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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
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to ____________
Commission File Number 0-23222
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 700, 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:
Title of each class Name of each exchange on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act
Common stock
(Title of Class)
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 (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 28, 1998 $49,384,000.
At February 28, 1998, there were outstanding 5,993,640 shares of Registrant's
common stock.
Documents Incorporated By Reference
Portions of the annual proxy statement for the year ended December 31, 1997 are
incorporated by reference into Part III.
Page 1 of ____
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FINISHMASTER, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
ITEM PAGE
1 Business........................................................
2 Properties......................................................
3 Legal Proceedings...............................................
4 Submission of Matters to a Vote of Security Holders.............
5 Market for Registrant's Common Equity
and Related Shareholder Matters.............................
6 Selected Financial Data.........................................
7 Management's Discussion and Analysis of
Financial Condition and Results of Operations...................
8 Financial Statements and Supplemental Data......................
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.........................
10 Directors and Executive Officers of the Registrant..............
11 Executive Compensation..........................................
12 Security Ownership of Certain Beneficial Owners and Management..
13 Certain Relationships and Related Transactions..................
14 Exhibits, Financial Statement Schedules,
and Reports on Form 8-K.....................................
15 Signatures......................................................
16 List of Financial Statements and Financial Statement Schedules..
PART I
ITEM 1 - BUSINESS
General
FinishMaster, Inc. ("FinishMaster" or "the Company") is the leading national
distributor of automotive paints, coatings and paint-related accessories to the
automotive collision repair industry in the United States. The Company serves
its customers through 143 sales outlets and three distribution centers located
in 22 states. The Company has approximately 20,000 customers to which it
provides a comprehensive selection of brand name products supplied by E.I.
DuPont de Nemours & Co. ("DuPont"), PPG Industries, Inc. ("PPG"), BASF
Corporation ("BASF"), and Minnesota Mining & Manufacturing Co., Inc. ("3M"), in
addition to its own FinishMaster PrivateBrand refinishing accessory products.
The Company is typically the primary source of supply to its customers and
offers a broad range of services designed to enhance the operating efficiencies
and competitive positions of its customers and suppliers.
The Company has been the leading consolidator in the automotive refinishing
distribution industry, having successfully completed approximately 25
acquisitions over the past seven years, ranging in size from $0.3 million
fill-in acquisitions to the $73.4 million acquisition of Thompson PBE, Inc. (the
"Thompson Acquisition"). In addition to the cash purchase price, the Company
refinanced approximately $34.5 million of Thompson's outstanding indebtedness at
the date of purchase. The Thompson Acquisition, completed in November 1997,
significantly expanded the Company's geographic presence in the Southeastern and
Western United States. Subject to receipt of shareholder approval, the Company
expects to close the acquisition of LDI AutoPaints, Inc.("AutoPaints") (the "LDI
Acquisition"), which will increase the Company's presence in Florida. The
Company intends to continue its strategy of expanding through additional
acquisitions.
The Company is an Indiana corporation. On March 1, 1998, the Company relocated
its corporate headquarters from the Kentwood, Michigan distribution center to
newly renovated office space in Indianapolis, Indiana. The Company has agreed to
lease that space from LDI, Ltd. ("LDI"), an Indiana limited partnership and the
indirect parent of AutoPaints, an Indiana corporation which owns approximately
67.5% of the outstanding shares of the Company. The Company believes that the
terms of the lease will be at least as favorable to the Company as those that
could be obtained by arms-length negotiations with an unaffiliated third party.
As a result of this move the principal executive offices of the Company are
located at 54 Monument Circle, Suite 700, Indianapolis, IN 46204, and its
telephone number is (317) 237-3678.
Industry Overview
The U.S. automotive paint distribution market is approximately $2.4 billion. The
end users of the products distributed by the Company are principally independent
collision repair shops and automobile dealers. Additionally, businesses and
government entities that maintain their own automobile fleets, sellers of
automotive salvage and other commercial and industrial users make up smaller
percentages of the Company's 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 repair job. However, while
paint is a relatively minor component of the total repair cost, it is a critical
factor in the customer's level of satisfaction.
The domestic wholesale aftermarket for automotive paint and related supplies is
characterized by a small number of manufacturers of paint and supplies. The five
predominant manufacturers of automotive paint distributed in the United States
are DuPont, PPG, BASF, The Sherwin-Williams Company ("Sherwin-Williams") and
Akzo Nobel ("Sikkens"). In addition, several other large foreign manufacturers
have recently taken steps to expand the distribution of their paint products in
the United States. 3M is the predominant manufacturer of related supplies which
include the most frequently used refinishing materials, supplies, accessories
and tools such as sand paper, masking tape and paint masks.
While automotive paint manufacturing is highly concentrated, automotive paint
distribution and the end users of automotive paint are highly fragmented. The
Company believes that a large number of independent distributors of automotive
paint serve an aggregate of up to 50,000 collision repair shops nationwide.
Based on published industry data, the Company believes that the number of
collision repair shops has decreased approximately 5% in each of the last two
years. Distributors, which tend to be family-owned with only one to three
distribution sites, typically serve a highly localized customer base with each
distribution site serving customers located within 5 to 10 miles of the site
depending upon demographics, road access and geography.
Below is a Market Profile obtained from Industry Publications:
No. of Collision Annual Shop
Repair Shops Revenue
($Millions)
9,000 *$0.2
13,000 $0.2 to $0.3
12,500 $0.3 to $0.45
7,000 $0.45 to $0.6
3,500 $0.6 to $1.0
2,800 $1.0 to $2.0
800 $2.0 to $3.0
450 $3.0 to $5.0
100 **$5.0
* Less than
** Greater than
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 such as FinishMaster. Nevertheless, some of the Company's
paint manufacturers have elected to operate company-owned distribution
facilities in selected markets, including markets in which the Company operates.
The Company believes, 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, the Company believes that independent distributors such as
the Company, which can sell the products of several paint manufacturers, are
better situated to service end users' needs than the distribution facilities of
automotive paint manufacturers.
Distributors and repair shops are in the process of consolidation due to, among
other things, the declining number of repair jobs. According to the estimates of
one industry source, the total number of vehicles on the road has increased from
approximately 140 million in 1980 to 189 million in 1996, while the number of
repair jobs has declined from approximately 18.5 million in 1980 to an estimated
13.0 million in 1995. This decline has been due to, among other things,
automotive safety improvements such as anti-lock brakes, rear window-placed
brake lights and more reliable radial tires. Stricter drunk driving laws, more
vigorous law enforcement and the increasing percentage of drivers reaching
middle age have also resulted in fewer accidents. Additionally, a higher
percentage of collision damaged cars are declared total losses, rather than
repaired, due to uni-body construction and rising costs of repair and
refinishing. Over the past several years, the industry has benefited from
warranty work to repair defective paint finishes on certain domestic vehicles
manufactured in the late 1980s and early 1990s. However, the Company believes
that the volume of warranty repair work decreased significantly in 1995, 1996
and 1997 from the levels experienced in prior years because of steps taken by
the major U.S. automobile manufacturers to reduce multi-year warranty programs
to repaint certain vehicles. The Company does not expect to realize significant
future benefits from this set of warranty programs.
The Company believes that environmental and other regulatory pressures and
technological advancements in paints and coatings are also significant factors
leading to consolidation of both distributors and collision repair shops.
Historically, the application of paints and coatings has released emissions due
to the products' high solvent content. In an effort to reduce these emissions,
environmental regulations have been proposed or implemented at federal, state
and local levels. Paint manufacturers have responded to these regulations by
introducing technologically advanced lower volatile organic compounds ("VOC")
and water-borne paints which require more advanced application techniques.
Furthermore, the application equipment itself has been improved. For example,
the latest high volume low pressure ("HVLP") spray guns deliver paint more
efficiently to a given surface, resulting in less paint being emitted into the
atmosphere. As a result, automotive refinishing has become a complex process,
often requiring advanced spray booths and air filtration systems to reduce
unwanted particulates and emissions. This complexity places new challenges on
automotive refinishers who may not have the training or expertise necessary to
apply the new paints and coatings or the financial resources to acquire the
necessary equipment. The Company believes that its experience in assisting
customers with regulatory compliance and reporting in California and Colorado
will be applicable in other geographic areas as EPA-sponsored VOC regulations
are enacted nationwide.
Further, insurance companies have begun to designate certain collision repair
shops as so-called "direct repair providers." As such, the designated collision
repair shops (approximately 6,500 in the U.S.) are directed business by the
insurance carriers in return for price concessions from customary rates. The
Company believes this trend favors larger, more efficient repair shops.
Products and Suppliers
The Company offers its customers a comprehensive selection of prominent brand
name products and its own FinishMaster PrivateBrand products. The product line
consists of approximately 9,000 stock keeping units ("SKUs"), including the
three leading brands of automotive paints and coatings and a leading brand of
related accessories. FinishMaster PrivateBrand products include some of the most
frequently used refinishing accessories such as masking materials, body fillers,
thinners, reducers and cleaners.
The following table illustrates the approximate number of SKUs, suppliers and
selected brand names in each of the Company's major product categories. The
Company may change from time to time the selection and mix of its products.
Approximate
Number of Approximate
Product Category Manufacturers Number of Selected Suppliers and
and Suppliers SKUs Brand Names
- ---------------------------------------------------------------------------------------------------
Branded Paints and Coatings 3+ 3,400 DuPont, PPG, BASF, etc.
Branded Accessories 3 2,700 3M, Dynatron, US Chemical
Private Label Accessories 25 100 FinishMaster PrivateBrand
Other Miscellaneous Products 2,800 Various
- ---------------------------------------------------------------------------------------------------
Total 9,000
The Company relies on four leading suppliers for the majority of its product
requirements. DuPont, PPG, and BASF supply virtually all of the Company's paint
products, while 3M is the Company's largest supplier of paint-related
accessories. Products supplied by DuPont, PPG and BASF accounted for
approximately 65% and 3M approximately 25% of revenues in 1997. The Company
continuously seeks opportunities with new and existing suppliers to supply the
highest quality products.
The Company believes that DuPont, PPG and BASF are market leaders, accounting
for a majority of total domestic automotive paint sales. The Company believes
that in fiscal 1997, it was the largest purchaser of aftermarket automotive
paint in the United States from each of these manufacturers. The Company also
acquires a modest amount of its paint requirements from several foreign
manufacturers which have recently taken steps to expand the distribution of
their paint products in the United States. As is common industry practice, the
Company does not maintain long-term supply contracts with any of its key
suppliers. The Company enters into written agreements with most of its major
suppliers for each sales outlet. These agreements are nonexclusive and set forth
the suppliers' warranties, procedures for resolving disputes and provisions
which generally allow for annual returns of obsolete inventory to the supplier
in return for credit or new inventory. Prices and terms are established by the
suppliers' invoices and published price lists and may be changed by the supplier
without notice. In addition, the agreements require the Company to maintain
adequate inventories at a regularly established place of business, to train and
manage its sales staff, and to use its best efforts to promote the products.
