FINISHMASTER INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

Commission File Number 0-23222

FINISHMASTER, INC.
(Exact Name of Registrant as Specified in its Charter)

Indiana 38-2252096
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)

54 Monument Circle, Suite 800, Indianapolis, IN 46204
(Address of principal executive offices) (Zip Code)

Registrant's Telephone Number, including area code: (317) 237-3678

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

Name of each exchange on
Title of each class which registered
------------------- ----------------
Common Stock - without par value Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all annual,
quarterly and other reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding twelve months and (2) has
been subject to the filing requirements for at least the past 90 days.
Yes X No
--- ---

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes No X
--- ---

The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of June 30, 2002 (the last business day of the Registrant's most
recently completed second fiscal quarter) was $26,500,000.

On March 1, 2003, 7,784,121 shares of Registrant's common stock were
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the annual proxy statement for the year ended December 31, 2002 are
incorporated by reference into Part III.

FINISHMASTER, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS

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PART I

ITEM 1 - BUSINESS

GENERAL

We are the leading national independent distributor of automotive paints,
coatings and paint-related accessories primarily to the automotive collision
repair industry. As of March 1, 2003, we serve our customers through a 350
person direct sales force in 158 sales outlets and three major distribution
centers located in 24 states, making us the only national independent
distributor in the industry. We have approximately 13,000 customer credit
accounts consisting principally of collision repair shops and automobile
dealers, to which we provide a comprehensive selection of brand name products.
Our product offering consists of over 31,000 stock keeping units ("SKUs"),
including leading brands of automotive paints, coatings, thinners and reducers
manufactured by BASF, DuPont, and PPG and the leading brands of paint-related
accessories manufactured principally by 3M, such as masking materials, body
fillers and cleaners. For the year ended December 31, 2002, net sales were
$342.8 million and net income was $12.9 million.

Our vision is to expand our leadership position in the distribution of products,
services and technology that are recognized by customers as key factors in their
success. We provide our customers with local value-added services such as rapid
delivery, technical support, product training, management seminars, computerized
color matching, inventory management, personnel placement and environmental
compliance reporting. These value-added services are backed by national
expertise in the systems and technology of warehouse distribution and supply
chain management, and strategic partnering with the manufacturers of paint and
paint-related accessories. Our local focus helps us respond to the unique
customer needs in various geographic markets. In addition, we are able to
provide certain multi-site customers, such as collision repair shop chains and
mega-dealerships, with efficient and consistent product distribution throughout
their national or regional networks at competitive prices.

We estimate the U.S. automotive paint and paint-related accessories distribution
after-market (distribution after-market) to be approximately $2.5 billion, with
automotive collision repair shops being the primary customers for automotive
paint and paint-related accessories. In addition to independent collision repair
shops and automobile dealers, we supply products to organizations that maintain
their own automobile fleet, van conversion companies and other
commercial/industrial customers. The distribution after-market is supplied by a
small number of manufacturers of paint and paint-related accessories and serves
a highly fragmented customer base, consisting of approximately 53,000 collision
repair shops alone. Our competitors tend to be family-owned, with one to three
distribution sites and typically serve a highly localized customer base.

We are an Indiana based corporation. Our principal executive offices are leased
from LDI, Ltd. ("LDI"), an Indiana limited partnership, which indirectly owns
71.8% of our outstanding shares. We believe that the terms of the lease are at
least as favorable to us as those that could be obtained by arms-length
negotiations with an unaffiliated third party. Our principal executive offices
are located at 54 Monument Circle, Suite 800, Indianapolis, Indiana 46204, and
our telephone number is (317) 237-3678.

INDUSTRY OVERVIEW

We estimate the size of the distribution after-market to be approximately $2.5
billion. The end users of the products distributed by us are principally
independent collision repair shops and automobile dealers. Additionally,
organizations that maintain their own automobile fleet, van conversion companies
and other commercial/industrial customers make up a smaller percentage of our
customer base. Automotive paint and related supplies, in contrast to labor and
parts, represent only a small portion (approximately 7-10%) of the total cost of
a typical collision repair job. However, while paint is a relatively minor
component of the total repair cost, we play a critical role in the customer's
level of satisfaction.

The distribution after-market for automotive paint and related supplies is
characterized by a small number of manufacturers of paint and paint-related
accessories. The five predominant manufacturers of automotive paint distributed
in the United States are Akzo Nobel, BASF, DuPont, PPG and The Sherwin-Williams
Company. 3M is the predominant manufacturer of paint-related accessories which
include refinishing materials, supplies, accessories and tools such as sand
paper, masking tape and paint masks.

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While automotive paint manufacturing is highly concentrated, automotive paint
distribution and the end users of automotive paint are highly fragmented. We
believe that a large number of independent distributors of automotive paint
serve an aggregate of approximately 53,000 collision repair shops nationwide. Of
these shops, fewer than 11,000 have annual sales of $600,000 or more.
Distributors, which tend to be family-owned with one to three distribution
sites, typically serve a highly localized customer base, with each distribution
site, serving customers located within 20 miles of the site depending upon
demographics, road access and geography.

Due to the large number of end users and their increasing demands for
personalized services, such as multiple daily deliveries, assistance with
color-mixing and matching, and assistance with paint application techniques and
environmental compliance reporting, manufacturers typically service end users
through distributors like us. Nevertheless, some paint manufacturers have
elected to operate company-owned distribution facilities in selected markets,
including markets in which we operate. We believe, however, that the largest
automotive paint manufacturers have generally avoided the cost of operating
their own distribution network due to their inability to offer multiple lines of
paint which prevents them from spreading distribution expenses across the
market's entire potential customer base. Consequently, we believe that
independent distributors like us, which can sell the products of several paint
manufacturers, are better situated to service the end users' needs than the
company owned distribution facilities of automotive paint manufacturers.

The market for paints and supplies for automotive collision repairs has changed
significantly in recent years. Key factors affecting this market have been:

o a decline in the number of vehicles repaired annually;

o improvements in paint application technology and advances in
paint system productivity;

o environmental regulations which have required the reformulation
of paints and the use of more advanced equipment and facilities;

o automobile manufacturers' use of more complex, durable and
expensive automotive finishes;

o an increase in the number of vehicles repaired by insurance
companies' designated "direct repair providers" and;

o increased use of the internet and electronic commerce for parts
ordering and data exchange.

Collision repair shops have been forced to invest in new equipment and
additional training of their workers, while there has been a decline in the
number of repair jobs. Accordingly, there has been some consolidation in the
highly fragmented collision repair industry among end users of automotive paints
and accessories. In addition, collision repair shops and car dealerships are
seeking to improve their financial performance and competitive position by
developing relationships with distributors that can support their businesses
with value-added services. This demand for higher levels of service from
distributors, combined with lower unit sales volume of paint and supplies, has
resulted in a consolidation among after-market distributors. We have led the
consolidation among distributors in recent years, having completed 42
acquisitions over the past 11 years.

As the automotive collision repair industry experiences a trend toward
consolidation, we believe that our size and current position as a market leader
will enable us to continue to maintain profitable growth. We have been able to
offset the decline in unit volume by material price increases that we have been
able to pass on to our customers due to the technological advancements in paints
and coatings. In addition, we believe we will continue to attract new customers
due to our value-added services.

PRODUCTS AND SUPPLIERS

We offer our customers a comprehensive selection of prominent brand name
products and our own PrivateBrand products. The product line consists of over
31,000 SKUs, including the three leading brands of automotive paints and
coatings and a leading brand of related accessories. Our PrivateBrand products
include some of the most frequently used refinishing accessories such as masking
materials, body fillers, thinners, reducers and cleaners.

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We rely on four leading suppliers for the majority of our product requirements.
BASF, DuPont, and PPG supply virtually all of our paint products, and 3M is our
largest supplier of paint-related accessories. Products supplied by BASF,
DuPont, 3M and PPG accounted for approximately 85% of purchases in 2002.
Although each of these suppliers generally competes with the others along
product lines, we do not believe the products are completely interchangeable
because of high brand loyalty among customers and their brand-specific color
matching computer systems. We continuously seek opportunities with new and
existing suppliers to supply the highest quality products.

Whenever practical, we make purchases from suppliers in minimum quantities that
maximize volume discounts. In addition, we participate in periodic, special
incentive programs available from suppliers. These programs provide additional
purchase discounts and extended payment terms. We also benefit from
supplier-provided early payment discounts and from other supplier-supported
programs.

