SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
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 600, Indianapolis, IN 46204
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (317) 237-3678
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ----------------
Common Stock - without par value Nasdaq Stock Market
Indicate by check mark whether the registrant (1) has filed all annual,
quarterly and other reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding twelve months and (2) has
been subject to the filing requirements for at least the past 90 days.
Yes X No ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 1, 2001 was $13,125,000.
On March 1, 2001, 7,540,804 shares of Registrant's common stock were
outstanding.
Documents Incorporated By Reference
Portions of the annual proxy statement for the year ended December 31, 2000 are
incorporated by reference into Part III.
FINISHMASTER, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
ITEM PAGE
1 Business............................................................. 3
2 Properties........................................................... 7
3 Legal Proceedings.................................................... 8
4 Submission of Matters to a Vote of Security Holders.................. 8
5 Market for Registrant's Common Equity and
Related Shareholder Matters..................................... 9
6 Selected Consolidated Financial Data.................................10
7 Management's Discussion and Analysis of
Financial Condition and Results of Operations...................11
8 Financial Statements and Supplemental Data...........................17
9 Changes in, and Disagreements with Accountants on
Accounting and Financial Disclosure.............................31
10 Directors and Executive Officers of the Registrant...................31
11 Executive Compensation...............................................31
12 Security Ownership of Certain Beneficial Owners and Management.......31
13 Certain Relationships and Related Transactions.......................31
14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.............................................32
Signatures...........................................................33
PART I
ITEM 1 - BUSINESS
General
We are the leading national independent distributor of automotive paints,
coatings and paint-related accessories primarily to the automotive collision
repair industry. As of March 1, 2001, we serve our customers through a
290-person direct sales force in 156 sales outlets and three major distribution
centers located in 22 states, making us the only national independent
distributor in the industry. We have over 35,000 customers consisting
principally of collision repair shops and automobile dealers, to which we
provide a comprehensive selection of brand name products. Our product offering
consists of over 37,000 stock keeping units ("SKUs"), including leading brands
of automotive paints, coatings, thinners and reducers manufactured by BASF,
DuPont, and PPG and the leading brands of paint-related accessories manufactured
principally by 3M, such as masking materials, body fillers and cleaners. For the
year ended December 31, 2000, net sales were $337.2 million and net income was
$3.7 million.
Our vision is to expand our leadership position in the distribution of products,
services and technology that are recognized by customers as key factors in their
success. We provide our customers with "local" value-added services such as
rapid delivery, technical support, product training, management seminars,
computerized color matching, inventory management, personnel placement and
environmental compliance reporting. These value-added services are backed by
"national" expertise in the systems and technology of warehouse distribution and
supply chain management, and strategic partnering with the manufacturers of
paint and paint-related accessories. Our local focus helps us respond to the
unique customer needs in various geographic markets. Our national network allows
us to provide better, consistent service at a lower cost than our competition.
In addition, we are able to provide certain multi-site customers, such as
"collision repair shop" chains and mega-dealerships, with efficient and
consistent product distribution throughout their national or regional networks
at competitive prices.
We estimate the U.S. automotive paint and paint-related accessories distribution
after-market ("distribution after-market") to be approximately $2.5 billion,
with automotive collision repair shops being the primary customers for
automotive paint and paint-related accessories. In addition to independent
collision repair shops and automobile dealers, we supply products to
organizations that maintain their own automobile fleet, van conversion companies
and other commercial/industrial customers. The distribution after-market is
supplied by a small number of manufacturers of paint and paint-related
accessories and serves a highly fragmented customer base, consisting of
approximately 50,000 collision repair shops alone. Our competitors tend to be
family-owned, with one to three distribution sites and typically serve a highly
localized customer base.
We are an Indiana based corporation. Our principal executive offices are leased
from LDI, Ltd. ("LDI"), an Indiana limited partnership, which indirectly owns
74.1% of our outstanding shares. We believe that the terms of the lease are at
least as favorable to us as those that could be obtained by arms-length
negotiations with an unaffiliated third party. Our principal executive offices
are located at 54 Monument Circle, Suite 600, Indianapolis, Indiana 46204, and
our telephone number is (317) 237-3678.