These agreements typically contain reciprocal clauses allowing cancellation on
written notice ranging from 30 to 90 days. Although each of these suppliers
generally competes with the others along product lines, the Company does not
believe the products are completely interchangeable because of high brand
loyalty among customers and their brand-specific color matching computer
systems. For this reason, the Company's acquisition program is also dependent on
the willingness of the principal paint suppliers to continue to supply acquired
businesses. The Company has agreements with other warehouse suppliers for the
purchase of certain paint and non-paint supplies in specified geographic
locations. These agreements contain minimum volume commitments.
Whenever practical, purchases from suppliers are made in large volumes to
maximize volume discounts and optimize payment terms. In addition, the Company's
size generally permits it to benefit from periodic special incentive programs
available from suppliers, which programs provide additional purchase discounts
and extended due dates of payments in exchange for large volume purchases. The
Company also benefits from manufacturer-provided discounts upon early payment of
certain accounts and from other supplier-supported programs. Branded products
carry the manufacturers' guaranties. Defective products typically may be
returned to manufacturers at no charge to the Company and obsolete products
generally may be returned for a slight restocking fee. Due to the manufacturers'
favorable return policies, the Company also accepts customer returns of
defective or obsolete products. The Company has arrangements with its suppliers
that enable the Company to return product to the suppliers subject to certain
restocking charges.
The Company purchases substantially all of its automotive paint related
accessories directly from 3M, although such supplies are also generally
available from independent warehouse distributors at somewhat higher costs. The
Company regularly purchases a small number of products not available directly
from the manufacturers and certain low volume items from independent warehouse
distributors.
Services
The Company offers 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 the Company's delivery
fleet of approximately 800 trucks. The Company offers multiple daily deliveries
per customer to meet its customers' just-in-time inventory needs. Customer
concerns for product availability typically take priority over all other
competitive considerations, including price.
Technical Support. The Company's 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, which are sold by the Company.
Product Training. As a result of increasing regulations, manufacturers have
introduced technologically advanced, lower VOC paints, which require
significantly more sophisticated application techniques. The Company provides
training services to its customers in order to teach them the techniques
required to work with these products. Training sessions are typically conducted
jointly by the Company and by one or more of its major suppliers at the
customer's location or at an off-site location.
Management Seminars. Management seminars are conducted at convenient locations
to inform customers about regulations, compliance, and 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 120,000 mix formulas.
With its sophisticated PC-based color matching equipment and specialists, the
Company provides color matching services to its customers.
Inventory Management. The Company performs monthly physical inventories for
customers who request this service. The Company also provides customers with
management information reports on product usage.
Assistance with Environmental Compliance Reporting. California air quality
regulations mandate paint and application methods which result in reduced
atmospheric emissions of paint and other related materials. In California, the
Company provides information to its customers with respect to air quality
reporting and arranges demonstrations of new products and applications designed
to comply with air quality regulations. In addition, in California and in
Colorado, the Company assists its 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, the Company is considering an expansion
of these programs.
Personnel Placement. Certain of the Company's divisions maintain an employment
data base which includes 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, the Company may provide the names of one or more
persons for the position. Similar services are available to persons seeking
employment. The Company does not charge for this service but benefits from
enhanced relationships with its customers and their employees.
Operations
Warehouse. The Company operates three distribution centers which are located in
Michigan, California and Florida. Products are delivered from the distribution
centers to sales outlets weekly by one of the Company's six semi-trucks.
Sales Outlets. As of March 31, 1998, the Company operated 143 sales outlets
servicing customers in 22 states with a delivery fleet of approximately 800
vehicles. Sales outlets are strategically located in order to provide prompt
service to the Company's customers. Each sales outlet maintains a comprehensive
selection of competitively priced products tailored to the specific market needs
of its customers. While supplier commitments in a given market may prevent some
outlets from carrying all of the Company's product lines, each outlet is
authorized to carry the majority of the products, including at least two major
paint brands. Sales outlets electronically order their inventory requirements on
a regular basis from the Company's distribution center or directly from the
manufacturer.
Management Information Systems. Each of the Company's sales outlets uses either
personal computers or terminals for inventory control and order processing. The
Company's main IBM AS/400 computers collect and process data required for
operations analysis, finance, warehouse and administrative functions and the
management of receivables and inventory. The Company believes that its current
systems are adequate but has initiated a program to research further system
integration potential and operational efficiencies. The Company has also
implemented a detailed plan to ensure Year 2000 compliance. The Company
contemplates working closely with its major suppliers and customers in their
Year 2000 compliance efforts. FinishMaster, like most organizations, has not
completed the Year 2000 Compliance process but does not believe that the cost of
such process will be material or that there is a material uncertainty regarding
its ability to complete said process by Year 2000. The Company has in place a
detailed testing and correction plan which would provide for a smooth transition
into 2000. The focus is to confirm that the supply chain, from manufacturer to
FinishMaster to customer, is not broken due to computer problems at the change
of the century. In addition, the Company has written verification of Year 2000
compliance from all its hardware, software and suppliers with which it has data
processing relationships.
Sales and Marketing
As of March 31, 1998, the Company employed a 309 person direct sales force
consisting of approximately 244 sales representatives, 29 regional managers, 27
technicians and 9 general managers. The Company assigns its sales personnel to
specific customer accounts in an effort to build long-term relationships. Sales
representatives make frequent visits to customer sites in order to review the
customer's requirements and to offer general, technical and product support. The
Company's sales personnel are generally compensated through a combination of
sales commissions and base salaries. The Company emphasizes continuing education
and training of its sales force in order to provide a high degree of support for
its customers. The Company's customers primarily consist of independent
automotive body repair shops and automobile dealerships. The Company does not
maintain long-term contracts with its customers.
Customers
In 1997, the Company served approximately 20,000 customers, none of which
accounted for more than 1% of the Company's sales. The Company believes that it
is the principal source of supply of automotive paint and related supplies for
most of its customers. In addition to independent collision repair shops and
automobile dealers, which are the Company's largest category of customers, the
Company's customers include van converters, trucking companies, schools,
municipalities, government agencies, sellers of automotive salvage, refinishers,
marine and aviation refinishers and other commercial and industrial users.
Competition
The distribution segment 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 the Company on a regional or local level. Competition in the
purchase of independent distributors and sales outlets may occur between the
Company and other automotive refinishing distributors which are also pursuing
growth through acquisitions.
The Company may also encounter significant sales competition from new market
entrants, automotive paint manufacturers, buying groups or other large
distributors which may seek to enter such markets or may seek to compete with
the Company 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 the
Company's principal suppliers, distributes through its own outlets. While the
Company does not believe that current direct distribution efforts by automotive
paint manufacturers have significantly affected its sales, there can be no
assurance that the Company will not encounter increased competition in the
future. The Company may also compete with its suppliers in selling to certain
large volume end users such as van converters, small manufacturers and large
fleet operators.
Employees
As of March 31, 1998, the Company employed approximately 1,660 persons on a full
and part-time basis. None of the employees are covered by a collective
bargaining agreement and the Company considers its relations with its employees
to be good.
Governmental Regulation
The Company is subject to various federal, state and local laws and regulations.
These regulations impose requirements on the Company and its customers and
provide opportunities to the Company for providing services to customers with
respect to the use of new products and applications designed to comply with air
quality regulations. Pursuant to the regulations of the United States Department
of Transportation and certain state transportation departments, a license is
required to transport the Company's products and annual permits are required due
to classification of certain of the Company's 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 the Company's distribution centers and
sales outlets, including worker safety, community and employee "right-to-know"
laws, and laws regarding clean air and water. In addition, state and local fire
regulations extensively control the design and operation of the Company's
facilities. Such regulations are complex and subject to change. Regulatory or
legislative changes may cause future increases in the Company's operating costs
or otherwise negatively affect operations. Although the Company believes it has
been and is currently in compliance with the applicable standards imposed
pursuant to such laws and regulations, there can be no assurance that in the
future the Company may not be adversely affected by such regulations or incur
increased operating costs in complying with such regulations. The Company
believes that, on balance, these regulations favorably affect the Company
because it is, in most instances, better able than its smaller competitors to
comply with such regulations and to assist its customers with compliance.
Environmental
The principal environmental legislation presently affecting the Company and its
customers in a significant manner is described below.
Resource Conservation and Recovery Act of 1976 ("RCRA"). RCRA regulates the
treatment, storage and disposal of hazardous and solid wastes. Under RCRA,
liability and stringent management standards are imposed on a person who is a
generator or transporter of a hazardous waste or an owner or operator of a waste
treatment, storage or disposal facility. At some of its locations, the Company
is subject to RCRA requirements as a small quantity generator.
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"). CERCLA addresses cleanup of sites at which there has been or may be
a release of hazardous substances into the environment. CERCLA assigns liability
for costs of cleanup and for damage to natural resources (i) to any person who,
currently or at the time of disposal of a hazardous substance, owned or operated
any facility at which hazardous substances were deposited; (ii) to any person
who by agreement or otherwise arranged for the disposal or treatment, or
arranged with a transporter for transport for disposal or treatment of hazardous
substances owned or possessed by such person; and (iii) to any person who
accepted hazardous substances for transport to disposal or treatment facilities
or sites selected by such person from which there is a release or threatened
release of hazardous substances. The Company has acquired a number of businesses
which prior to acquisition may have sent waste to sites which have become
subject to government cleanup under CERCLA.
Clean Air Act and 1990 Amendments. The Clean Air Act requires compliance with
national ambient air quality standards ("NAAQS") and empowers the EPA to
establish and enforce limits on the emission of various pollutants from specific
types of facilities. The Clean Air Act Amendments of 1990 (the "Amendments")
modify the Clean Air Act in a number of significant areas. The Amendments, among
other things, establish new programs and deadlines for achieving compliance with
NAAQS, establish controls for hazardous air pollutants, establish a new national
permit program for all major sources of pollutants and create significant new
penalties, both civil and criminal, for violations of the Clean Air Act. The
Amendments specifically require a review of VOC emissions from commercial
products (which encompass emissions relating to the application of paint to
automobiles). Pursuant to this review, the EPA decided to develop regulations
controlling automotive refinishing coatings. At some of its locations the
Company is subject to the Clean Air Act because it uses paint spraying equipment
for paint matching and for training of customers.
Other Federal and State Environmental Laws. The Company's operations are subject
to regulation under, among others, the following federal laws: the Clean Water
Act, the Safe Drinking Water Act, the Occupational Safety and Health Act and the
Hazardous Materials Transportation Act. In addition, many states have other
regulations and policies to cover more detailed aspects of hazardous materials
management.
Local Air Quality Regulations. The South Coast Air Quality Management District
(the "SCAQMD") (Southern California) and the Bay Area Air Quality Management
District (the "BAAQMD") (San Francisco Bay Area) have detailed regulations
pertaining to metal coating and the use of VOCs. These regulations prohibit the
sale of nonconforming automobile paint at the distributor level, which increases
somewhat the compliance obligations of the Western Division's distribution
sites. Subsequently, based on published industry data, 15 states have adopted
VOC regulations through March 1998. Most of these states have VOC limits similar
to the VOC limits proposed by the EPA. The national regulations proposed by the
EPA will not override more restrictive state and local regulations such as
California's regulations, which have the lowest VOC limits in the country. The
Company believes its experience with such regulations, including compliance
reporting and the use of paints and equipment designed to meet such regulations,
is not matched by most smaller competitors.