SERVICES

We offer comprehensive value-added services designed to assist customers in
operating their businesses more effectively. These services include:

RAPID DELIVERY

Products are delivered to customers using our delivery fleet of approximately
700 trucks. We offer multiple daily deliveries to meet our customers'
just-in-time inventory needs. Customer concerns for product availability
typically take priority over all other competitive considerations, including
price.

TECHNICAL SUPPORT

Our technical support personnel demonstrate and recommend products. In addition,
they assist customers with problems related to their particular product
applications. Equipment specialists provide information to customers regarding
their heavy equipment requirements, such as spray booths and frame straightening
equipment.

PRODUCT TRAINING

As a result of increasing regulations, manufacturers have introduced
technologically advanced, lower VOC paints, which require significantly more
sophisticated application techniques. We provide training to customers to teach
them the techniques required to work with these products. Training sessions are
typically conducted jointly by us and by one or more of our major suppliers at
the customer's location or at an off-site location.

MANAGEMENT SEMINARS

Management seminars are conducted at convenient locations to inform our
customers about environmental regulations and compliance, techniques to improve
productivity, and industry trends.

COLOR MATCHING

The growing number of paint colors is a challenge for the refinishing industry.
DuPont, for example, has more than 1,000,000 mix formulas. With sophisticated
PC-based color matching equipment and specialists, we provide color-matching
services to our customers.

INVENTORY MANAGEMENT

We perform monthly physical inventories for customers who request this service.
We also provide customers with management information reports on product usage.

ASSISTANCE WITH ENVIRONMENTAL COMPLIANCE REPORTING

All states have air quality regulations that mandate paint and application
methods which result in reduced atmospheric emissions of paint and other related
materials. In California in particular, we arrange demonstrations of new
products

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and application techniques designed to comply with air quality regulations. In
addition, in California and Colorado, we assist our customers with environmental
reporting requirements by providing special reports designed to simplify their
compliance. The EPA has proposed regulations to control VOC emissions from
automobile refinishing nationwide and, accordingly, we are considering an
expansion of these programs.

PERSONNEL PLACEMENT

Certain of our locations assist our customers with filling employment openings
and/or persons seeking employment with collision repair shops located in the
market served. Upon request from a customer to fill an opening, we may provide
the names of one or more persons for the position. Similar services are
available to persons seeking employment. We do not charge for this service but
benefit from enhanced relationships with our customers and their employees.

COMPETITION

The distribution after-market of the automotive refinishing industry is highly
fragmented and competitive with many independent distributors competing
primarily on the basis of technical assistance and expertise, price, speed of
delivery and breadth of product offering. There are no other independent
national distributors of automotive refinish paints and accessories. There are a
number of independent regional distributors, many of which are in direct
competition with us on a regional or local level. Competition in the purchase of
independent distributors and sales outlets may occur between us and other
automotive refinishing distributors that are also pursuing growth through
acquisitions.

We may also encounter significant sales competition from new market entrants,
automotive paint manufacturers, buying groups or other large distributors that
may seek to enter such markets or may seek to compete with us for attractive
acquisition candidates. Although the largest automotive paint manufacturers have
generally not operated their own distributors, or have done so only on a limited
basis, they may decide to expand such activity in the future. For example,
Sherwin-Williams distributes its own automotive paints through its sales
outlets. In addition, BASF, one of our principal suppliers, also distributes in
certain markets through its own outlets in North America. While we do not
believe that current direct distribution efforts by automotive paint
manufacturers have significantly affected our sales, there can be no assurance
that we will not encounter increased competition in the future. We may also
compete with our suppliers in selling to certain large volume end users such as
van converters, small manufacturers and large fleet operators.

EMPLOYEES

As of March 1, 2003, we employed approximately 1,460 persons on a full and
part-time basis. None of the employees are covered by a collective bargaining
agreement, and we consider our relations with our employees to be good.

GOVERNMENTAL AND ENVIRONMENTAL REGULATIONS

We are subject to various federal, state and local laws and regulations. These
regulations impose requirements on our customers and us. Pursuant to the
regulations of the U.S. Department of Transportation and certain state
transportation departments, a license is required to transport our products and
annual permits are required due to the classification of certain of our products
as "hazardous." Various state and federal regulatory agencies, such as the
Occupational Safety and Health Administration and the United States
Environmental Protection Agency, have jurisdiction over the operation of our
distribution centers and sales outlets. These agencies require us to comply with
various governmental regulations, including worker safety laws, community and
employee "right-to-know" laws and laws regarding clean air and water. In
addition, state and local fire and environmental regulations extensively control
the design and operation of our facilities, the sale of our products, and the
application of these products by our customers. Such regulations are complex and
subject to change. Regulatory or legislative changes may cause future increases
in our operating costs or otherwise negatively affect operations.

6

ITEM 2 - PROPERTIES

The following table sets forth certain information regarding the facilities
operated by us as of March 1, 2003.

* Locations where an office and distribution center are combined facilities;
Kentwood, MI and Ft. Lauderdale, FL.

** Location where a store and distribution center are combined facilities;
Greensboro, NC.

*** Denotes major distribution centers; Kentwood, MI, Ft. Lauderdale, FL and Los
Angeles, CA.

Our sales outlets range in size from 1,250 square feet to 14,800 square feet.
Some of the larger sales outlets are also used as "drop ship" points from which
we supply other sales outlets. Sales outlets consist of inventory storage areas,
mixing facilities, display and counter space and, in some instances, sales
office space. Sales outlets are strategically located in major markets to
maximize market penetration, transportation logistics and overall customer
service. Our distribution centers range in size from 5,000 square feet to 18,000
square feet. The distribution centers are equipped with efficient material
handling and storage equipment.

We own the distribution center and two sales outlets in Michigan, one sales
outlet in Indiana, and one in Florida. The remainder of the sales outlets and
the other distribution centers are leased with terms expiring from 2003 to 2008,
with options to renew. In a number of instances, our sales outlets are leased
from the former owners of businesses acquired by us. We believe that all of our
leases are at fair market rates, that presently no single lease is material to
our operations, and that alternative sites are presently available at market
rates. We are leasing approximately 15,000 square feet of executive offices for
our national headquarters located in Indianapolis, Indiana.

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ITEM 3 - LEGAL PROCEEDINGS

We are subject to various claims and contingencies arising out of the normal
course of business, including those relating to commercial transactions,
environmental, product liability, automobile, taxes, discrimination, employment
and other matters. We are involved in three superfund site investigations, two
in Florida and one in Georgia. Our management believes that the ultimate
liability, if any, in excess of amounts already provided or covered by
insurance, is not likely to have a material adverse effect on our financial
condition, results of operations or cash flows.

We have been named as one of a number of defendants in the automotive
refinishing industry in a class action complaint by a group of collision repair
centers in California. The plaintiffs claim to represent similar businesses
throughout the state of California and allege that paint manufacturers engaged
in a horizontal price fixing conspiracy. The plaintiffs further allege that the
manufacturers together with paint distributors, such as ourselves, engaged in a
vertical price fixing conspiracy. Specifically, the plaintiffs allege that
manufacturers and distributors agreed not to extend their most favorable pricing
terms to the collision repair centers. The court has stayed the vertical pricing
fixing component of the class action pending resolution of the horizontal price
fixing allegations. Consequently there are no pending deadlines or trial dates
with respect to us. We believe that the class action is without merit and we
intend to vigorously defend our position. At this time the amount of damages has
not been specified.

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

None.

ADDITIONAL ITEM - EXECUTIVE OFFICERS OF THE REGISTRANT

The following sets forth certain information concerning the executive officers
of the Company who are not also directors:

Robert R. Millard (age 45) joined us in October 1998 as the Senior Vice
President of Finance, Chief Financial Officer, Secretary and Treasurer. From
February 1996 until September 1998, Mr. Millard served as Vice President of
Finance, Chief Financial Officer, Secretary and Treasurer of Personnel
Management, Inc., a publicly held personnel staffing company based in
Indianapolis, Indiana. From July 1991 until January 1996, Mr. Millard served as
the Corporate Controller of Lacy Diversified Industries, Ltd., an affiliate of
LDI.

Charles VanSlaars (age 51) serves as the Senior Vice President of Marketing. He
had previously served as the Senior Vice President of Sales for our Eastern
Division, a position held from January 2001 until November 2001, and Senior Vice
President and General Manager of our Southeastern Division, a position he held
from June 1998 to January 2001. From June 1996 until May 1998, Mr. VanSlaars
served as an executive officer of LDI AutoPaints, Inc. From 1989 until 1996, Mr.
VanSlaars served as Vice President of Parts Depot Company, L.P., a Florida-based
distributor of auto paints.

