 31, 2006:Reserve
                and allowances deducted from asset accounts:Allowance
                for uncollectible accounts
            
            963
            
            
            (23)
            
            
            −
            
            
            69
            **(1)**
            
            871Reserve
                for excess and obsolete inventory
            
            5,077
            
            
            1,751
            
            
            −
            
            
            1,638
            
            
            5,190Valuation
                allowance on deferred tax assets
            
            11,759
            
            
            484
            
            
            −
            
            
            −
            
            
            12,243








(1)
            Accounts
                written off, net of recoveries.


(2)
            Balance
                reclassified in current year.


(3)
            Related
                to the expiration of capital loss carryforwards.





S-1