Compliance by the Company with environmental protection laws has had no material
effect upon capital expenditures, earnings or competitive position.
ITEM 2 - PROPERTIES
The following table sets forth certain information regarding the facilities
operated by the Company as of March 31, 1998.
State (By Division) Number of Number of
Sales Outlets Distribution Centers
- -----------------------------------------------------------------------------
Central/Northeastern Division
Connecticut 3
Delaware 1
Illinois 5
Indiana 3
Maryland 3
Massachusetts 4
Michigan 11 1
New Jersey 7
Ohio 2
Oklahoma 1
Pennsylvania 3
Texas 12
Virginia 4
Wisconsin 3
- --------------------------------------------------------------------------
62 1
Southeastern Division
Alabama 1
Florida 30 1
Georgia 2
North Carolina 6
South Carolina 3
- --------------------------------------------------------------------------
42 1
Western Division
Arizona 3
California 30 1
Colorado 6
- --------------------------------------------------------------------------
39 1
- --------------------------------------------------------------------------
Total 143
The Company's sales outlets range in size from 1,200 square feet to 13,000
square feet. Some of the larger sales outlets are also used as "drop ship"
points from which they 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. The Company's distribution centers range in size from
5,000 square feet to 38,500 square feet. The distribution centers are equipped
with efficient material handling and storage equipment.
The Company owns the distribution center and one sales outlet 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 1997 to
2006, with options to renew. The Company typically assumes the lease of the
former owner in acquisitions. In a number of instances, the Company's sales
outlets are leased from the former owners of businesses acquired by the Company.
The Company believes that all of its leases were at fair market rates when
executed, that presently no single lease is material to its operations, and that
alternative sites are presently available at market rates.
The Company is leasing 8,800 square feet of executive offices which are located
in Indianapolis, Indiana.
Effective March 1, 1998, the Company relocated its corporate headquarters from
the Kentwood, Michigan distribution center to newly renovated office space in
Indianapolis, Indiana. The Company has agreed to lease that space from LDI. The
Company believes that the terms of the lease will be at least as favorable to
the Company as those that could be obtained by arms-length negotiations with an
unaffiliated third party.
ITEM 3 - LEGAL PROCEEDINGS
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ADDITIONAL ITEM - EXECUTIVE OFFICER OF THE REGISTRANT
The following sets forth certain information concerning the executive officers
of the Company who are not also directors:
Roger A. Sorokin (age 57) has served as Vice President-Finance of the Company
for more than the previous five years.
Charles "Remy" Stephenson (age 44) was named Senior Vice President of the
Company, with responsibility for sales and store operations for the
Central/Northeastern Division, in October, 1997. Prior to joining the Company,
Mr. Stephenson served as Vice President of Marketing of the Company from August,
1997 to October, 1997. Prior to joining the Company, Mr. Stephenson was employed
by Sherwin Williams Auto Finishes Inc. as Director of Sales from September, 1994
to August, 1997 and Regional Director of the Western Region from October, 1991
to September, 1994.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
- -------------------------------------------------------------------------------
FinishMaster's common stock trades on The NASDAQ stock market under the symbol
FMST. The number of beneficial owners of FinishMaster's common stock at December
31, 1997 was approximately 588.
The range of high and low sales prices reported by NASDAQ for the last eight
quarters were:
YEAR QUARTER ENDED HIGH LOW
1996 March 31 15 9-1/2
1996 June 30 15-1/4 9-9/16
1996 September 30 11-5/8 8-1/4
1996 December 31 9-3/8 6-1/2
1997 March 31 8-1/2 5-3/4
1997 June 30 8-3/4 5-1/4
1997 September 30 8-3/4 5-3/8
1997 December 31 11-3/4 6-1/4
1998 January 1-March 27 10-1/2 8
No cash dividends on common stock have been paid during any period and none are
expected to be paid in the foreseeable future. The Company anticipates that all
earnings and other cash resources of the Company will be retained by the Company
for investment in its business.
ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of and for the year ended
December 31, 1997, the nine month period ended December 31, 1996 and three years
ended March 31,1996, 1995 and 1994 are derived from the Company's audited
consolidated financial statements. The financial data should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto, which are included elsewhere herein, and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Fiscal Year Nine Months
Ended December Ended December
31, 31, Year Ended March 31,
1997 (2) 1996 (1) 1996 1995 1994
---------------- ----------------- ---------------- ----------------- -----------------
(in thousands, except per share data)
Statements of Operations Data
Net sales $130,175 $ 95,822 $107,511 $ 79,382 $ 64,693
Gross profit 47,107 33,891 38,012 28,048 22,068
Income from operations 3,832 2,566 5,073 5,394 3,710
Net income $ 656 $ 660 $ 2,649 $ 3,462 $ 2,145
======== ======== ======== ======== ========
Net income per share - Basic $ 0.11 $ 0.11 $ 0.44 $ 0.58 $ 0.48
======== ======== ======== ======== ========
Diluted $ 0.11 $ 0.11 $ 0.44 $ 0.58 $ 0.48
======== ======== ======== ======== ========
Weighted average shares outstanding 5,994 6,000 6,000 6,000 4,472
(1) The Company changed its fiscal year-end from March 31 to
December 31, effective for the period ended December 31, 1996.
(2) The operating results for the year ended December 31, 1997 are affected
by the acquisition of Thompson, PBE, Inc. on November 21, 1997. The
results of Thompson for the month of December, 1997 are included in the
December 31, 1997 amounts. For further explanation of the operating
effect of the Thompson acquisition, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations" at Item 7
for the year ended December 31, 1997.
December 31, March 31,
1997 1996 1996 1995 1994
---------------- --------------- --------------- --------------- -----------------
(1)
(in thousands)
Balance Sheet Data
Working capital $ 42,093 $ 22,819 $ 25,036 $ 17,763 $ 21,734
Total assets 215,418 66,477 66,772 46,442 39,287
Long-term debt 142,140 21,970 23,248 7,208 3,967
Stockholders' equity 32,932 32,326 31,665 28,956 25,554
(1) The Company changed its fiscal year-end from March 31 to
December 31, effective for the period ended December 31, 1996.
(2) The operating results for the year ended December 31, 1997 are affected
by the acquisition of Thompson, PBE, Inc. on November 21, 1997. The
results of Thompson for the month of December, 1997 are included in the
December 31, 1997 amounts. For further explanation of the operating
effect of the Thompson acquisition, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations" at Item 7
for the year ended December 31, 1997.
Acquisition Data
Acquisitions made by FinishMaster 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. Operating results of these
acquired organizations are included in FinishMaster's consolidated financial
statements from the respective dates of purchase. Details of these acquisitions
are contained in the notes to the consolidated financial statements. The
Thompson, PBE, Inc. acquisition was accounted for as a purchase and accordingly,
the purchase price was allocated to assets acquired and liabilities assumed
based upon their estimated fair values at the date of acquisition.
ITEM 7-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
FinishMaster, Inc. is the leading distributor of automotive paints, coatings and
paint-related accessories to the automotive collision repair industry in the
United States. The Company serves its customers through 143 sales outlets and
three distribution centers located in 22 states. The Company has approximately
20,000 customers to which it provides a comprehensive selection of brand name
products supplied by E.I. DuPont de Nemours & Co. ("DuPont"), PPG Industries,
Inc. ("PPG"), BASF Corporation ("BASF") and Minnesota Mining & Manufacturing
Co., Inc. ("3M") in addition to its own FinishMaster PrivateBrand refinishing
accessory products. The Company is typically the primary source of supply to its
customers and offers a broad range of services designed to enhance the operating
efficiencies and competitive positions of its customers and suppliers.
The Company is the leading consolidator in the automotive refinishing
distribution industry, having successfully completed approximately 25
acquisitions over the past seven years, ranging in size from $0.3 million
fill-in acquisitions to the acquisition of Thompson PBE, Inc. (the "Thompson
acquisition"). On November 21, 1997, the Company acquired substantially all
outstanding shares of common stock of Thompson PBE, Inc., a Delaware
corporation, for $8.00 per share, or an aggregate of approximately $73,471,000,
including acquisition costs. In addition to the cash purchase price, the Company
refinanced approximately $34,474,000 of Thompson's outstanding indebtedness at
the date of purchase. The Thompson acquisition, significantly expanded the
Company's geographic presence in the Southeastern and Western United States. The
Company's operations are currently organized into three divisions: Southeastern
Division, Western Division, and Central/Northeastern Division. The Company
intends to continue its strategy of expanding through additional acquisitions.
As part of the integration of Thompson PBE and FinishMaster, the Company is
planning to consolidate and upgrade its store and corporate computer systems
over the next two years. Current estimates for this upgrade amount to
approximately $3.5 million.
Effective March 1, 1998 the Company moved its corporate offices to 54 Monument
Circle, Indianapolis, IN 46204. Relocating to the new headquarters will be
executive management including the President and Chief Operating Officer,
Purchasing, Management Information Systems, Human Resources, Operations and
Finance Executives, as well as the Accounting department.
Computer memory was very expensive on early mainframe computers, therefore, some
computer programs used only the final two digits for the year in the date field
and assumed that the first two digits were "19." As a result, some computer
applications may be unable to interpret the change from year 1999 to year 2000.
The Company has implemented a detailed plan to ensure Year 2000 compliance. The
Company contemplates working closely with its major suppliers and customers in
their Year 2000 compliance efforts. FinishMaster, like most organizations, has
not completed the Year 2000 Compliance process but does not believe that the
cost of such process will be material or that there is a material uncertainty
regarding its ability to complete said process by Year 2000. The Company has in
place a detailed testing and correction plan which would provide for a smooth
transition into 2000. The focus is to confirm that the supply chain, from
manufacturer to FinishMaster to customer, is not broken due to computer problems
at the change of the century. In addition, the Company has written verification
of Year 2000 compliance from all its hardware, software and suppliers with which
it has data processing relationships.
The Company changed its fiscal year-end from March 31 to December 31, effective
for the period ending December 31, 1996.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain items from the
Company's Statement of Operations and the corresponding calculations as a
percentage of net sales.