8

PART II

ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Our common stock trades on The NASDAQ Stock Market (SmallCap Market) under the
symbol FMST. The number of beneficial owners of our common stock at December 31,
2002, was approximately 375.

The range of high and low closing prices reported by NASDAQ for the last twelve
quarters were:

No cash dividends on common stock have been paid during any period and none are
expected to be paid in the foreseeable future. We anticipate that all earnings
and other cash resources will be retained by us for investment in our business.

9

ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data as of December 31, 2002 and
2001 and for the years ended December 31, 2002, 2001, and 2000, are derived from
our audited consolidated financial statements that are included elsewhere
herein. The selected consolidated financial data as of December 31, 2000, 1999
and 1998 and for the years ended December 31, 1999 and 1998 are derived from our
audited consolidated financial statements, which are not included herein. The
financial data should be read in conjunction with our audited consolidated
financial statements and notes thereto, included elsewhere herein, and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

- ----------

(1) The operating results for the years ended December 31, 2002, 2001, 2000,
1999, and 1998 are affected by the acquisition of AutoPaints on June 30,
1998. The operating results of AutoPaints are included in our
consolidated operating results since the acquisition date.

(2) Pro forma amounts for the year ended December 31, 1998 has been prepared
to give effect to the acquisition of AutoPaints as if the transaction had
occurred on January 1, 1998. These amounts are unaudited and are
presented for informational purposes only. No pro forma amounts are
presented for other acquisitions completed by the Company, as the impact
of such acquisitions are not material.

10

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

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The following discussion and analysis about our financial condition and results
of operations should be read in conjunction with the consolidated financial
statements and related notes presented in this annual report.

OVERVIEW

FinishMaster, Inc. is the leading independent distributor of automotive paints,
coatings and paint-related accessories primarily to the automotive collision
repair industry in the United States. As of March 1, 2003, we served our
customers through 158 sales outlets and three major distribution centers located
in 24 states, making us the only national independent distributor in the
industry. We have approximately 13,000 customer credit accounts that we provide
a comprehensive selection of brand name products supplied by BASF, DuPont, 3M
and PPG in addition to our own FinishMaster (Private Brand) refinishing
accessory products. We typically are the primary source of supply to our
customers and we offer a broad range of services designed to enhance the
operating efficiencies and competitive positions of our customers and suppliers.
Our operations are currently organized into six geographical regions. We
aggregate these six regions into a single reportable segment.

We are the leading consolidator in the automotive refinish distribution
industry, having successfully completed as of March 1, 2003 approximately 42
acquisitions over the past 11 years, ranging from "add-on" acquisitions to the
strategic acquisitions of Thompson, AutoPaints, and Badger Paint Plus, Inc. We
intend to continue our strategy of expanding through acquisitions.

On May 7, 2001, we acquired the assets of Badger Paint Plus, Inc., a Wisconsin
corporation, Badger Paint Plus of the Twin Cities, Inc., Badger Paint Plus of
Duluth, Inc., Badger Paint Plus of St. Cloud, Inc., Lakeland Sales, Inc., each a
Minnesota corporation, and Badger Paint Plus of Chicago, Inc., an Illinois
corporation (collectively "Badger"). Badger, like FinishMaster, was an
aftermarket distributor of automotive paints, coatings, and paint-related
accessories. The purchase price, including related acquisition costs, was $7.4
million and includes the issuance of 93,999 shares of our common stock. The
acquisition has been accounted for as a purchase and accordingly, the acquired
assets and liabilities have been recorded at their estimated fair values on the
date of the acquisition. Customer lists associated with the acquisition are
being amortized over 6 years. Operating results of Badger have been included in
our consolidated financial statements from the effective date of the
acquisition.

RESULTS OF OPERATIONS

Net sales increased $10.6 million or 3.2% from 2001 to 2002 due primarily to
acquisitions completed in 2002 and the full year effect of prior year
acquisitions. During 2002, we completed four acquisitions. Slower overall
economic conditions; flat to declining number of automobiles being repaired; and
continued productivity improvements in the use of automotive paint by our
customers contributed to same store sales growth being flat for the year. During
2002, we initiated several sales and marketing programs, introduced additional
selling tools for our sales force and hired additional sales personnel with the
objective of increasing our same store sales and market share. These efforts
began to produce results during 2002 with same store sales growth of 1.4% per
quarter during the last two quarters of the year.

Weakness in demand for automotive paints and related accessories impacted our
net sales, which decreased $4.1 million or 1.2% from 2000 to 2001. During 2001,
same store sales decreased approximately 2.5% due to soft market conditions
throughout most of our distribution network. Net sales acquired through
acquisitions contributed approximately $6.5 million or 1.9% of the net sales
variance between years. Two acquisitions were completed during 2001, Badger in
May and Scotty's Paint Supply, Inc. in December.

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Approximately 70% of our net sales consisted of automotive paint products while
the remaining portion was paint related accessories.

Note (1): Shipping and handling costs are now included in cost of goods sold.
Prior period reported results have been changed to conform to this current year
presentation.

Gross margin in 2002 increased $5.3 million or 5.0% over 2001 due to higher
sales volume and improved margin rate. Higher net sales volume positively
impacted margin by $3.4 million. Gross margin as a percentage of net sales
increased 50 basis points to 32.4%, positively impacting margins by $1.9
million. This improvement in margin rate was a result of lower shipping and
handling costs as a percentage of net sales, price increases on two major
product lines implemented one month earlier in the current year fourth quarter
compared to the prior year, and higher volume rebates earned under normal vendor
programs.

Gross margin dollars in 2001 increased $1.5 million, or 1.4% over the prior year
period. Strong gross margin as a percentage of net sales more than offset the
negative impact of lower net sales volume. Gross margin as a percentage of net
sales increased 80 basis points to 31.9%, positively impacting margin by $2.8
million for the year. Lower net sales volume negatively impacted margin by $1.3
million. The improvement in margin rate was primarily the result of improved
inventory management procedures, lower shipping and handling costs as a
percentage of net sales, supplier purchasing incentive programs, and large
inventory purchases in late 2000 made prior to manufacturers' price increases.

Operating expenses consist of wages, facility, vehicle and related costs for our
store and distribution locations.

Operating expenses remained flat from 2001 to 2002 and, as a percentage of net
sales, decreased 30 basis points to 10.4%. Higher costs associated with
distribution facilities, vehicles, labor and employee health insurance offset
lower workers' compensation expenses, supplies and depreciation expense.

Operating expenses increased $1.0 million or 2.9% from 2000 to 2001. As a
percentage of net sales, operating expenses increased from 10.3% in 2000 to
10.7% in 2001. Excluding the operating expenses associated with acquired
operations in 2001, operating expenses increased $0.8 million between years due
primarily to higher wages and benefit costs.

Selling, general and administrative expenses ("SG&A") consist of costs
associated with our corporate support staff and expenses for commissions, wages,
and customer sales support activities.

SG&A expenses increased $3.3 million or 7.6% from 2001 to 2002 and, as a
percentage of net sales, increased 50 basis points to 13.4%. In an effort to
increase our sales and market share, we hired additional sales personnel and
initiated various sales and marketing programs. These initiatives increased our
selling expenses, principally sales labor, during 2002. Higher insurance costs,
primarily employee health insurance and casualty insurance, management fees, and
bad debt expense also contributed to the increased SG&A expenses in 2002.

SG&A expenses decreased $1.2 million or 2.8% from 2000 to 2001. As a percentage
of net sales, SG&A expenses decreased from 13.1% in 2000 to 12.9% in 2001.
Excluding the expenses associated with the acquired operations in

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2001, SG&A expenses decreased $1.4 million due primarily to lower communication
costs, supply expense, bad debt expense and professional fees associated with
the implementation of our new computer systems in 2000. Partially offsetting
these decreases was higher costs associated with wages and benefits.

Amortization expense decreased $4.6 million or 78.4% between 2001 and 2002 due
primarily to the adoption, effective January 1, 2002, of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets," which
eliminates the amortization of goodwill and intangible assets with indefinite
lives. Intangible assets with finite lives, principally non-compete agreements
and customer lists, continue to be amortized over their estimated useful lives.

The decrease in amortization expense between 2000 and 2001 was a result of
certain intangible assets, principally non-compete agreements, becoming fully
amortized in those years.

Interest expense decreased $1.6 million or 19.0% between 2001 and 2002 as a
result of lower average outstanding borrowings and lower effective interest
rates. Average outstanding borrowings decreased approximately $10.8 million in
2002 compared to the prior year. Effective interest rates were approximately 80
basis points lower in the current year.