Industry Overview
We estimate the distribution after-market to be approximately $2.5 billion. The
end users of the products distributed by us are principally independent
collision repair shops and automobile dealers. Additionally, organizations that
maintain their own automobile fleet, van conversion companies and other
commercial/industrial customers make up a smaller percentage of our customer
base. Automotive paint and related supplies, in contrast to labor and parts,
represent only a small portion (approximately 7-10%) of the total cost of a
typical collision repair job. However, while paint is a relatively minor
component of the total repair cost, we play a critical role in the customer's
level of satisfaction.
The distribution after-market for automotive paint and related supplies is
characterized by a small number of manufacturers of paint and paint-related
accessories. The five predominant manufacturers of automotive paint distributed
in the United States are Akzo Nobel, BASF, DuPont, PPG and The Sherwin-Williams
Company. 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 paint-related accessories which
include refinishing materials, supplies, accessories and tools such as sand
paper, masking tape and paint masks.
The paint manufacturers market is continuing to consolidate. Specifically, in
July 1999, PPG acquired Imperial Chemical Industries' global automotive refinish
and industrial coatings business and its automotive solvents and thinners
business in North America. In March 1999, DuPont acquired Herberts Gmbh, the
coatings company of Hoechst. The Herberts acquisition created the world's third
largest coatings company and the leading automotive coatings supplier.
While automotive paint manufacturing is highly concentrated, automotive paint
distribution and the end users of automotive paint are highly fragmented. We
believe that a large number of independent distributors of automotive paint
serve an aggregate of approximately 50,000 collision repair shops nationwide.
Distributors, which tend to be family-owned with one to three distribution
sites, typically serve a highly localized customer base with each distribution
site serving customers located within 20 miles of the site depending upon
demographics, road access and geography.
Due to the large number of end users and their increasing demands for
personalized services, such as multiple daily deliveries, assistance with
color-mixing and matching, and assistance with paint application techniques and
environmental compliance reporting, manufacturers typically service end users
through distributors like us. Nevertheless, some of the paint manufacturers have
elected to operate company-owned distribution facilities in selected markets,
including markets in which we operate. We believe, however, that the largest
automotive paint manufacturers have generally avoided the cost of operating
their own distribution network due to their inability to offer multiple lines of
paint which prevents them from spreading distribution expenses across the
market's entire potential customer base. Consequently, we believe that
independent distributors like us, which can sell the products of several paint
manufacturers, are better situated to service the end users' needs than the
company owned distribution facilities of automotive paint manufacturers.
The market for paints and supplies for automotive collision repairs has changed
significantly in recent years. Key factors affecting this market have been:
o a decline in the number of vehicles repaired annually, with this
number stabilizing in recent years;
o improvements and paint application technology and advances in paint
system productivity;
o environmental regulations which have required the reformulation of
paints and the use of more advanced equipment and facilities;
o automobile manufacturers' use of more complex and expensive automotive
finishes; and
o an increase in the number of vehicles repaired by insurance companies'
designated "direct repair providers".
Collision repair shops have been forced to invest in new equipment and
additional training of their workers, while there has been a decline in the
number of repair jobs. Accordingly, there has been some consolidation in the
highly fragmented collision repair industry among end users of automotive paints
and accessories. In addition, collision repair shops and car dealerships are
seeking to improve their financial performance and competitive position by
developing relationships with distributors that can support their businesses
with value-added services. This demand for higher levels of service from
distributors, combined with lower unit sales volume of paint and supplies, has
resulted in a consolidation among after-market distributors. We have led the
consolidation among distributors in recent years, having completed 36
acquisitions over the past nine years.
Although the automotive collision repair industry is experiencing a trend toward
consolidation, we believe that our size and current position as a market leader
will enable us to continue to grow and remain profitable. We have been able to
offset the decline in unit volume by material price increases that we have been
able to pass on to our customers due to the technological advancements in paints
and coatings. In addition, we believe we will continue to attract new customers
due to our value-added services, such as our experience in helping customers
comply with environmental regulations. This service, which we currently provide
in California and Colorado, will be applicable in other geographic areas as the
U.S. Environmental Protection Agency enacts volatile organic compound ("VOC")
regulations nationwide.