Twelve Months Ended Twelve Months Ended
12/31/96 12/31/95
Year Ended 12/31/97 (unaudited) (1) (unaudited) (1)
$ % of NS $ % of NS $ % of NS
------------------------ -------------------------- ---------------------
NET SALES $130,175 100.0% $125,795 100.0% $ 99,235 100.0%
COST OF SALES 83,068 63.8% 81,591 64.9% 63,568 64.1%
------------------------ -------------------------- ---------------------
GROSS PROFIT 47,107 36.2% 44,204 35.1% 35,667 35.9%
EXPENSES:
Operating 20,568 15.8% 20,295 16.1% 14,676 14.8%
Selling, general and administrative 17,982 13.8% 17,427 13.8% 13,381 13.5%
Depreciation 1,435 1.1% 974 0.8% 559 0.5%
Amortization of intangible assets 3,290 2.6% 2,487 2.0% 1,284 1.3%
------------------------ -------------------------- ---------------------
43,275 33.3% 41,183 32.7% 29,900 30.1%
------------------------ -------------------------- ---------------------
INCOME FROM OPERATIONS 3,832 2.9% 3,021 2.4% 5,767 5.8%
OTHER INCOME (EXPENSE)
Investment income 128 0.1% 99 0.1% 261 0.3%
Interest expense (2,789) (2.1%) (1,713) (1.4%) (687) (0.7%)
------------------------ -------------------------- ---------------------
(2,661) (2.0%) (1,614) (1.3%) (426) (0.4%)
------------------------ -------------------------- ---------------------
INCOME BEFORE INCOME TAXES 1,171 0.9% 1,407 1.1% 5,341 5.4%
Income tax expense 515 0.4% 745 0.6% 1,871 1.9%
------------------------ -------------------------- ---------------------
NET INCOME $ 656 0.5% $ 662 0.5% $ 3,470 3.5%
======================== ========================== =====================
NET INCOME PER SHARE - BASIC $ 0.11 $ 0.11 $ 0.58
============ ========== ========
- DILUTED $ 0.11 $ 0.11 $ 0.58
============ ========= ========
WEIGHTED AVERAGE SHARES OUTSTANDING
5,994 6,000 6,000
============ ========= ========
(1) The Company changed its fiscal year-end from March 31 to
December 31, effective for the period ended December 31, 1996.
Year ended December 31, 1997 versus Twelve months ended December 31, 1996
The Company changed its fiscal year-end from March 31 to December 31, effective
for the period ended December 31, 1996. As a result, the audited amounts for the
year ended December 31, 1997 are presented with the comparable unaudited amounts
for the twelve months ended December 31, 1996 and 1995. Management believes that
for purposes of management's discussion and analysis the comparison between the
twelve month periods provides a more meaningful understanding of the Company's
performance. The results of operations for the fiscal year ended December 31,
1997 include the results of operations for Thompson from December 1, 1997 to
December 31, 1997. The results of operations for the period from November 21,
1997, the date of the acquisition, to November 30, 1997 is not significant.
Net Sales. Net sales for the year ended December 31, 1997 increased by $4.4
million or 3.5% to $130.2 million from $125.8 million for the same period in
1996. This increase was attributable to the additional sales contributed by
Thompson of $12.4 million for the month of December and sales from other
acquisitions of $1.7 million for the year. The Thompson sales were offset by a
decline in same outlet sales. Same outlet sales declined primarily due to a
slowdown in the van conversion industry, the loss of certain low margin business
resulting from small market share, suppliers discounting and offering large
incentives in certain markets to increase market share and flat industry market
conditions.
Gross Profit. Gross profit for the year ended December 31, 1997 increased to
$47.1 million from $44.2 million for the same period in 1996. Gross profit as a
percentage of sales increased to 36.2% for the year ended December 31, 1997 from
35.1% for the same period in 1996. The increase in gross profit percentage is
the result of participation in suppliers' rebate and incentive programs and
optimizing early payment discounts from suppliers.
Operating Expenses. Operating expenses for the year ended December 31, 1997
increased by $0.3 million to $20.6 million from $20.3 million for the same
period in the prior year. Operating expenses as a percent of sales decreased to
15.8% for the year ended December 31, 1997 compared to 16.1% for the same period
in 1996. Operating expenses consist of wages, building and vehicle costs for the
outlets and the distribution centers. The decrease in operating expenses as a
percentage of sales is the result of the Company's profit improvement
activities, including, but not limited to, staffing reductions and streamlining
sales outlet and distribution activities, which reduced operating expenses by
approximately $2.4 million. The profit improvements of $2.4 million were offset
by Thompson's operating expenses of $2.3 million for the month of December and
other acquisitions of $0.4 million for the year.
Selling, General, and Administrative Expenses. (SG&A) SG&A expenses for the year
ended December 31, 1997 increased by $0.6 million to $18.0 million from $17.4
million for the same period in the prior year. SG&A decreased as a percentage of
sales to 13.8% for the year ended December 31, 1997 compared to 13.9% for the
same period for the year ended December 1996. SG&A costs for the year ended
December 31, 1997 were reduced approximately $2.5 million over the same period
in the prior year as the result of the Company's cost reduction activities,
including head count reductions, professional fees, travel and entertainment,
and advertising. The cost reduction of $2.5 million was offset by Thompson's
SG&A costs for the month of December of $2.2 million, selling costs of other
acquisitions of $0.3 million and one time costs related to the integration of
Thompson and future acquisitions of $0.6 million. General and administrative
expenses consist of corporate support staff and expenses for commission, wages,
and expenses supporting customer sales activity.
Depreciation and Amortization of Intangible Assets. Depreciation expenses for
the year ended December 31, 1997 increased by $0.5 million over the same period
in the prior year. Depreciation and amortization consists primarily of
depreciation expenses related to the corporate distribution center and store
locations and amortization of goodwill and non-compete costs related to
acquisitions. The increase is attributable to $0.2 million of Thompson's
depreciation for the month of December. In addition, $0.3 million is from
depreciable assets acquired to improve operating efficiencies as well as a full
year's depreciation on assets from the prior year's acquisitions. Amortization
of intangible assets increased by $0.8 million for the year ended December 31,
1997 over the same period of the prior year. The increase is attributable to
$0.3 million of goodwill amortization for the Thompson acquisition and $0.5
million of additional acquired intangibles.
Interest Expense. Interest expense increased $1.1 million for the year ended
December 31, 1997 over the same period in the prior year. Interest expense
primarily includes interest on mortgages and notes payable to former owners of
acquired businesses as well as interest on the Company's credit facilities. The
increase in interest expense was the result of interest on debt incurred to
finance the Thompson transaction. The Thompson transaction occurred November 21,
1997 and the total acquisition price of $73.5 million was funded through
borrowings.
Provision for Income Tax. The Company's effective tax rate for the for the year
ended December 31, 1997 was 44% compared to 53% for the twelve months ended
December 31, 1996. This rate varied from the Company's statutory tax rate of 34%
primarily due to state taxes along with certain expenses which are not
deductible for tax purposes.
Twelve months ended December 31, 1996 versus Twelve months ended December 31,
1995
For purposes of management's discussion and analysis, the unaudited amounts for
the twelve months ended December 31, 1996 are presented with the comparable
unaudited amounts for the twelve months ended December 31, 1995.
Net Sales. Net sales for the twelve months ended December 31, 1996 were $125.8
million, an increase of approximately 26.8% compared to $99.2 million for the
twelve months ended December 31, 1995. The sales increase resulted from sales
generated by acquisitions in Maryland and Virginia in the twelve months ended
December 31, 1996. In addition, acquisitions in Delaware, Michigan, New Jersey,
Oklahoma, Pennsylvania, and Texas in 1995 contributed sales to the entire twelve
months ended December 31, 1996.
Gross Profit. Gross profit for the twelve months ended December 31, 1996 was
$44.2 million compared to $35.7 million for the twelve months ended December 31,
1995 and as a percentage of net sales decreased to 35.1% from 35.9%. Gross
profit percentage declined as a percentage of net sales as competitive pricing
pressures increased in the twelve months ended December 31, 1996 as paint
manufacturers intensified efforts to gain market share.
Operating Expenses. Operating expenses for the twelve months ended December 31,
1996 were $20.3 million compared to $14.7 million for the twelve months ended
December 31, 1995. Operating expenses as a percentage of net sales increased to
16.1% for the twelve months ended December 31, 1996 compared to 14.8% for the
twelve months ended December 31, 1995. Operating expenses consist of wages,
building and vehicle costs for the outlets and the distribution centers. The
increase as a percentage of net sales resulted from higher operating costs of
recent acquisitions along with one-time expenses related to consolidating and
relocating several facilities in 1996. Efficiencies gained from sales outlet
consolidations in the Southwestern Region has enabled the Company to close its
Texas distribution center during the first quarter of 1997. Certain expenses
related to the closing of the Texas distribution center affected the twelve
months ended December 31, 1996. The additional expense increase was partially
offset by the Company's programs to reduce costs.
Selling, General and Administrative. SG&A expenses for the twelve months ended
December 31, 1996 were $17.4 million compared to $13.4 million for the twelve
months ended December 31, 1995. SG&A expenses as a percentage of net sales
increased to 13.8% for the twelve months ended December 31, 1996 compared to
13.5% for the twelve months ended December 31, 1995. General and administrative
expenses consist of corporate support staff and expenses for commission, wages,
and expenses supporting customer sales activity.
Depreciation and Amortization. Depreciation and amortization for the twelve
month period was $3.5 million compared to $1.8 million for the twelve months
ended December 31, 1995. Depreciation and amortization as a percentage of net
sales increased to 2.8% for the twelve months ended December 31, 1996 compared
to 1.8% for the twelve months ended December 31, 1995. Depreciation and
amortization consist primarily of depreciation expenses related to the Michigan
distribution center and sales outlets and amortization of goodwill and costs of
non-competition agreements related to acquisitions. The increase results from
amortization of intangibles and depreciation of fixed assets incurred in
connection with the Company's acquisitions in Virginia and Maryland during the
current period and a full year's amortization and depreciation for prior year's
acquisitions along with revisions, in 1996, to the estimated lives of certain
intangibles.
Interest Expense. Interest expense for the twelve months ended December 31, 1996
was $1.7 million compared to $0.7 million for the twelve months ended December
31, 1995. Interest expense primarily includes interest on mortgages and notes
payable to former owners of acquired businesses as well as interest on the
Company's line of credit. The increase was the result of interest incurred in
connection with seller financing for current year acquisitions and the increased
use of the Company's line of credit to support acquisitions and working capital
requirements.
Provision for Income Tax. The Company's effective tax rate for the twelve months
ended December 31, 1996 was 53% compared to 40% for the twelve months ended
December 31, 1995. This rate varied from the Company's statutory tax rate of 34%
primarily due to state taxes along with certain expenses which are not
deductible for tax purposes.
QUARTERLY INFORMATION
The following table sets forth consolidated statements of operations data for
each of the eight quarters ended December 31, 1997. The unaudited quarterly
information has been prepared on the same basis as the annual information and,
in management's opinion, includes all adjustments, consisting of only normal
recurring entries, necessary for a fair presentation of the information for the
quarters presented. The operating results for any quarter are not necessarily
indicative of results for any future period.