Interest expense in 2001 decreased $3.1 million or 26.3% compared to the prior
year. Lower average outstanding borrowings in 2001 of approximately $23.3
million were the primary contributor to this favorable decrease in interest
expense. Lower effective interest rates of approximately 25 basis points also
contributed to the decrease.

Higher income before income taxes was responsible for the increased income tax
expense between 2000, 2001 and 2002. The adoption of SFAS No. 142 reduced our
effective tax rate in 2002 to 39.7% due to the elimination of certain goodwill
amortization, including non-deductible goodwill amortization. On a comparative
basis, the effective tax rate would have been 40.1% and 39.3% in 2001 and 2000,
respectively, assuming the adoption of SFAS No. 142 on January 1, 2000. The
effective tax rate varied from the federal statutory rate in 2002 due primarily
to the provision for state income taxes. The effective tax rate varied from the
federal statutory rate in 2001 and 2000 as a result of certain expenses,
principally nondeductible intangible amortization. The decrease in the effective
tax rate between 2000 and 2001 was due to these nondeductible expenses remaining
stable in relation to the higher income before income taxes.

13

An extraordinary loss on the early extinguishment of debt of $0.5 million, net
of $0.3 million in income tax benefit, resulted from the write-off of the
unamortized debt issuance costs related to the early extinguishment of our
senior secured and senior subordinated credit facilities in March 2001.

Factors contributing to the changes in net income and the related per share
amounts are discussed in the detail above.

INFLATION AND OTHER ECONOMIC FACTORS

Inflation affects our cost of materials sold, salaries and other related costs
of distribution. To the extent permitted by competition, we offset these higher
costs of materials through selective price increases. Our cost of materials sold
is also affected by the purchasing opportunities presented to us by our vendors.
These opportunities are negotiated on an annual basis and vary from year to
year.

Our business may be negatively affected by cyclical economic downturns in the
markets in which we operate. Our financial performance is also dependent on our
ability to acquire businesses and profitably integrate them into our operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

A review of our financial instruments and risk exposures indicates we have
exposure to interest rate risk. To reduce this exposure, we entered into
interest rate swap agreements in March 2001 with notional amounts of $40.0
million. These agreements intend to convert our senior term credit facility from
a floating to a fixed interest rate obligation. The weighted average fixed
interest rate under these agreements is 5.43%. In order to maintain
effectiveness, the quarterly settlement terms of the swap agreements are
established to match the interest payments on the term credit facility. Based
upon the Company's outstanding debt at December 31, 2002, and the term for which
current interest rates are fixed, a 10% increase in interest rates would
increase interest expense for 2003 by an estimated $0.1 million.

SEASONALITY AND QUARTERLY FLUCTUATIONS

Our sales and operating results have varied from quarter to quarter due to
various factors and we expect these fluctuations to continue. Among these
factors are seasonal buying patterns of our customers and the timing of
acquisitions. Historically, sales have slowed in the late fall and winter of
each year largely due to inclement weather and the reduced number of business
days during the holiday season. As a result, our financial performance is
generally lower during the December and March quarters compared to the June and
September quarters. In addition, the timing of acquisitions may cause
substantial fluctuations of operating results from quarter to quarter. We also
take advantage of periodic special incentive programs available from our
suppliers that extend the due date of inventory purchases beyond terms normally
available with large volume purchases. The timing of these programs can
contribute to fluctuations in our quarterly cash flows and operating results.
Although we continue to investigate strategies to smooth the seasonal pattern of
our quarterly results of operations, there can be no assurance that our net
sales, results of operations and cash flows will not continue to display
seasonal patterns.

14

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of funds over the past three years were from operating
activities and borrowings under our credit facilities. Our principal uses of
cash were to fund capital expenditures, acquisitions, and the repayment of
outstanding borrowings.

Net cash used by operating activities was $9.0 million in 2002, compared with
$27.9 million generated by operating activities in 2001. This decrease was the
result of a net change in operating assets and liabilities, primarily
inventories and accounts payable and other liabilities. Less favorable payment
terms in 2002 on large year-end inventory purchases was the primary contributor
to the change in accounts payable and other liabilities. Differences in the
timing and levels of year-end inventory purchases made prior to manufacturers'
price increases resulted in the change in inventories. Partially offsetting the
unfavorable change in operating assets and liabilities was increased funds
generated in 2002 by higher net income.

Net cash used in investing activities was $3.3 million in 2002, compared with
$5.9 million in 2001 due to decreased spending for acquisition activity. During
2002, we completed four acquisitions that utilized $2.4 million of cash compared
to two acquisitions and $5.0 million of cash in the prior year. Capital spending
was slightly higher in 2002 than in the prior year period. We estimate that
capital expenditures for 2003, principally for information technology equipment,
will approximate $2.0 million.

Net cash provided by financing activities was $11.3 million in 2002 due
primarily to higher borrowings on our credit facilities. We borrowed an
additional $10.2 million in 2002 to fund the use of cash for operating and
investing activities. Net cash used by financing activities was $20.5 million in
2001. Positive cash provided by operating activities allowed us to repay $19.3
million of debt in 2001.

Total capitalization at December 31, 2002, was $172.7 million, comprised of
$96.3 million of debt and $76.4 million of equity. Debt as a percentage of total
capitalization was 55.8% compared to 57.8% in the prior year.

At December 31, 2002, we had term credit and revolving credit facilities
totaling $70.5 million and senior subordinated debt of $19.9 million.
Substantially all of our assets serve as collateral for the revolving credit
facility and term credit facility. These credit agreements contain various
quarterly and annual covenants pertaining to, among other things, achieving a
minimum fixed charge coverage ratio, a maximum leverage ratio, a maximum senior
debt leverage ratio, a minimum interest expense coverage ratio and a minimum
consolidated net worth level. The covenants also limit purchases and sales of
assets and restrict payment of dividends. If any default as described in the
credit facilities occurs, the obligations of the lenders to make additional
loans automatically terminates and the outstanding obligations become
immediately due and payable. We were in compliance with the covenants underlying
these credit facilities, and had availability under our revolving credit
facility of $20.1 million as of year-end.

Based on current and projected operating results and giving effect to total
indebtedness, we believe that cash flow from operations and funds available from
lenders and other creditors will provide adequate funds for ongoing operations,
debt service and planned capital expenditures.

CRITICAL ACCOUNTING POLICIES

The accounting policies described below require us to make significant estimates
and assumptions using information available at the time the estimates are made.
Such estimates and assumptions significantly affect various reported amounts of
assets and liabilities. If our future experience differs materially from these
estimates and assumptions, our results of operations and financial condition
could be affected.

15

Allowance for Consigned Inventory - We routinely consign inventory with our
customers to attract and retain their business. The consigned inventory is an
asset on our balance sheet. Upon termination of the customer relationship, the
inventory is either returned or paid for by the customer. We periodically review
the realizable value of the consigned inventory by following a detailed process
that entails verifying that the customer's business relationship exists at a
level to justify the consigned inventory balance. A reserve has been established
to reduce the consigned inventory balance to its estimated net realizable value.

Provision for Income Taxes - We determine our provision for income taxes using
the balance sheet method. Under this method, deferred tax assets and liabilities
are recognized for the future tax effects of temporary differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax basis. Changes in future tax provisions may be affected by
the passage of new tax laws, changes in taxable income and the resolution of the
tax audit issues.

Allowance for Doubtful Accounts Receivable - Our estimate of the allowance for
doubtful accounts receivable is based on historical customer payment experience
and reflects our best estimate of collectibility. Future events and
circumstances related to the financial condition of our customers could
materially change these estimates.

Allowance for Vendor Credits Due - Our estimate of the allowance for vendor
credits due is based on historical collection experience and reflects our best
estimate of collectibility. Future events and circumstances related to continued
vendor support could materially change these estimates.

Reserve for Obsolete Inventory - Our estimate of the reserve for obsolete
inventory is based on historical product usage information. Changes in the rate
of introduction of new products by our manufacturers, our ability to return
excess inventory to vendors, and our ability to sell excess inventory could
materially change these estimates.

Deferred Charges - To attract and retain business, we will occasionally invest
paint related equipment and/or make upfront cash investments in lieu of
discounts with our customers. In consideration for our investments, our
customers will make multi-year purchase commitments that include liquidated
damages in the event that the customer breaches the commitment. These
investments are capitalized and amortized over the commitment period or
thirty-six months, whichever is shorter. The amortization is reflected as a
reduction of the selling price of the product and is reported as an offset to
revenue.