Products and Suppliers
We offer our customers a comprehensive selection of prominent brand name
products and our own PrivateBrand products. The product line consists of over
37,000 SKUs, including the three leading brands of automotive paints and
coatings and a leading brand of related accessories. Our PrivateBrand products
include some of the most frequently used refinishing accessories such as masking
materials, body fillers, thinners, reducers and cleaners.
We rely on four leading suppliers for the majority of our product requirements.
BASF, DuPont, and PPG supply virtually all of our paint products, and 3M is our
largest supplier of paint-related accessories. Products supplied by BASF,
DuPont, 3M and PPG accounted for approximately 85% of purchases in 2000.
Although each of these suppliers generally competes with the others along
product lines, we do not believe the products are completely interchangeable
because of high brand loyalty among customers and their brand-specific color
matching computer systems. We continuously seek opportunities with new and
existing suppliers to supply the highest quality products.
Whenever practical, we make purchases from suppliers in large volumes to
maximize volume discounts. In addition, we participate in periodic, special
incentive programs available from suppliers. These programs provide additional
purchase discounts and extended payment terms in exchange for large volume
purchases. We also benefit from supplier-provided early payment discounts and
from other supplier-supported programs.
Services
We offer comprehensive value-added services designed to assist customers in
operating their businesses more effectively. These services include:
Rapid Delivery
Products are delivered to customers using our delivery fleet of approximately
750 trucks. We offer multiple daily deliveries to meet our customers'
just-in-time inventory needs. Customer concerns for product availability
typically take priority over all other competitive considerations, including
price.
Technical Support
Our technical support personnel demonstrate and recommend products. In addition,
they assist customers with problems related to their particular product
applications. Equipment specialists provide information to customers regarding
their heavy equipment requirements, such as spray booths and frame straightening
equipment.
Product Training
As a result of increasing regulations, manufacturers have introduced
technologically advanced, lower VOC paints, which require significantly more
sophisticated application techniques. We provide training to customers in order
to teach them the techniques required to work with these products. Training
sessions are typically conducted jointly by us and by one or more of our major
suppliers at the customer's location or at an off-site location.
Management Seminars
Management seminars are conducted at convenient locations to inform our
customers about environmental regulations and compliance, techniques to improve
productivity, and industry trends.
Color Matching
The growing number of paint colors is a challenge for the refinishing industry.
DuPont, for example, has more than 120,000 mix formulas. With sophisticated
PC-based color matching equipment and specialists, we provide color-matching
services to our customers.
Inventory Management
We perform monthly physical inventories for customers who request this service.
We also provide customers with management information reports on product usage.
Assistance with Environmental Compliance Reporting
All states have air quality regulations that mandate paint and application
methods which result in reduced atmospheric emissions of paint and other related
materials. In California in particular, we arrange demonstrations of new
products and application techniques designed to comply with air quality
regulations. In addition, in California and Colorado, we assist our customers
with environmental reporting requirements by providing special reports designed
to simplify their compliance. The EPA has proposed regulations to control VOC
emissions from automobile refinishing nationwide and, accordingly, we are
considering an expansion of these programs.
Personnel Placement
Certain of our locations assist our customers with filling employment openings
and/or persons seeking employment with collision repair shops located in the
market served. Upon request from a customer to fill an opening, we may provide
the names of one or more persons for the position. Similar services are
available to persons seeking employment. We do not charge for this service but
benefit from enhanced relationships with our customers and their employees.
Competition
The distribution after-market of the automotive refinishing industry is highly
fragmented and competitive with many independent distributors competing
primarily on the basis of technical assistance and expertise, price, speed of
delivery and breadth of product offering. There are no other independent
national distributors of automotive refinish paints and accessories. There are a
number of independent regional distributors, many of which are in direct
competition with us on a regional or local level. Competition in the purchase of
independent distributors and sales outlets may occur between us and other
automotive refinishing distributors that are also pursuing growth through
acquisitions.