Quarterly Results for the Periods Ended
December 31, 1997 December 31, 1996
-------------------------------------------- ------------------------------------------
3/31/97 6/30/97 9/30/97 12/31/97(3) 3/31/96 6/30/96 9/30/96 12/31/96
(in thousands, except per share data)
Net sales $29,239 $31,034 $30,696 $39,206 $29,973 $33,149 $33,399 $29,274
Cost of sales 18,610 19,462 19,539 25,457 19,660 21,222 21,584 19,125
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit 10,629 11,572 11,157 13,749 10,313 11,927 11,815 10,149
Operating expenses 4,667 4,593 4,739 6,569 4,982 5,062 5,182 5,069
Selling, general and
administration 3,801 3,942 3,903 6,336 4,235 4,425 4,062 4,705
Depreciation and amortization(1) 1,017 1,026 1,057 1,625 641 705 769 1,346
-------- -------- -------- -------- -------- -------- -------- --------
Income(loss) from operations 1,144 2,011 1,458 (781) 455 1,735 1,802 (971)
Investment income, net 6 26 35 61 22 29 12 36
Interest expense (494) (437) (345) (1,513) (340) (478) (509) (386)
-------- -------- -------- -------- -------- -------- -------- --------
Income(loss) before income taxes 656 1,600 1,148 (2,233) 137 1,286 1,305 (1,321)
Income tax expense(benefit) (1) 250 595 436 (766) 135 587 478 (455)
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) $ 406 $ 1,005 $ 712 $(1,467) $ 2 $ 699 $ 827 $ (866)
======== ========= ========= ========== ======= ======== ========= =========
Net income (loss) per share - Basic (2) $ 0.07 $ 0.17 $ 0.12 $ (0.24) $ 0.00 $ 0.12 $ 0.14 $ (0.14)
======== ========= ========= ========= ========= ======== ========= ==========
- Diluted (2) $ 0.07 $ 0.17 $ 0.12 $ (0.24) $ 0.00 $ 0.12 $ 0.14 $ (0.14)
======== ========= ========= ========= ========= ======== ========= ==========
(1) The increase in depreciation and amortization results from amortization
of intangibles and depreciation of fixed assets incurred in connection
with the Company's acquisitions in the periods ended December 31, 1997
and 1996 and a full year's amortization and depreciation for prior
year's acquisitions along with revisions to the estimated lives of
certain intangibles in the quarter ending December 31, 1996.
(2) The sum of the quarterly net income (loss) per share amounts for the
periods presented may not equal the annual amount reported because net
income per share is computed independently for each quarter.
(3) The operating results for the quarter ended December 31, 1997 are
affected by the Thompson acquisition, which was completed on November
21, 1997. The results of Thompson for the month of December, 1997 are
included in the December 31, 1997 amounts. For further explanation of
the operating effect of the Thompson acquisition, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" for the year ended December 31, 1997.
Seasonality and Quarterly Fluctuations. The Company's sales and operating
results have varied from quarter to quarter due to various factors and the
Company expects these fluctuations to continue. Among these factors are seasonal
buying patterns of the Company's customers and the timing of acquisitions.
Historically, outlet 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, financial performance for the Company's outlets
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. The
Company takes advantage of periodic special incentive programs available from
suppliers which extend the due date of purchases beyond terms normally available
with large volume purchases. The timing of these programs can contribute to
fluctuations in the Company's quarterly cash flow. Although the Company
continues to investigate strategies to smooth the seasonal pattern of its
quarterly results of operations, there can be no assurance that the Company's
net sales, results of operations and cash flow will not continue to display
these seasonal patterns.
INFLATION AND OTHER ECONOMIC FACTORS
Inflation affects FinishMaster's costs of materials sold, salaries and other
related costs of distribution. To the extent permitted by competition,
FinishMaster has offset these higher costs of materials through selective price
increases.
The Company's business may be negatively affected by cyclical economic downturns
in the markets in which it operates. In addition, markets in the van conversion
industry may increase the cyclical nature of the Company's operations. Sales in
this market accounted for approximately 5-10% of sales for the periods reported.
There is no assurance that the Company will not be materially adversely affected
in the future by cyclical downturns in its markets. The Company's financial
performance is also dependent on its ability to acquire businesses and
profitably integrate them into their operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company considered the provisions of Financial Reporting Release No. 48
"Disclosure of Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments and Disclosure of Quantitative and Qualitative
Information about Market Risk Inherent in Derivative Financial Instruments,
Other Financial Instruments and Derivative Commodity Instruments." The Company
had no holdings of derivative financial or commodity based instruments at
December 31, 1997. A review of the Company's other financial instruments and
risk exposures at December 31, 1997 indicated that the Company had exposure to
interest rate risk. At December 31, 1997, the Company concluded that near-term
changes to interest rates should not materially affect the Company's financial
position, results of operations or cash flows.
Other discussion regarding the Company's business risks is presented in Item 1
"Business" on this Form 10-K.
LIQUIDITY AND CAPITAL RESOURCES
The consolidated financial statements contain audited statements of cash flows
for the year ended December 31, 1997, the nine months ended December 31, 1996
and the year ended March 31, 1996. The following table shows unaudited condensed
consolidated statements of cash flows for the three comparable twelve month
periods.
Year Ended Twelve Months Ended Twelve Months Ended
December 31, 1997 December 31, 1996 December 31, 1995
(unaudited) (unaudited)
--------------------------------------------------------------------------
(in thousands)
Net cash provided by (used in):
Operating activities $ 1,257 $ 3,280 $ (1,875)
Investing activities (74,846) (6,135) (5,085)
Financing activities 73,653 2,617 7,084
-------- -------- --------
Increase (decrease) in cash 64 (238) 124
Cash at beginning of period 300 1,647 2,138
-------- -------- --------
Cash at end of period $ 364 $ 1,409 $ 2,262
======== ======== ========
The Company's liquidity and capital resources have been significantly influenced
by acquisition activity. The Company historically has financed acquisitions
through a combination of seller financing, internally generated cash flow and
unsecured bank borrowings under the Company's loan facilities. In addition, net
proceeds of $16.2 million from a February, 1994 public stock offering were used
to accelerate the Company's acquisition program.
On November 21, 1997, the Company acquired substantially all of the outstanding
common stock of Thompson PBE, Inc. for $8.00 per share. Thompson, like
FinishMaster, is an aftermarket distributor of automotive paints, coatings and
related supplies. The total purchase price, including related acquisition costs,
was $73,471,000. The Company also refinanced $34,474,000 of Thompson
indebtedness. The Company funded the acquisition and refinanced Thompson's
indebtedness with a combination of bank financing and subordinated borrowings
from LDI.
Cash provided by operating activities was $1.3 million for the year ended
December 31,1997, compared to $3.3 million for the comparable period of the
prior year. The decrease in cash provided by operations is primarily
attributable to cash used to take advantage of early payment discounts available
from suppliers and for partial payment of the past due Thompson accounts
payable. In addition, cash was used for large inventory buys at year end in
advance of price increases.
Cash of $3.4 million was provided by accounts receivable reductions for the year
ended December 31, 1997 compared to $1.0 million in the same period of the prior
year. This was a result of increased collection efforts and improvements in days
sales outstanding.
The Company used cash of $1.5 million in the year ended December 31, 1997 and
$0.4 million in the same period in the prior year as the result of large
inventory buys from major suppliers in advance of price increases. Inventory at
December 31, 1997 included approximately $5.0 million attributable to large
year-end buys.
Cash used of $6.4 million for accounts payable and other current liabilities
increased $5.3 million over the same period in the prior year. The increase in
cash used was a result of increased participation in major supplier discount
programs and the payment of Thompson's past due accounts payable.
The Company's investing activities used cash of $74.1 million to acquire three
businesses, including Thompson, in the year ended December 31, 1997. This
compares to $5.3 million used to acquire six businesses in the same period in
the prior year. In addition the Company had capital expenditures of $0.7 million
and $0.6 million in the years ended December 31, 1997 and 1996, respectively.
Capital expenditures were primarily for sales outlet and warehouse improvements
and equipment. The Company uses operating leases to finance its computer system
and delivery vehicles.
The Company's financing activities provided cash of $73.7 million for the year
ended December 31, 1997 compared to $2.6 million in the same period in the prior
year. For the year ended December 31, 1997 cash was provided from borrowings to
finance the Thompson acquisition of $73.8 million and $34.4 million to refinance
Thompson's debt. In addition, $5.6 million was borrowed on the working capital
line to reduce Thompson's past due accounts payable and $4.1 million was used
for repayment of long term seller financing on other current and prior
acquisitions. For the year ended December 31, 1996 cash provided by financing
activities of $2.6 million was used for working capital and acquisition
requirements.
The Company had working capital of approximately $42.0 million at December 31,
1997. In addition to working capital, the Company had term credit and revolving
credit facilities totaling $100 million, and senior subordinated debt of $30
million. At December 31, 1997 the Company had available $8.5 million of unused
revolving credit.
As a condition of the amended bank credit facility of $100 million, LDI agreed
to make by June 30, 1998 an additional equity investment of $14 million or such
lesser amount as may be acceptable to the Company's bank. The Company intends to
satisfy this requirement through an acquisition of LDI AutoPaints ("AutoPaints")
in exchange for equity in the Company.
The Company is currently pursuing other financing arrangements. Should the
Company be successful in implementing favorable financing terms, proceeds will
be used to retire certain bank term loans, a portion of outstanding under the
revolving credit facility and the subordinated debt payable to LDI. Early
retirement of indebtedness will result in an extraordinary loss in the amount of
the net book value of capitalized debt issue costs. At December 31, 1997
unamortized debt issue costs were approximately $1.6 million.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Report contains certain forward-looking statements pertaining to, among
other things, the Company's future results of operations, cash flow needs and
liquidity, acquisitions and other aspects of its business. Similar
forward-looking statements may be made by the Company from time to time. These
statements are based largely on the Company's 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 the Company's business strategy or an inability to execute
its strategy due to changes in its industry or the economy generally,
difficulties associated with assimilating acquisitions, the emergence of new or
growing competitors, seasonal and quarterly fluctuations, governmental
regulation, the potential loss of key suppliers, 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.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The response to this item is submitted in a separate section of this report.
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, 1997.
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, 1997.
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, 1997.
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, 1997.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)List the following documents filed as part of this report:
Financial Statements -- Included elsewhere in this report.
Report of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Consolidated Statements of Shareholders' Equity
Notes to Consolidated Financial Statements
Financial Statement Schedules
(b) Reports on Form 8-K:
- A Form 8-K was filed on October 15, 1997 to accompany the press
release issued in connection with the execution of the Agreement and
Plan of Merger, dated as of October 14, 1997, by and among
FinishMaster, Inc., FMST Acquisition Corporation and Thompson PBE, Inc.
("Thompson"), pursuant to which the Company would acquire the
outstanding shares of Thompson for a price of $8.00 per share.
- A Form 8-K was filed on December on December 3, 1997 to report the
completion of the acquisition by the Company of Thompson, and was
amended by a Form 8-K/A filed on February 2, 1998 to incorporate
certain pro forma consolidated financial statements of the Company,
after giving effect to the acquisition of Thompson.
(c) The Exhibits filed herewith or incorporated herein by reference are set
forth in the Exhibit Index on page ___.
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 31, 1998 FINISHMASTER, INC.
By: /s/ Thomas U. Young
------------------------------
Thomas U. Young,
President, Vice Chairman of the
Board and Chief Operating 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.