OTHER MATTERS

In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and No.
142, "Goodwill and Other Intangible Assets." SFAS 141 requires that the purchase
method of accounting be used for all business combinations after June 30, 2001.
SFAS 142 prohibits the amortization of goodwill and intangible assets with
indefinite useful lives. SFAS 142 also requires that these intangible assets be
reviewed for impairment at least annually. Intangible assets with finite lives
continue to be amortized over their estimated useful lives.

Effective January 1, 2002, we adopted SFAS 142, which requires that goodwill and
indefinite lived assets be tested for impairment at the reporting unit level at
adoption and at least annually thereafter. An impairment charge is recognized
only when the calculated fair value of a reporting unit, including goodwill, is
less than its carrying amount. In accordance with SFAS 142, we completed the
required transitional impairment tests of goodwill and indefinite lived
intangible assets and determined the fair value to be in excess of the carrying
value of these assets. We also completed the required annual impairment test as
of June 30, 2002 and determined the fair value of goodwill and indefinite lived
intangible assets to be in excess of the carrying value of these assets.

As required by SFAS 142, intangible assets with finite lives are amortized over
their estimated useful lives. Included in intangible assets with finite lives
are non-compete agreements and customer lists.

In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 143, "Accounting for Asset Retirement
Obligations". SFAS 143 addresses the financial accounting and reporting
obligations associated with the retirement of tangible assets and the associated
asset retirement costs. It requires the fair value of a liability for an asset
retirement obligation to be recorded in the period in which it is incurred,
which is adjusted to its

16

present value each period. In addition, a corresponding amount must be
capitalized by increasing the carrying amount of the related long-lived asset,
which is depreciated over the useful life of the related asset.

Effective January 1, 2002, we adopted SFAS 143. The adoption of this Standard
did not have a material effect on our consolidated financial statements or
results of operations.

In October 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS 144 modifies and expands the financial
accounting and reporting for the impairment or disposal of long-lived assets
other than goodwill, which is specifically addressed by SFAS 142. For a
long-lived asset to be held and used, SFAS 144 requires that an impairment loss
be recognized if the asset's carrying value is not recoverable from its
undiscounted cash flows, with the recognized impairment being the difference
between the carrying amount and fair value of the asset. With respect to
long-lived assets to be disposed of other than by sale, SFAS 144 requires that
the asset be considered held and used until it is actually disposed of, but
requires that its depreciable life be revised in accordance with APB Opinion No.
20. SFAS 144 was effective for us in the first quarter of 2002, and it did not
have a material effect on our consolidated financial statements or results of
operations.

In April 2002, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." In
addition to amending and rescinding other existing authoritative pronouncements
to make various technical corrections, clarify meanings, or describe their
applicability under changed conditions, SFAS 145 limits the recording of gains
and losses from the early extinguishments of debt as an extraordinary item. SFAS
145 is effective for fiscal years beginning after May 15, 2002. The statement
requires retroactive reclassification of certain previously recorded
extraordinary losses on early extinguishments of debt. The adoption of SFAS 145
will require us to reclassify to operating expense in fiscal year 2003 the
extraordinary loss recorded in fiscal year 2001 from the early extinguishments
of debt.

In July 2002, the Financial Accounting Standards Board issued Statement No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities". SFAS 146,
which is effective for disposal activity initiated after December 31, 2002,
addresses significant issues regarding the recognition, measurement and
reporting of costs associated with exit and disposal activities. We do not
expect the adoption of SFAS 146 to have any material impact on our consolidated
financial statements or results of operations.

In November 2002, the Financial Accounting Standards Board issued FASB
Interpretation No. 45, (FIN 45),"Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." FIN 45 elaborates on the disclosures to be made by a guarantor about
its obligations under certain guarantees that it has issued. In addition, this
Interpretation will require a guarantor to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The disclosure provisions of FIN 45 are effective for
annual or interim financial statements of periods ending after December 15, 2002
(Note 8).

The recognition provisions of FIN 45 are applicable only on a prospective basis
for guarantees issued or modified after December 31, 2002. We do not expect the
adoption of the recognition provision of FIN 45 to have any material impact on
our consolidated financial statements or results of operations.

In November 2002, the Emerging Issues Task Force (EITF) issued EITF Issue 00-21,
"Revenue Arrangements with Multiple Deliverables." This Issue provides guidance
as to how to determine when an arrangement involving multiple deliverables
contains more than one unit of accounting and when more than one unit of
accounting exists how the arrangement consideration should be allocated to the
multiple units. The application of this Issue could affect the timing of the
recognition of revenue for multiple deliverable arrangements. The guidance in
this Issue is prospective for revenue arrangements entered into after June 30,
2003. We are in the process of analyzing the impact this Issue will have, if
any, on our revenue recognition policies in the future.

In December 2002, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standard No. 148, "Accounting for Stock-Based Compensation
- - Transition and Disclosure - and amendment of SFAS No. 123." SFAS 148 provides
additional transition guidance for companies that elect to voluntarily adopt the
fair-value method of accounting for stock-based compensation. In addition, it
requires more prominent disclosure in both annual and interim

17

financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. SFAS 148 is
effective for annual financial statements for fiscal years ending after December
15, 2002 and for interim financial statements commencing after such date. We
have elected not to account for stock-based compensation using the fair-value
method of accounting; however, we have complied with the disclosure requirements
of the standard.

In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46, (FIN 46), "Consolidation of Variable Interest Entities."
The primary objectives of FIN 46 are to provide guidance on the identification
of entities for which control is achieved through means other than through
voting rights ("variable interest entities" or more commonly referred to as
"special purpose entities") and how to determine when and which business
enterprise should consolidate the special purpose entity. The Interpretation
applies immediately to entities created after January 31, 2003. It applies in
the first fiscal year or interim period beginning after June 15, 2003, to
variable interest entities in which an enterprise holds a variable interest that
it acquired before February 1, 2003. We do not expect the adoption of this
Interpretation to have any material impact on our consolidated financial
statements or results of operations.

FORWARD-LOOKING STATEMENTS

This Report contains certain forward-looking statements pertaining to, among
other things, our future results of operations, cash flow needs and liquidity,
acquisitions, and other aspects of our business. We may make similar
forward-looking statements from time to time. These statements are based largely
on our current expectations and are subject to a number of risks and
uncertainties. Actual results could differ materially from these forward-looking
statements. Important factors to consider in evaluating such forward-looking
statements include changes in external market factors, changes in our business
strategy or an inability to execute this strategy due to changes in our industry
or the economy in general, difficulties associated with assimilating
acquisitions, the emergence of new or growing competitors, seasonal and
quarterly fluctuations, governmental regulations, the potential loss of key
suppliers, the realization of tax benefits from deferred tax assets, limitations
on access to capital due to covenant restrictions, and various other competitive
factors. In light of these risks and uncertainties, there can be no assurance
that the future developments described in the forward-looking statements
contained in this Report will in fact occur.

SECURITIES AND EXCHANGE COMMISSION FILINGS

All reports filed electronically by us with the United Sales Securities and
Exchange Commission (SEC), including the annual report on Form 10-K, quarterly
reports on Form 10-Q, and current events reports on Form 8-K, as well as any
amendments to those reports, are accessible on the SEC's website at
http://www.sec.gov.

For additional information on FinishMaster, visit our website at
http://www.finishmaster.com/ or Corporate News on the Net at
http://www.businesswire.com/companyspecific/.

18

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or the notes thereto.

19

REPORT OF INDEPENDENT ACCOUNTANTS

TO THE BOARD OF DIRECTORS AND
SHAREHOLDERS OF FINISHMASTER, INC.:

In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
FinishMaster, Inc. and its subsidiaries at December 31, 2002, and 2001, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 3 to the consolidated financial statements, the Company was
required to adopt the provisions of Statement of Financial Accounting Standards
No. 142, effective January 1, 2002.

PricewaterhouseCoopers LLP
Indianapolis, Indiana
February 19, 2003

20

CONSOLIDATED
BALANCE SHEETS
FINISHMASTER, INC.

The accompanying notes are an integral part of the consolidated
financial statements.

21

CONSOLIDATED STATEMENTS
OF OPERATIONS
FINISHMASTER, INC.

The accompanying notes are an integral part of the consolidated
financial statements.

22

CONSOLIDATED STATEMENTS
OF CASH FLOWS
FINISHMASTER, INC.

The accompanying notes are an integral part of the consolidated
financial statements.

23

CONSOLIDATED STATEMENTS
OF SHAREHOLDERS' EQUITY
FINISHMASTER, INC.

The accompanying notes are an integral part of the consolidated
financial statements.

24

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
FINISHMASTER, INC.

1. SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS: FinishMaster, Inc. ("the Company" or "FinishMaster") is the
leading national distributor of automotive paints, coatings, and paint-related
accessories to the automotive collision repair industry. As of December 31,
2002, the Company operated 158 sales outlets and three major distribution
centers in 24 states and is organized into six major geographical regions -
East, Midwest, Upper Midwest, West, South and Southeast. The Company aggregates
its six geographic regions into a single reportable segment. The Company has
approximately 13,000 customer credit accounts to which it provides a
comprehensive selection of brand name products supplied by BASF, DuPont, 3M and
PPG, in addition to its own FinishMaster PrivateBrand refinishing accessory
products. The Company is highly dependent on the key suppliers outlined above,
which account for approximately 85% of the Company's purchases.

PRINCIPLES OF CONSOLIDATION: The Company's consolidated financial statements
include the accounts of FinishMaster and its wholly owned subsidiaries from the
dates of their respective acquisition. All significant intercompany accounts and
transactions have been eliminated. References to the Company or FinishMaster
throughout this report relate to the consolidated entity.

MAJORITY SHAREHOLDER: Lacy Distribution, Inc. ("Distribution"), an Indiana
corporation, which is an indirect wholly-owned subsidiary of LDI, Ltd., ("LDI"),
an Indiana limited partnership, owns 5,587,516 shares of the Company's common
stock, representing 71.8% of the outstanding shares at December 31, 2002, 73.1%
of the outstanding shares at December 31, 2001, and 74.1% of the outstanding
shares at December 31, 2000. Throughout the remainder of these financial
statements, LDI and Distribution are collectively referred to as "LDI."

TRANSACTIONS WITH MAJORITY SHAREHOLDER: The Company reimburses its majority
shareholder, LDI, for the cost of insurance, management fees and certain other
expenses. Those expenses amounted to $3,247,000, $782,000, and $183,000 for the
years ended December 31, 2002, 2001, and 2000, respectively. In 2002, the
Company made payments to LDI for workers' compensation and vehicle insurance,
which were paid in 2001 directly to the insurance vendor. In addition, the
Company leases from LDI its corporate office space. Lease expense and payments
for repairs and maintenance to LDI totaled approximately $223,000, $206,000, and
$202,000, for the years ended December 31, 2002, 2001, and 2000, respectively.
The Company also has subordinated debt payable to LDI (see Note 4, Long-Term
Debt).

USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS: The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents. At
December 31, 2002, and 2001, checks drawn on future deposits and borrowings of
$4,169,000 and $3,863,000, respectively, were classified as accounts payable.
These amounts represent outstanding checks in excess of funds on deposit.

RECEIVABLES: Trade accounts receivable represents amounts due primarily from
automotive collision repair shops and dealerships. Trade receivables are
typically not collateralized. No single customer exceeds 10% of the Company's
receivables at December 31, 2002. The allowance for doubtful accounts reserve is
calculated based on the Company's historical experience in the collection of
aged invoices.

INVENTORIES: Inventories are stated at the lower of first-in, first-out cost or
market and consist primarily of purchased paint and refinishing supplies.
Substantially, all inventories consist of finished goods.

25

CONSIGNED INVENTORIES: Inventories consigned with customers are stated at net
realizable value and consist primarily of purchased paint and refinishing
supplies. Consigned inventory amounted to $5,434,000 and $4,561,000 at December
31, 2002 and 2001, respectively.

CONSIGNED EQUIPMENT: Equipment consigned with customers is stated at cost and is
depreciated over a three-year period with no residual value. Consigned equipment
is classified within other long-term assets in the accompanying consolidated
balance sheets and amounted to $602,000 and $578,000, net of accumulated
depreciation, at December 31, 2002 and 2001, respectively.

PROPERTIES AND DEPRECIATION: Property and equipment is stated at cost and
includes expenditures for new facilities, equipment and improvements that
materially extend the useful lives of existing assets.

Expenditures for normal repairs and maintenance are charged to expense as
incurred. Depreciation is computed using a combination of straight-line and
accelerated methods over the following range of estimated useful lives:

Buildings & improvements Up to 30 years
Vehicles Up to 5 years
Leasehold improvements Life of lease
Machinery, equipment & fixtures 3 to 12 years

Depreciation expense for 2002, 2001, and 2000 was $2,453,000, $2,287,000, and
$2,215,000, respectively.

REVENUE RECOGNITION: Revenues from product sales are recognized at the time of
shipment or delivery to the customers net of estimated returns and allowances.

DEFERRED CHARGES - The Company invests in paint related equipment and makes
upfront cash investments in lieu of discounts with customers. In consideration
for these investments, customers make multi-year purchase commitments that
include liquidated damages in the event that the customer breaches the
commitment. These investments are capitalized and amortized over the commitment
period or thirty-six months, whichever is shorter. The amortization is reflected
as a reduction of revenue in accordance with EITF Issue No. 00-25, "Accounting
for Consideration from a Vendor to a Retailer in Connection with the Purchase or
Promotion of the Vendor's Products." The current portion of deferred charges is
classified within other current assets in the accompanying consolidated balance
sheets and amounted to $1,100,000 and $1,400,000 at December 31, 2002 and 2001,
respectively. The non-current portion of deferred charges is classified within
other long term assets and amounted to $754,000 and $55,000 at December 31, 2002
and 2001, respectively.

Amounts reflected as a reduction of revenue in 2002, 2001, and 2000 were
$982,000, $1,429,000, and $1,000,000, respectively.

INCOME TAXES: Deferred income taxes are recognized for the temporary differences
between the tax basis of assets and liabilities and their financial reporting
amounts in accordance with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes." The income tax
provision is the tax payable for the period and the change during the period in
deferred tax assets and liabilities.

INTANGIBLES: Intangibles consist primarily of the excess of cost over the fair
market value of net assets of acquired businesses ("goodwill"). Other intangible
assets, including customer lists and non-compete agreements, are amortized on a
straight-line basis over periods ranging from 3 to 6 years. The majority of the
Company's goodwill relates to its November 1997 acquisition of Thompson. The
carrying value of goodwill is reviewed annually to determine if an impairment
has occurred. If an impairment has occurred, the amount of the loss is
recognized. Debt issuance costs are amortized over the term of the related debt
agreements.

INTERNAL USE SOFTWARE: Costs incurred to develop or obtain software for internal
use within the business are capitalized in accordance with the provisions of
Accounting Standards Executive Committee Statement of Position 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use."

26

During 2002 and 2001, the Company capitalized no software costs. Once placed
into service, software costs incurred are depreciated over their estimated
useful lives that range from 3 to 5 years.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES: The Company utilizes interest
rate swaps to reduce its exposure to fluctuations in interest rates. These
instruments are recorded on the balance sheet at their fair value. Changes in
the fair value of the interest rate swaps are recorded each period in Other Long
Term Liabilities and in the Accumulated Comprehensive Loss section of
Shareholders' Equity, net of tax.

RECLASSIFICATION: Certain amounts in the consolidated financial statements have
been reclassified to conform to the current year presentation.

2. ACQUISITIONS

The following table summarizes the assets acquired and liabilities assumed in
acquisitions made by FinishMaster in each of the periods presented. All
acquisitions have been accounted for as purchases and accordingly, the acquired
assets and liabilities have been recorded at their estimated fair values at the
dates of acquisition. Intangible assets such as goodwill, customer lists, and
covenants not to compete were recorded with each acquisition, if appropriate.
Operating results of acquired entities have been included in FinishMaster's
consolidated financial statements from the respective date of purchase.

Intangibles recorded as a result of these acquisitions are as follows:

During 2002, the Company completed four acquisitions: Innovative Refinish
Supply, Inc. in Arizona; Gil Bezy, Inc., D/B/A Color Master, Inc. in Kentucky;
Southern Automotives, Inc., in South Carolina; and Caywood's Paint Supply in
California. All acquisitions were funded with cash and debt.

During 2001, the Company completed two acquisitions: Badger and Scotty's Paint
Supply, Inc. The acquisitions involved operations in Minnesota, Illinois,
Wisconsin, and Florida, and were funded with cash, debt and common stock.

27

During 2000, the Company completed six acquisitions. The acquisitions occurred
in California, South Carolina, Washington DC, Ohio and Texas, and were funded
with cash and debt.

3. GOODWILL AND OTHER INTANGIBLE ASSETS

In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations," and No. 142,
"Goodwill and Other Intangible Assets." SFAS No. 141 requires that the purchase
method of accounting be used for all business combinations after June 30, 2001.
SFAS No. 142 prohibits the amortization of goodwill and intangible assets with
indefinite useful lives. SFAS No. 142 also requires that these intangible assets
be reviewed for impairment at least annually. Intangible assets with finite
lives continue to be amortized over their estimated useful lives.