We may also encounter significant sales competition from new market entrants,
automotive paint manufacturers, buying groups or other large distributors that
may seek to enter such markets or may seek to compete with us for attractive
acquisition candidates. Although the largest automotive paint manufacturers have
generally not operated their own distributors, or have done so only on a limited
basis, they may decide to expand such activity in the future. For example,
Sherwin-Williams distributes its own automotive paints through its sales
outlets. In addition, BASF, one of our principal suppliers, also distributes in
certain markets through its own outlets in North America. While we do not
believe that current direct distribution efforts by automotive paint
manufacturers have significantly affected our sales, there can be no assurance
that we will not encounter increased competition in the future. We may also
compete with our suppliers in selling to certain large volume end users such as
van converters, small manufacturers and large fleet operators.
Employees
As of March 1, 2001, we employed approximately 1,520 persons on a full and
part-time basis. None of the employees are covered by a collective bargaining
agreement, and we consider our relations with our employees to be good.
Governmental and Environmental Regulations
We are subject to various federal, state and local laws and regulations. These
regulations impose requirements on our customers and us. Pursuant to the
regulations of the U.S. Department of Transportation and certain state
transportation departments, a license is required to transport our products and
annual permits are required due to the classification of certain of our products
as "hazardous." Various state and federal regulatory agencies, such as the
Occupational Safety and Health Administration and the United States
Environmental Protection Agency, have jurisdiction over the operation of our
distribution centers and sales outlets. These agencies require us to comply with
various governmental regulations, including worker safety laws, community and
employee "right-to-know" laws and laws regarding clean air and water. In
addition, state and local fire and environmental regulations extensively control
the design and operation of our facilities, the sale of our products, and the
application of these products by our customers. Such regulations are complex and
subject to change. Regulatory or legislative changes may cause future increases
in our operating costs or otherwise negatively affect operations.
ITEM 2 - PROPERTIES
The following table sets forth certain information regarding the facilities
operated by us as of March 1, 2001.
Number No. of No. of
Of Sales Distribution
State Offices Outlets Centers
Alabama............................... 1
Arizona............................... 3
California............................ 1 29 1***
Colorado.............................. 5 1**
Connecticut........................... 3
Delaware.............................. 1
Florida............................... 1* 38 1***
Georgia............................... 3
Illinois.............................. 4
Indiana............................... 1 3
Maryland.............................. 4
Massachusetts......................... 5
Michigan............................ 1* 12 1***
New Jersey............................ 8
North Carolina........................ 6 1**
Ohio.................................. 2
Oklahoma.............................. 1
Pennsylvania.......................... 3
South Carolina........................ 6
Texas................................. 12
Virginia.............................. 3
Wisconsin............................. 4
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Total Offices, Sales Outlets and
Distribution Centers 4 156 5
= === =
--------------
* Locations where an office and distribution center are combined facilities.
Includes Kentwood, MI and Ft. Lauderdale FL.
** Locations where a store and distribution center are combined facilities.
Includes Greensboro, NC and Westminster, CO.
*** Denotes major distribution center. Includes Kentwood, MI; Ft. Lauderdale,
FL; and Los Angeles, CA.
Our sales outlets range in size from 1,200 square feet to 15,000 square feet.
Some of the larger sales outlets are also used as "drop ship" points from which
we supply other sales outlets. Sales outlets consist of inventory storage areas,
mixing facilities, display and counter space and, in some instances, sales
office space. Sales outlets are strategically located in major markets to
maximize market penetration, transportation logistics and overall customer
service. Our distribution centers range in size from 5,000 square feet to 38,500
square feet. The distribution centers are equipped with efficient material
handling and storage equipment.
We own the distribution center and two sales outlets in Michigan, one sales
outlet in Indiana, and one in Florida. The remainder of the sales outlets and
the other distribution centers are leased with terms expiring from 2001 to 2007,
with options to renew. We typically assume the lease of the former owner in
acquisitions. In a number of instances, our sales outlets are leased from the
former owners of businesses acquired by us. We believe that all of our leases
are at fair market rates, that presently no single lease is material to our
operations, and that alternative sites are presently available at market rates.
We are leasing approximately 15,000 square feet of executive offices for our
national headquarters located in Indianapolis, Indiana.