Signature Date Title
----------------------------------------------------------------------------
(1) Principal Executive Officer:
/s/Andre B. Lacy
-------------------
Andre B. Lacy March 31, 1998 Chairman of the Board
and Chief Executive Officer
(2) Principal Financial
and Accounting Officer:
/s/Roger A. Sorokin
-------------------
Roger A. Sorokin March 31, 1998 Vice President--Finance
(3) A Majority of the
Board of Directors:
/s/Andre B. Lacy
-------------------
Andre B. Lacy March 31, 1998 Director
/s/Thomas U. Young
-------------------
Thomas U. Young March 31, 1998 Director
/s/Margot L. Eccles
-------------------
Margot L. Eccles March 31, 1998 Director
/s/William J. Fennessy
-------------------
William J. Fennessy March 31, 1998 Director
/s/Peter L. Frechette
-------------------
Peter L. Frechette March 31, 1998 Director
/s/Michael L. Smith
-------------------
Michael L. Smith March 31, 1998 Director
/s/Walter S. Wiseman
-------------------
Walter S. Wiseman March 31, 1998 Director
ANNUAL REPORT ON FORM 10-K
ITEM 8 and 14(a)(1) AND (2), (c),
AND (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULE
YEAR ENDED DECEMBER 31, 1997
FINISHMASTER, INC.
INDIANAPOLIS, INDIANA
FORM 10-K--ITEM 8 and 14(a)(1) AND (2)
FINISHMASTER, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statements of FinishMaster, Inc. and
Subsidiaries are included in Item 8 of this Report:
Page
Report of Independent Auditors ____
Consolidated Balance Sheets ____
Consolidated Statements of Operations ____
Consolidated Statements of Cash Flows ____
Consolidated Statements of Shareholders' Equity ____
Notes to Consolidated Financial Statements ____
The following consolidated financial statement schedule of
FinishMaster, Inc. and Subsidiaries is submitted herewith:
Schedule II ____
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are either
included within the financial statements, not required under the related
instruction or are inapplicable and, therefore, have been omitted.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
FinishMaster, Inc.
We have audited the accompanying consolidated balance sheets of FinishMaster,
Inc. and Subsidiaries as of December 31, 1997 and December 31, 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year ended December 31, 1997 and the nine month period ended
December 31, 1996. Our audits also included the financial statement schedule
listed in the index at Item 14(a). 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
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
FinishMaster, Inc. and Subsidiaries at December 31, 1997 and December 31, 1996
and the consolidated results of their operations and their cash flows for the
year ended December 31, 1997 and the nine-month period ended December 31, 1996,
in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
COOPERS & LYBRAND L.L.P.
Grand Rapids, Michigan
March 20, 1998
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
FinishMaster, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of FinishMaster, Inc. and Subsidiary for
the year ended March 31, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, consolidated financial statements referred to above present
fairly, in all material respects the consolidated results of operations and cash
flows of FinishMaster, Inc. and Subsidiary for the year ended March 31, 1996, in
conformity with generally accepted accounting principles.
ERNST & YOUNG L.L.P.
Detroit, Michigan
April 18,1996
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
FinishMaster, Inc.
We have audited the consolidated financial statements of FinishMaster, Inc. as
of March 31, 1996 and for the year then ended and have issued our report thereon
dated April 18, 1996. Our audit also included Schedule II of FinishMaster, Inc.
which is included in the financial statement schedule listed in the index at
Item 14(a) of FinishMaster, Inc. in its Annual Report on Form 10-K for the year
ended March 31, 1996. This financial statement schedule is the responsibility of
FinishMaster, Inc. management. Our responsibility is to express an opinion based
on our audits.
In our opinion, the financial statements schedule of FinishMaster, Inc. referred
to above, when considered in relation to the FinishMaster, Inc. basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
ERNST & YOUNG L.L.P.
Detroit, Michigan
April 18, 1996
FINISHMASTER, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
December 31, December 31,
1997 1996
-------------------- --------------------
ASSETS
CURRENT ASSETS
Cash $ 364 $ 300
Accounts receivable, net of allowance for doubtful
accounts of $2,247 and $700 respectively 28,744 12,752
Inventory 53,442 24,828
Refundable income taxes 1,299 -
Deferred income taxes 3,844 474
Prepaid expenses and other current assets 2,751 785
-------- ------
TOTAL CURRENT ASSETS 90,444 39,139
PROPERTY AND EQUIPMENT
Land 368 368
Vehicles 1,082 55
Buildings and improvements 3,797 3,105
Machinery, equipment and fixtures 9,065 5,909
------ ------
14,312 9,437
Accumulated depreciation (4,016) (2,866)
----------- ---------
10,296 6,571
OTHER ASSETS
Intangible assets, net 110,870 20,357
Deferred income taxes 3,374 289
Other 434 121
----------- ----------
114,678 20,767
-------- --------
$ 215,418 $ 66,477
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable, bank $ - $ 1,841
Accounts payable 28,274 7,786
Accrued expenses and other current liabilities 12,072 2,554
Current maturities of long-term obligations 8,005 4,139
------ ------
TOTAL CURRENT LIABILITIES 48,351 16,320
LONG-TERM OBLIGATIONS, less current maturities 134,135 17,831
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, no par value, 1,000,000 shares authorized;
no shares issued and outstanding
Common stock, $1 stated value; 10,000,000 shares authorized;
5,992,640 and 6,000,140 shares issued and outstanding 5,993 6,000
Additional paid-in capital 14,466 14,509
Retained earnings 12,473 11,817
------- -------
32,932 32,326
-------- -------
$ 215,418 $ 66,477
========= ========
The accompanying notes are an integral part of the consolidated financial
statements.
FINISHMASTER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Nine Months
Year Ended Ended Year Ended
December 31, December 31, March 31,
1997 1996 1996
-------------------- ------------------- ------------------
NET SALES $130,175 $ 95,822 $107,511
COST OF SALES 83,068 61,931 69,499
------- ------- -------
GROSS PROFIT 47,107 33,891 38,012
EXPENSES:
Operating 20,568 15,313 16,382
Selling, general and administrative 17,982 13,192 14,467
Depreciation 1,435 755 779
Amortization of intangible assets 3,290 2,065 1,311
------ ------ ------
43,275 31,325 32,939
------- ------- -------
INCOME FROM OPERATIONS 3,832 2,566 5,073
OTHER INCOME (EXPENSE):
Investment income 128 77 183
Interest expense (2,789) (1,373) (841)
-------- -------- ---------
(2,661) (1,296) (658)
--------- -------- --------
INCOME BEFORE INCOME TAXES 1,171 1,270 4,415
Income tax expense 515 610 1,766
------- ------- ------
$ 656 $ 660 $ 2,649
======== ======== =======
NET INCOME
NET INCOME PER SHARE - BASIC $ .11 $ .11 $ .44
========== ========== ==========
- DILUTED $ .11 $ .11 $ .44
========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 5,994 6,000 6,000
======== ========= =======
The accompanying notes are an integral part of the consolidated financial
statements.
FINISHMASTER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine months Year ended
Year ended ended December March 31,
December 31, 31,
1997 1996 1996
-------------------------------------------
OPERATING ACTIVITIES:
Net income $ 656 $ 660 $ 2,649
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 4,725 2,820 2,090
Bad debt expense 859 798 548
Deferred income taxes (681) (400) (38)
Changes in operating assets and liabilities:
Account receivable 3,388 2,324 (1,997)
Inventories (1,456) (815) (778)
Prepaids and other current assets 177 (270) (243)
Accounts payable and other current liabilities (6,411) (2,775) (2,694)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,257 2,342 (463)
INVESTING ACTIVITIES:
Business acquisitions (74,149) (3,083) (22,193)
Purchases of property and equipment (697) (620) (762)
Sale of marketable securities -- -- 6,906
Other -- (11) (313)
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (74,846) (3,714) (16,362)
FINANCING ACTIVITIES:
Net borrowings (repayments) under note payable, bank (1,841) 1,841 --
Purchase of common stock (50) -- --
Acquisition financing 73,819 1,191 10,774
Debt issuance costs (1,689) -- --
Proceeds from long-term obligations 41,951 -- 7,809
Repayment of long-term obligations (38,537) (2,469) (2,787)
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 73,653 563 15,796
-------- -------- --------
INCREASE (DECREASE) IN CASH 64 (809) (1,029)
CASH AT BEGINNING OF PERIOD 300 1,109 2,138
-------- -------- --------
CASH AT END OF PERIOD $ 364 $ 300 $ 1,109
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 2,192 $ 1,313 $ 762
======== ======== ========
Taxes $ 1,520 $ 687 $ 774
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
FINISHMASTER, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
Additional Net
Common paid-in Unrealized Retained
Stock Capital Gain/(Loss) Earnings Totals
------------- ------------- --------------- ------------- ------------
BALANCES AT APRIL 1, 1995 $ 6,000 $ 14,508 $ (60) $ 8,508 $ 28,956
Adjustment related to sale of marketable securities 60 60
Net income for the year 2,649 2,649
------- ------- --------- ------- ------
BALANCES AT MARCH 31, 1996 6,000 14,508 - 11,157 31,665
Options exercised 1 1
Net income for the nine month period 660 660
------- ------- --------- ------- ------
BALANCES AT DECEMBER 31, 1996 6,000 14,509 11,817 32,326
-
Purchase of common stock (7) (43)
(50)
Net income for the year 656 656
------- ------- --------- ------- ------
BALANCES AT DECEMBER 31, 1997 $ 5,993 $ 14,466 $ - $12,473 $32,932
======= ======== ====== ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
FINISHMASTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1997
the Company operated 143 sales outlets and three distribution centers in 22
states. The Company is organized into three major geographic regions - the
Southeastern, Western and Central/Northeastern Divisions. The Company has
approximately 20,000 customers to which it provides a comprehensive selection of
brand name products supplied by DuPont, PPG, BASF and 3M, in addition to its own
FinishMaster PrivateBrand refinishing accessory products. The Company is highly
dependent on a small number of key suppliers.
Majority Stockholder: On February 23, 1994, the Company completed an initial
public offering of common stock on the NASDAQ national market under the trading
symbol "FMST." The Company sold 1.7 million shares of common stock at an initial
public offering price of $10.50 per share. The net proceeds from the offering of
approximately $16.2 million were used by FinishMaster to fund acquisitions,
repay indebtedness, finance working capital and for general corporate purposes.
As a result of these transactions, 4,045,000 shares or 67.4% of the Company's
outstanding stock was owned by Maxco, Inc. ("Maxco") at March 31, 1996. On July
9, 1996, LDI AutoPaints, Inc. ("AutoPaints"), an Indiana corporation, purchased
all of the shares of common stock owned by Maxco. Effective December 31, 1996,
LDI, Ltd. ("LDI") transferred to AutoPaints 100 shares of the Company which it
had purchased on the open market in August, 1995. As a result of these
transactions, AutoPaints' ownership of FinishMaster stock was 4,045,100 shares
or 67.5% at December 31, 1997.
Use of Estimates: The preparation of these consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Principles of Consolidation: The consolidated financial statements, identified
as FinishMaster, Inc., include the consolidated accounts of FinishMaster, Inc.,
Thompson PBE, Inc., and Refinishers Warehouse, Inc. Sales by Refinishers
Warehouse are primarily to FinishMaster and are eliminated in consolidation. All
other significant intercompany, equity accounts and transactions are eliminated.