Effective January 1, 2002, we adopted SFAS No. 142, which requires that goodwill
and indefinite lived assets be tested for impairment at the reporting unit level
at adoption and at least annually thereafter. An impairment charge is recognized
only when the calculated fair value of a reporting unit, including goodwill, is
less than its carrying amount. In accordance with SFAS No. 142, we completed the
required transitional impairment tests of goodwill and indefinite lived
intangible assets and determined the fair value to be in excess of the carrying
value of these assets. We also completed our required annual impairment test as
of June 30, 2002 and determined the fair value of goodwill and indefinite lived
intangible assets to be in excess of the carrying value of these assets.

As required by SFAS No. 142, intangible assets with finite lives are amortized
over their estimated useful lives. Included in intangible assets with finite
lives are non-compete agreements and customer lists.

A reconciliation of reported net income adjusted to reflect the adoption of SFAS
No. 142 is provided below:

28

The changes in the carrying amount of goodwill and intangible assets for the
fiscal year ended December 31, 2002 and 2001 are as follows:

Information regarding the Company's other intangible assets are as follows:

Amortization lives for intangible assets range from 3 to 6 years.

Total amortization expenses in 2002, 2001, and 2000 were $1,274,000, $5,892,000
and $6,300,000 respectively. Included in 2001 and 2000 was $5,253,000 and
$4,343,000 for goodwill, respectively. Estimated amortization for each of the
five succeeding fiscal years based on intangible assets as of December 31, 2002
is expected to be approximately $1,050,000 annually.

4. LONG-TERM DEBT

Long-term debt consisted of the following:

29

REVOLVING CREDIT FACILITY: The Company has a $100.0 million senior secured
credit facility with a syndicate of banks. The senior secured credit facility
consists of $40.0 million term credit facility and a $60.0 million revolving
credit facility. The revolving credit facility is limited to the lesser of (1)
$60 million less letter of credit obligations, or (2) 80 percent of eligible
accounts receivable plus 65 percent of eligible inventory less letter of credit
obligations and a reserve for three months facility rent. Principal is due on
June 30, 2006. Interest rates and payment dates are variable based upon interest
rate and term options selected by management. Interest rates at December 31,
2002 and 2001 on outstanding revolving credit borrowings varied from 3.42% to
4.25% in 2002 and 4.17% to 5.00% in 2001. Revolving credit borrowings are
subject to interest rates, which fluctuate based on the Company's Leverage
Ratio, as defined in the Credit Facility, which as of December 31, 2002 was 2.0%
over LIBOR or 0.0% over prime in the case of Floating Rate Advances and 2.25%
over LIBOR or 0.25% over prime in the case of Floating Rate Advances at the end
of 2001. The Company is charged an annual administrative fee of $35,000, and an
annual commitment fee, payable monthly, that ranges between 0.375% and 0.5% of
the unused portion of the revolving line of credit. At December 31, 2002 and
2001, the Company had $20.1 million and $25.0 million, respectively of available
borrowings under its revolving credit facility.

In December 2002, the credit facility was amended to allow the Company to borrow
up to $10.0 million on an unsecured basis. In December 2002, the Company
borrowed $5.0 million, which matured January 31, 2003. This borrowing is
classified within long-term debt, as this amount was refinanced with proceeds
from the revolver credit facility in 2003.

TERM CREDIT FACILITY: The term loan, which expires on June 30, 2006, requires
quarterly principal payments that began on June 30, 2001. Quarterly principal
payments in 2002 and 2001 were $1.5 million and $1.0, respectively, and increase
in amount each year over the remaining term of the loan. Interest rates and
payment dates are variable based upon interest rate and term options selected by
management. Interest rates at December 31, 2002 and 2001, were at 3.80% and
4.84%, respectively on outstanding term borrowings. Term borrowings are subject
to interest rates, which fluctuate based on the Company's Leverage Ratio, as
defined in the Credit Facility, which as of December 31, 2002 was 2.0% over
LIBOR or 0.0% over prime in the case of Floating Rate Advances and 2.25% over
LIBOR or 0.25% over prime in the case of Floating Rate Advances at the end of
2001.

To convert the Company's new senior term credit facility from a floating to a
fixed interest rate obligation, the Company entered into interest rate swap
agreements in March 2001 with notional amounts of $40.0 million. The notional
amounts under the swap agreements are reduced according to the senior term
credit facility's amortization schedule. The weighted average fixed interest
rate under these agreements is 5.43%. In order to maintain effectiveness, the
quarterly settlement terms of the swap agreements are established to match the
interest payments on the term credit facility. The decrease in the fair value of
the interest rate swap for December 31, 2002 and 2001 was ($1.0) million and
($1.1) million, respectively. The change in the fair market value was recorded
in the Accumulated Comprehensive Loss section of the Shareholders' Equity, net
of tax.

COMBINED FACILITIES: Substantially all of the Company's assets serve as
collateral for the revolving credit facility and term credit facility. These
credit agreements contain various quarterly and annual covenants pertaining to,
among other things, achieving a minimum fixed charge coverage ratio, a maximum
leverage ratio, a maximum senior debt leverage ratio, a minimum interest expense
coverage ratio and a minimum consolidated net worth level. The covenants also
limit purchases and sales of assets and restrict payment of dividends. If any
default as described in the credit facilities occurs with respect to the
Company, the obligations of the lenders to make additional loans automatically
terminates and the outstanding obligations become immediately due and payable.

As of December 31, 2002, and 2001, the Company was in compliance with its
covenants.

SENIOR SUBORDINATED DEBT: The Company has a $19.9 million senior subordinated
term credit facility with LDI. All outstanding principal is due on March 29,
2007, and interest is paid quarterly at a rate of 12.0% per annum.

EARLY EXTINGUISHMENT OF DEBT: An extraordinary loss on the early extinguishment
of debt of $0.5 million, net of $0.3 million in income tax benefit, resulted
from the write-off of the unamortized debt issuance costs related to the early
extinguishment of our senior secured and senior subordinated credit facilities
in March 2001.

30

The aggregate principal payments for the next five years subsequent to December
31, 2002, are as follows:

The carrying amounts of certain financial instruments such as cash, accounts
receivable, accounts payable, and long-term debt approximate their fair values.
The fair value of long-term debt is estimated using discounted cash flows and
the Company's current incremental borrowing rates for similar types of
arrangements.

5. EMPLOYEE SAVINGS PLAN

The Company has an Employee Savings Plan ("Plan"), which covers substantially
all employees who have met certain requirements as to date of service. The
Company currently contributes on a graduated scale up to 50% of each $1.00
contributed by employees up to 6% of their annual compensation. Prior to 2002,
the Company contribution was a graduated scale up to 25% of each $1.00
contributed by employees up to 6% of their annual compensation. The Company
contributions charged to operations under the Plan were approximately $657,000,
$316,000, and $279,000, for the years ended December 31, 2002, 2001, and 2000,
respectively. In addition, the Company may contribute to the Plan, at the
discretion of the Board of Directors, an additional amount up to 4% of
employees' annual compensation. In 2001, a discretionary contribution of 2% of
employees' annual compensation was awarded in the amount of $900,000; no
discretionary contribution was made in 2002.

6. STOCK OPTIONS

The Company has a stock option plan under which officers, key employees, and
directors may be granted options to purchase stock. There are 750,000 shares of
common stock reserved for issuance under the plan. All options granted under
this plan have been granted at a price not less than the fair market value of
the Company's common stock on the date of grant and have a maximum life of ten
years from the date of the grant. Certain stock options granted in 2002, 2001,
and 2000 were also fully vested at the date of issue, while others vest over
periods ranging from one to four years.

The Company recognizes compensation expense related to its stock option plan in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Options are granted at a price not less than the fair market value of the
Company's common stock on the date of grant, therefore no compensation expense
is recognized. Had compensation expense been determined at the date of grant
based on the fair value of the awards consistent with SFAS No. 123, "Accounting
for Stock Based Compensation," the Company's net income and net income per share
would have been reduced to the pro forma amounts indicated in the following
table:

31

The fair value of each option granted was estimated on the date of the grant
using the Black-Scholes option pricing model with the following assumptions for
the years ended December 31, 2002, 2001, and 2000, respectively: risk free
interest rate of 4.7%, 5.0%, and 6.4%; no dividend yield; expected option lives
of nine years; and stock price volatility of 41.9%, 42.9%, 48.5%.