References to the Company or FinishMaster throughout this report relate to the
consolidated entity.
Transactions with Majority Shareholder: AutoPaints is a wholly-owned subsidiary
of Lacy Distribution, which is, in turn, a wholly-owned subsidiary of LDI.
Pursuant to an arrangement between the Company and AutoPaints, the Company pays
AutoPaints for services it provides to the Company. During the period between
July 10, 1996 and December 31, 1997, AutoPaints has provided services to the
Company to support certain managerial tasks. Accordingly, the Company paid
$291,000 to AutoPaints during the year ended December 31, 1997, and $262,000 in
the nine months ended December 31, 1996 in return for the services of
AutoPaints.
Prior to July 9, 1996, the Company received certain services from Maxco. These
services included central processing of all insurance, including employee
benefit coverages, general and automobile liability, property and casualty. All
expenses directly attributable to FinishMaster were allocated by Maxco to
FinishMaster.
Receivables: Trade accounts receivable represent amounts due primarily from
automotive body repair shops and dealerships. Trade receivables are typically
not collateralized. No single customer exceeds 10% of the Company's receivables
at December 31, 1997.
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.
Properties and Depreciation: Property and equipment are stated on the basis of
cost and include expenditures for new facilities and equipment and those which
materially extend the useful lives of existing facilities and equipment.
Expenditures for normal repairs and maintenance are charged to operations as
incurred. Depreciation is computed by the straight-line method over the
following range of estimated useful lives:
Vehicles 5 Years
Building & Improvement Up to 40 Years
Leasehold Improvement Life of Lease
Machinery, Equipment & Fixtures 3 to 10 Years
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes: Deferred income taxes are recognized for the temporary differences
between the tax bases of assets and liabilities and their financial reporting
amounts. The income tax provision is the tax payable/recoverable for the period
and the change during the period in deferred tax assets and liabilities.
Intangibles: Intangibles primarily consist of the excess of cost over fair
market value of net assets of acquired businesses. Intangible assets, including
non-compete agreements, are amortized on a straight-line basis over periods
ranging from 5 to 30 years.
Debt issuance costs are amortized over the term of the debt agreement.
The carrying value of goodwill is periodically reviewed to determine if an
impairment has occurred. The Company measures the potential impairment of
recorded goodwill based on the estimated undiscounted cash flows of the entity
acquired over the remaining amortization period.
Advertising: Advertising costs are expensed as incurred. The amounts were
immaterial for all periods presented.
Recent Accounting Pronouncements: In June of 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income." This statement establishes standards for the
reporting and display of comprehensive income and its components within the
financial statements. Comprehensive income includes items such as foreign
currency items, minimum pension liability adjustments, and unrealized gains and
losses on certain investments in debt and equity securities. This statement is
effective for fiscal years beginning after December 15, 1997, with
reclassification of prior periods required.
In June of 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information." This statement establishes standards for
the way in which public entities report information about operating segments in
annual financial statements. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
This statement requires that general-purpose financial statements include
selected information reported on a single basis of segmentation. This statement
is effective for fiscal years beginning after December 15, 1997, with
restatement of comparative information for earlier years being required.
The Company is currently evaluating the impact of these pronouncements.
Reclassification: Certain reclassifications have been reflected in prior year
amounts to conform with the presentation of corresponding amounts in the current
period.
2. NET INCOME PER SHARE
In February of 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share". This Statement
simplifies the standards for computing earnings per share, replacing the
presentation of primary earnings per share with a presentation of basic earnings
per share. SFAS No. 128 also requires dual presentation of basic and diluted
earnings per share on the face of the income statement for all entities with
complex capital structures. Basic earnings per share is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted earnings per share is computed
similarly to fully diluted earnings per share pursuant to APB Opinion No. 15,
"Earnings per Share", which is superseded by this Statement.
2. NET INCOME PER SHARE (continued)
The following table sets forth the computation of basic and diluted net income
per share (in thousands except per share data):
Nine Months
Year Ended Ended Year Ended March 31,
December 31, 1997 December 31, 1996
1996
------------------ ----------------- ------------------
Numerator:
NET INCOME $ 656 $ 660 $2,649
------ ------ ------
Denominator:
BASIC-WEIGHTED AVERAGE SHARES 5,994 6,000 6,000
Effect of dilutive securities:
EMPLOYEE STOCK OPTIONS -- -- 46
DILUTED-WEIGHTED AVERAGE SHARES 5,994 6,000 6,046
------ ------ ------
Basic net income per share $ 0.11 $ 0.11 $ 0.44
====== ====== ======
Diluted net income per share $ 0.11 $ 0.11 $ 0.44
====== ====== ======
The effect of employee stock options on the calculation of weighted average
shares outstanding for purposes of determining diluted earnings per share is
antidilutive for the year ended December 31, 1997 and the nine months ended
December 31, 1996.
3. ACQUISITIONS
The following table summarizes the assets acquired and liabilities assumed in
acquisitions made by FinishMaster in each of the periods presented. These
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 related to goodwill and covenants not to
compete were recorded with each acquisition. Operating results of acquired
entities have been included in FinishMaster's consolidated financial statements
as of the respective date of purchase.
Nine Months
Year Ended ended December Year Ended
December 31, 31, March 31,
1997 1996 1996
-------------------- ----------------- ----------------
(in thousands)
Accounts receivable $ 20,239 $ 755 $ 3,229
Inventory 27,158 511 8,500
Deferred taxes 6,082 - -
Equipment and other 8,029 456 1,492
Intangible assets 91,629 2,617 13,247
------ ----- ------
153,137 4,339 26,468
Liabilities assumed 78,988 1,256 4,275
------- ------ ------
ACQUISITION PRICE 74,149 3,083 22,193
Acquisition debt 73,819 1,191 10,774
------- ------ -------
NET ASSETS OF BUSINESSES ACQUIRED,
NET OF ACQUISITION DEBT $ 330 $ 1,892 $ 11,419
========== ======== ========
Number of acquisitions 3 1 16
3. ACQUISITIONS (continued)
On November 21, 1997, the Company acquired substantially all of the outstanding
common stock of Thompson PBE, Inc. for $8.00 per share. Thompson, like
FinishMaster, is an aftermarket distributor of automotive paints, coatings and
related supplies. The total purchase price, including related acquisition costs,
was $73,471,000. The Company funded the acquisition with a combination of bank
financing and subordinated borrowings from LDI. The acquisition was accounted
for as a purchase and accordingly, the purchase price was allocated to assets
acquired and liabilities assumed based upon their estimated fair values at the
date of acquisition. Goodwill resulting from the acquisition of Thompson is
being amortized over 30 years.
The following table sets forth the unaudited pro forma results of operations for
the current period in which acquisitions occurred and for the immediately
preceding period as if the acquisitions were consummated at the beginning of the
immediately preceding period. The unaudited pro forma results of operations data
consists of the historical results of the Company as adjusted to give effect to
(1) a reduction in employment and rental expense to reflect closure and
consolidation of certain facilities, (2) amortization of goodwill and debt
issuance costs, and (3) an increase in interest expense attributable to
financing of the acquisitions. This pro forma information does not purport to be
indicative what results would have been had the acquisitions been made as of
those dates or of results which may occur in the future.
Year Ended Nine Months Ended Year Ended
December December March 31,
31, 1997 31, 1996
1996
--------------------- ------------------------ -----------------------
(in thousands except per share data)
Net sales $ 317,594 $ 245,337 $ 115,104
Net income (loss) (5,305) (2,139) 2,737
Net income (loss) per common share - Basic $ (0.89) $ (0.36) $ 0.46
- Diluted $ (0.89) $ (0.36) $ 0.46
Weighted average number of common shares 5,994 6,000 6,000
4. INTANGIBLE ASSETS
Intangible assets consisted of the following (in thousands):
December 31, 1997 December 31, 1996
----------------- -----------------
Goodwill $107,673 $ 16,044
Non-compete agreements 11,080 10,860
Debt issuance costs 1,689 --
-------- --------
120,442 26,904
Less accumulated amortization 9,572 6,547
-------- --------
Intangible assets, net $110,870 $ 20,357
======== ========
5. LONG-TERM OBLIGATIONS
Long-term obligations consisted of the following:
December 31, December 31,
1997 1996
--------------- -- --------------
(in thousands)
Notes payable to former owners of acquired businesses with
interest at various rates up to 12%, due 1998 though 2007 $ 18,353 $ 12,911
Note payable to bank under line of credit with interest
rate not exceeding the prime interest rate, refinanced in 1997
- 7,288
Term credit facility payable to bank, bearing interest at 8.16%,
payments 1999 through 2003 40,000 -
Revolving credit facility bearing interest at 8.16 to 9.5%,
due November 2003 51,479 -
Senior subordinated debt payable to LDI at 9.0%,
due May 2004 30,000 -
Other long-term financing at various rates 2,308 1,771
---------- ----------
142,140 21,970
Less current maturities 8,005 4,139
--------- ---------
$134,135 $ 17,831
======== ========
Revolving Credit Facility: The Company has a revolving credit facility with a
bank, limited to the lesser of $60 million less letter of credit obligations, or
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 November 19, 2003. Interest rates and payment
dates are variable based upon interest rate options selected by management.
Interest rates at December 31, 1997 varied from 8.16% to 9.5%. The interest
rates are 2.25% over LIBOR or 1% over prime in the case of Floating Rate
Advances. The Company is charged an annual administrative fee of $50,000, and an
annual commitment fee, payable monthly, of 0.5% on the unused portion of the
revolving credit facility.
Term Credit Facility: The term loan requires quarterly principal payments
beginning March 31, 1999. Interest rates and payment dates are variable based
upon interest rate options selected by management. The interest rate at December
31, 1997 was 8.16%. This rate is 2.25% over LIBOR.
Substantially all of the Company's assets serve as collateral for the revolving
credit facility and term credit facility. These credit agreements contain
various covenants pertaining to, among other things, achieving a minimum fixed
coverage ratio, a leverage ratio, and an interest expense coverage ratio. The
covenants also limit purchases and sales of assets, restrict payment of
dividends and direct the use of excess cash flow. These quarterly covenants
become effective with the period ending March 31, 1998. As a condition of the
amended bank credit facility of $100 million, LDI agreed to make by June 30,
1998 an additional equity investment of $14 million or such lesser amount as may
be acceptable to the Company's bank. The Company intends to satisfy this
requirement through an acquisition of LDI AutoPaints ("AutoPaints") in exchange
for equity in the Company. (See Note 10).
Senior Subordinated Debt: The senior subordinated debt matures May 19, 2004.
Interest accrues at 9.0% annually, and is payable quarterly. Holders of
subordinated debt are expressly subordinate in right of payment to all senior
indebtedness.