32

The weighted-average fair value of options granted during the years ended
December 31, 2002, 2001, and 2000, were $7.06, $4.66, and $4.75, per option,
respectively, where the exercise price of the options equaled the market price
on the date of grant. Certain options were granted during 2002 and 2000 where
the exercise price of the options exceeded the market value of the stock on the
date of grant. The weighted-average fair value of these options was $6.58 and
$4.61 per option at December 31, 2002 and 2000, respectively.

7. INCOME TAXES

The provision for federal and state income taxes consisted of the following:

The total provision for federal and state income taxes consisted of the
following:

The reconciliation of income taxes computed at the federal statutory tax rate to
the Company's effective tax rate is as follows:

33

Significant components of the Company's deferred tax assets as of December 31,
2002, and 2001 are as follows:

8. COMMITMENTS AND CONTINGENCIES

The Company occupies facilities and uses equipment and vehicles under operating
lease agreements requiring annual rental payments approximating the following
amounts for the five years subsequent to December 31, 2002:

Rent expense charged to operations, including short-term leases, totaled
approximately $8.6 million, $8.5 million, and $8.4 million, for the years ended
December 31, 2002, 2001, and 2000, respectively.

The Company is dependent on four main suppliers for the purchases of the paint
and related supplies that it distributes. A loss of one of the suppliers or a
disruption in the supply of the products provided could have a material adverse
effect on the Company's operating results. The suppliers also provide purchase
discounts, prompt payment discounts, extended payment terms, and other incentive
programs to the Company. To the extent these programs are changed or terminated,
there could be a material adverse impact to the Company.

The Company is subject to various claims and contingencies arising out of the
normal course of business, including those relating to commercial transactions,
environmental, product liability, automobile, taxes, discrimination, employment
and other matters. The Company is involved in three superfund site
investigations, two in Florida and one in Georgia. Our management believes that
the ultimate liability, if any, in excess of amounts already provided or covered
by insurance, is not likely to have a material adverse effect on our financial
condition, results of operations or cash flows.

The Company has been named as one of a number of defendants in the automotive
refinishing industry in a class action complaint by a group of collision repair
centers in California. The plaintiffs claim to represent similar businesses
throughout the state of California and allege that paint manufacturers engaged
in a horizontal price fixing conspiracy. The plaintiffs further allege that the
manufacturers together with paint distributors engaged in a vertical price
fixing conspiracy. Specifically, the plaintiffs allege that manufacturers and
distributors agreed not to extend their most favorable pricing terms to the
collision repair centers. The court has stayed the vertical pricing fixing
component of the class action pending resolution of the horizontal price fixing
allegations.

34

Consequently there are no pending deadlines or trial dates with respect to the
Company. The Company believes that the class action is without merit. The
Company intends to vigorously defend its position. At this time the amount of
damages has not been specified.

In the normal course of business the Company also enters into various guarantees
and indemnities in its relationships with suppliers, service providers,
customers and others. The Company does not believe these guarantees and
indemnifications will have a material impact on the Company's financial
condition or results of operations, although indemnification associated with the
Company's actions generally have no dollar limitations.

9. NEW ACCOUNTING PRONOUNCEMENTS

In April 2002, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." In
addition to amending and rescinding other existing authoritative pronouncements
to make various technical corrections, clarify meanings, or describe their
applicability under changed conditions, SFAS 145 limits companies from recording
gains and losses from the early extinguishments of debt as an extraordinary
item. SFAS 145 is effective for fiscal years beginning after May 15, 2002. The
Statement requires retroactive reclassification of certain previously recorded
extraordinary losses on early extinguishments of debt. The Company does not
believe that the adoption of this Standard will have material impact on the
Company's consolidated financial statements.

In November 2002, the Financial Accounting Standards Board issued FASB
Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." FIN 45 elaborates on the disclosures to be made by a guarantor about
its obligations under certain guarantees that it has issued. In addition, this
Interpretation will require a guarantor to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The disclosure provisions of FIN 45 are effective for
annual or interim financial statements of periods ending after December 15, 2002
(Note 8). The recognition provisions of FIN 45 are applicable only on a
prospective basis for guarantees issued or modified after December 31, 2002. The
Company does not believe that the adoption of this Interpretation will have
material impact on the Company's consolidated financial statements.

In November 2002, the Emerging Issues Task Force (EITF) issued EITF Issue 00-21,
"Revenue Arrangements with Multiple Deliverables." This Issue provides guidance
as to how to determine when an arrangement involving multiple deliverables
contains more than one unit of accounting and when more than one unit of
accounting exists how the arrangement consideration should be allocated to the
multiple units. The application of this Issue could affect the timing of the
recognition of revenue for multiple deliverable arrangements. The guidance in
this Issue is prospective for revenue arrangements entered into after June 30,
2003. The Company is in the process of analyzing the impact this issue will
have, if any, on the Company's revenue recognition in the future.

35

10. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following table presents the quarterly results of operations for each period
presented.

Certain amounts in the quarterly results of operations presented above have been
reclassified from previous reported quarterly financial results. These
reclassifications were primarily for moving shipping and handling costs from
operating expenses to cost of goods sold.

36

11. NET INCOME PER SHARE

In 1997, the Company adopted the provisions of SFAS No. 128, "Earnings Per
Share." SFAS No. 128 requires disclosure of basic and diluted earnings per
share. Basic earnings per share are computed by dividing net income by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share are computed based upon the weighted average number of common
shares outstanding, adjusted for the effect of dilutive stock options. All net
income per share amounts reported herein are in accordance with the provisions
of this Statement.

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

For all years presented, antidilutive stock options were excluded in the
determination of dilutive earnings per share.

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

None.

PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Item 10 is incorporated by reference from the Registrant's definitive proxy
statement to be filed within 120 days of December 31, 2002

ITEM 11 - EXECUTIVE COMPENSATION

Item 11 is incorporated by reference from the Registrant's definitive proxy
statement to be filed within 120 days of December 31, 2002

37

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Item 12 is incorporated by reference from the Registrant's definitive proxy
statement to be filed within 120 days of December 31, 2002

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Item 13 is incorporated by reference from the Registrant's definitive proxy
statement to be filed within 120 days of December 31, 2002

ITEM 14 - CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-14 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), within 90 days of the filing date of this report.
Based on their evaluation, our chief executive officer and chief financial
officer concluded that the Company's disclosure controls and procedures are
effective.

There have been no significant changes (including corrective actions with regard
to significant deficiencies or material weaknesses) in our internal controls or
in other factors that could significantly affect these controls subsequent to
the date of the evaluation referenced above.

PART IV

ITEM 15 - EXHIBITS, FINANCIAL STATEMENT, SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents have been filed as a part of this report, or
where noted, incorporated by reference:

(1) Financial Statements: The Consolidated Financial Statements of
the Company are included in Item 8 of this report.

(2) Financial Statement Schedule: The financial statement schedule
filed in response to Item 8 and Item 14(d) of Form 10-K is listed
in the Index to Consolidated Financial Statements included in Item
8 of this report.

(3) The Exhibits filed herewith or incorporated herein by reference
are set forth in the Exhibit Index on page 43.

(b) REPORTS ON FORM 8-K: NONE

38

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.

Date March 25, 2003 FINISHMASTER, INC.

By: /s/ Robert R. Millard
-------------------------
Robert R. Millard

Senior Vice President, Finance
And Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

39

CERTIFICATION

By signing below, each of the undersigned officers hereby certifies that, to his
knowledge, (i) this report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 and (ii) the information
contained in this report fairly presents, in all material respects, the
financial condition and results of operations of FinishMaster, Inc.

Date: March 25, 2003 By: /s/ Andre B.Lacy
--------------------------
Andre B. Lacy
Chief Executive Officer

By: /s/ Robert R. Millard
--------------------------
Robert R. Millard
Senior Vice President and
Chief Financial Officer

40

CERTIFICATION

I, Andre B. Lacy, certify that:

1. I have reviewed this annual report on Form 10-K of FinishMaster, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: March 25, 2003 /s/ Andre B. Lacy
-----------------
Andre B. Lacy
Chairman and Chief Executive Officer

41

I, Robert R. Millard, certify that:

1. I have reviewed this annual report on Form 10-K of FinishMaster, Inc.:

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flow of the registrant as of, and for, the periods presented in
this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent functions):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal control; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses

Date: March 25, 2003 /s/ Robert R. Millard
---------------------
Robert R. Millard
Senior Vice President and Chief Financial Officer

42

FINISHMASTER, INC. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K

EXHIBITS

*filed herein

43

Schedule II - Valuation and Qualifying Accounts (In thousands)

(A) Represents uncollectible accounts written off, less recoveries.

44