The aggregate principal payments for the next five years subsequent to December
31, 1997 are as follows, in thousands:
1998 $ 8,005
1999 9,513
2000 10,725
2001 10,104
2002 10,494
Thereafter 93,299
-----------
$ 142,140
===========
5. LONG-TERM OBLIGATIONS (continued)
The Company is currently pursuing other financing arrangements. Should the
Company be successful in implementing favorable financing terms, proceeds will
be used to retire certain bank term loans, a portion of amounts outstanding
under the revolving credit facility and the subordinated debt payable to LDI.
Early retirement of indebtedness will result in an extraordinary loss in the
amount of the net book value of capitalized debt issue costs. At December 31,
1997 unamortized debt issue costs were approximately $1.6 million.
The carrying amounts of certain financial instruments such as cash, accounts
receivable, accounts payable and long term obligations approximate their fair
values. The fair value of the long-term debt is estimated using discounted cash
flow analysis and the Company's current incremental borrowing rates for similar
types of arrangements.
6. EMPLOYEE SAVINGS PLAN
The Company has an Employee Savings Plan which covers substantially all
employees who have met certain requirements as to date of service. The Company
currently contributes $0.25 for each $1 contributed by employees up to 6% of
their annual compensation. In addition, the Company may contribute, at the
discretion of the Board of Directors, an additional amount equal to 1% of the
employees' annual compensation. Company contributions charged to operations
under the Plan were approximately $182,000 for year ended December 31, 1997,
$189,000 for the nine months ended December 31, 1996 and $198,000 for the year
ended March 31, 1996.
7. STOCK OPTIONS
On November 30, 1993, an Employee Stock Option Plan was ratified to grant
options on up to 600,000 shares of the Company's common stock to officers, key
employees and non-employee directors of the Company. All options granted under
this plan have been granted at a price equal to the market price at the date of
the grant. All options granted have a maximum life of ten years from the date of
the grant and are fully vested at the date of issue.
The Company recognizes compensation expense related to its stock option plan in
accordance with APB No. 25 "Accounting for Stock Issued to Employees." Options
are granted at not less than the fair market value of the Company's common stock
on the date of grant, therefore, no compensation is recognized. Had compensation
expense been determined at the date of the grant based on the fair value of the
awards consistent the Statement of Financial Accounting Standards 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:
Year Ended December Nine Months Year Ended March
31, Ended December 31, 31,
1997 1996 1996
----------------------- ----------------------- ---------------------
Net Income (in thousands, except per share data)
As Reported $ 656 $ 660 $ 2,649
Pro Forma $ 523 $ 660 $ 2,010
Net income per share
As Reported - Basic $ 0.11 $ 0.11 $ 0.44
- Diluted $ 0.11 $ 0.11 $ 0.44
Pro Forma - Basic $ 0.09 $ 0.11 $ 0.34
- Diluted $ 0.09 $ 0.11 $ 0.33
7. STOCK OPTIONS (continued)
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions for December
31, 1997, December 31, 1996 and March 31, 1996 respectively: risk free interest
rate of 5.5, 5.7 and 5.7 percent; no dividend yield for all years; expected
lives of 9, 8 and 8 years; and volatility of 46.8 percent for all years. Option
valuation models, like the stock price Black-Scholes model, require the input of
highly subjective assumptions including the expected stock price volatility.
Because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models may not
necessarily provide a reliable single measure of the fair value of its stock
options.
December 31, 1997 December 31, 1996 March 31, 1996
----------------------------- ---------------------------- -------------------------
Weighted-Avg. Weighted-Avg. Weighted-Avg.
Options Exercise Price Options Exercise Price Options Exercise Price
------- -------------- ------- -------------- ------- --------------
Outstanding-beginning of
year
169,310 $ 10.71 222,085 $10.72 123,800 $10.50
Granted 45,000 $ 7.00 - - 99,500 $11.00
Exercised - - 140 $10.50 - -
Forfeited 4,310 $10.50 52,635 $10.76 1,215 $10.50
------- ------ ------- ------ ------- ------
Outstanding and
exercisable-end of year
($7.00 to $11.00 per share)
210,000 $ 9.92 169,310 $10.71 222,085 $10.72
======= ====== ======= ====== ======= ======
The weighted-average fair value of options granted during the year ended
December 31, 1997 and March 31, 1996 were $4.85 and $6.65 per option,
respectively. The remaining contractual life of options outstanding at December
31, 1997 is 8.3 years.
8. INCOME TAXES
The provision for federal and state income taxes consisted of the following, in
thousands:
Year Ended Nine Months Ended Year Ended
December 31, 1997 December 31, 1996 March 31,1996
-------------------- ----------------- -------------
Current:
Federal $ 1,010 $ 778 $ 1,477
State 186 232 327
Deferred (681) (400) (38)
------- ------- -------
$ 515 $ 610 $ 1,766
======= ======= =======
8. INCOME TAXES (continued)
The reconciliation of income taxes computed at the federal statutory tax rate to
the Company's effective tax rate is as follows:
Year Ended Nine Months Ended Year Ended
December 31, 1997 December 31, 1996 March 31, 1996
------------------ ----------------- ---------------
Federal statutory tax rate 34.0% 34.0% 34.0%
State tax provision 6.8 8.3 4.9
Other 3.3 5.7
1.1
================== ================= ===============
Effective tax rate 44.1% 48.0% 40.0%
================== ================= ===============
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 1997 and 1996 are as follows (in thousands):
December 31, 1997 December 31, 1996
----------------- -----------------
Deferred tax assets
Depreciation $ 712
Amortization of intangibles 1,023 $ 647
Allowance for doubtful accounts 1,106 277
Inventory 1,770 190
Accrued expenses 2,555
Other, net 52 23
------ ------
7,218 1,137
Deferred tax liabilities
Depreciation -- 374
------ ------
$7,218 $ 763
====== ======
9. CONTINGENCIES AND COMMITMENTS
FinishMaster occupies facilities and uses equipment under operating lease
agreements requiring annual rental payments approximating the following amounts
(in thousands) for the five years subsequent to December 31, 1997:
1998 $ 6,610
1999 5,484
2000 2,857
2001 1,115
2002 463
Thereafter 998
----------
$ 17,527
=========
Rent expense charged to operations, including short-term leases, aggregated
$3,831,963, $2,724,621, and $2,500,101 for the year ended December 31, 1997, the
nine months ended December 31, 1996, and the year ended March 31, 1996,
respectively.
On January 14, 1998, the Company announced the planned relocation of its
administrative headquarters from the Kentwood, Michigan distribution center to
new office space located in Indianapolis, Indiana that will be leased by the
Company from LDI. The Company anticipates incurring relocation and integration
costs in 1998 in conjunction with the combination of certain stores and moving
of administrative functions.
9. CONTINGENCIES AND COMMITMENTS (continued)
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 terms and other incentive
programs. To the extent these programs are changed or terminated, there could be
a material adverse impact to the Company.
The Company has three agreements with warehouse suppliers for the purchase of
certain paint and non-paint supplies in specified geographic locations. The
agreements provide for aggregate specified minimum purchases of $8.1 million in
1998, $7.8 million in 1999 and 2000, and $2.8 million in 2001, 2002 and 2003.
The agreements expire in 1999, 2000, and 2003.
FinishMaster is not involved in any material legal actions as of December 31,
1997.
10. SUBSEQUENT EVENT
On February 16, 1998, the Company, AutoPaints and LDI entered into an Agreement
and Plan of Merger (the "Merger Agreement"). Pursuant to the terms of the Merger
Agreement, which is subject to the approval of the Company's shareholders,
AutoPaints will merge with and into the Company, and the Company will issue an
additional 1,542,416 shares of the common stock of the Company to LDI. The
Company will also seek shareholder approval for an increase in the number of
authorized common shares from 10 million to 25 million shares. The financial
position, results of operations and cash flows of AutoPaints have not been
reflected in the consolidated financial statements of FinishMaster as of or for
the year ended December 31, 1997.
On March 27, 1998 the Company entered into a subordinated revolving credit
agreement with LDI for $10.0 million to fund working capital and acquisition
needs. Principal is due March 27, 1999. Interest rates and payment dates are
variable based upon interest options selected by management. The interest rates
are 2.25% over LIBOR or 1.0% over prime in the case of floating rate advances.
Holders of subordinated debt are expressly made subordinate in right of payment
of all senior indebtedness.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
- ----------------------------------------- ---------------- --------------------------------- ------------------ -----------------
COL. A COL. B COL. C COL. D COL. E
- ----------------------------------------- ---------------- --------------------------------- ------------------ -----------------
ADDITIONS
---------------------------------
Charged to
Balance at Charged to Other
Beginning of Costs and Accounts-- Deductions--DescribeBalance at End
DESCRIPTION Period Expenses Describe of Period
- ----------------------------------------- ---------------- ---------------- ---------------- ------------------ -----------------
Year ended December 31, 1997:
Allowance for doubtful accounts $ 700 $859 $1,758 (A) $1,070 (B) $2,247
------ ---- ------ ------ ------
Nine months ended December 31, 1996:
Allowance for doubtful accounts $ 350 $798 $448 (B) $700
------ ---- ---- ----
Year ended March 31, 1996:
Allowance for doubtful accounts $ 260 $548 $458 (B) $350
------ ---- ---- ----
(A) Represents allowance for doubtful accounts from acquisition. (B) Represents
uncollectible accounts written off, less recoveries.
FINISHMASTER, INC. AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
EXHIBITS
EXHIBIT LIST
Exhibit No. Description of Document Page
2.1* Agreement and Plan of Merger, dated as of
October 14, 1997, by and among FinishMaster,
Inc., FMST Acquisition Corporation and Thompson
PBE, Inc. (incorporated by reference to Exhibit
(c)(2) of Schedule 14D-1 previously filed by
FMST Acquisition Corporation on October 21,
1997).
2.2 Agreement and Plan of Merger, dated February
16, 1998, by and among FinishMaster, Inc., LDI
AutoPaints, Inc. and Lacy Distribution, Inc.
3.1* Articles of Incorporation of FinishMaster,
Inc., an Indiana corporation (previously filed
with Form 10-K dated March 31, 1997)
3.2* Bylaws of FinishMaster, Inc., an Indiana
corporation (previously filed with Form 10-K
dated March 31, 1997)
10.1 FinishMaster, Inc. Stock Option Plan (Amended
and Restated as of April 30, 1997)
10.2 Agreement dated as of March 1, 1998 between
FinishMaster, Inc. and LDI AutoPaints, Inc.
respecting certain management and
administrative functions
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
27.1 Financial Data Schedule
99(a)* Credit Agreement, dated as of November 19,
1997, among FinishMaster, Inc., the
Institutions from Time to Time Parties Thereto
as Lenders and NBD Bank, N.A., as Agent
(previously filed with Form 8-K dated December
3, 1997)
99(b)* Subordinated Note Agreement, dated as of
November 19, 1997, by and between FinishMaster,
Inc. and LDI, Ltd. (previously filed with Form
8-K dated December 3, 1997)
99(c) First Amendment to Credit Agreement dated
December 10, 1997
99(d) Second Amendment to Credit Agreement dated
March 27, 1998
99(e) Credit Agreement dated March 27, 1998 between
FinishMaster, Inc. and LDI, Ltd.
- ------------------
* Previously filed