ITEM 3 - LEGAL PROCEEDINGS
In January 1999, we were named in an unfair business practices lawsuit by an
automotive paint distributor located in the State of California. The plaintiff
in such suit alleged that we offered, in a manner that injured the plaintiff,
rebates and cash bonuses to businesses in the Southern California area if those
businesses would buy exclusively from us and use our products. The plaintiff
claimed damages in the amount of $3.8 million, trebled to $11.4 million. During
2000, the court granted summary judgment in our favor. The plaintiff has not
appealed the judgment against it, and the decision is now final.
We are subject to various claims and contingencies arising out of the normal
course of business, including those relating to commercial transactions,
environmental, product liability, automobile, taxes, discrimination, employment
and other matters. Our management believes that the ultimate liability, if any,
in excess of amounts already provided or covered by insurance, is not likely to
have a material adverse effect on our financial condition, results of operations
or cash flows.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ADDITIONAL ITEM - EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information concerning the executive officers
of the Company who are not also directors:
Thomas E. Case (age 55) serves as the Senior Vice President of Sales for our
West Division. He had previously served as the Senior Vice President and general
manager of our Western Division from June 1998 to January 2001. Mr. Case joined
us upon completion of our acquisition of Thompson in November 1997. Formerly,
Mr. Case was a Vice President of Thompson and served as the general manager of
Thompson's California Division.
J.A. Lacy (age 36) serves as our Senior Vice President of Operations. He had
previously served as the Senior Vice President of Planning and Marketing from
January 1999 to January 2001. From January 1997 to December 1998, Mr. Lacy
served as President of Tucker Rocky Distributing Canada, Inc., a leading
after-market distributor of motorcycle components and accessories. Prior to
this, Mr. Lacy was Vice President of J. Walter Thompson, an advertising agency.
Robert R. Millard (age 43) joined us in October 1998 as the Senior Vice
President of Finance, Chief Financial Officer, Secretary and Treasurer. From
February 1996 until September 1998, Mr. Millard served as Vice President of
Finance, Chief Financial Officer, Secretary and Treasurer of Personnel
Management, Inc., a publicly held personnel staffing company based in
Indianapolis, Indiana. From July 1991 until January 1996, Mr. Millard served as
the Corporate Controller of Lacy Diversified Industries, Ltd., an affiliate of
LDI.
Roger A. Sorokin (age 60) serves as our Senior Vice President of Acquisitions
and Development since November 1998. Prior to this date, Mr. Sorokin had served
as our Vice President of Finance for more than the previous five years.
Charles Stephenson (age 47) has terminated his employment with the Company
effective January 31, 2001. He had served as the Senior Vice President and
general manager of our Central/Northeastern Division from October 1997 until his
resignation. Mr. Stephenson served as our Vice President of Marketing from
August 1997 to October 1997. Prior to joining us, Mr. Stephenson served as
Director of Sales of Sherwin-Williams Auto Finishes Inc. from September 1994 to
August 1997 and as its Regional Director of the Western Region from October 1991
to September 1994.
Charles VanSlaars (age 51) serves as the Senior Vice President of Sales for our
East Division. He had previously served as the Senior Vice President and general
manager of our Southeastern Division, a position he held from June 1998 to
January 2001. From June 1996 until May 1998, Mr. VanSlaars served as an
executive officer of LDI AutoPaints, Inc. From 1994 until 1996, Mr. VanSlaars
served as Vice President of Parts Depot Company, L.P., a Florida-based
distributor of auto paints.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Our common stock trades on The NASDAQ Stock Market (SmallCap Market) under the
symbol FMST. The number of beneficial owners of our common stock at December 31,
2000, was approximately 350.
The range of high and low closing prices reported by NASDAQ for the last twelve
quarters were:
Year Quarter Ended High Low
--------------------------------------------------------------------------
1998 March 31 11.750 7.750
1998 June 30 10.750 8.625
1998 September 30 10.000 5.250
1998 December 31 7.375 3.500
1999 March 31 7.000 5.625
1999 June 30 6.000 4.750
1999 September 30 7.375 5.688
1999 December 31 7.938 5.750
2000 March 31 8.000 6.750
2000 June 30 8.000 4.750
2000 September 30 7.000 5.250
2000 December 31 7.000 4.700
No cash dividends on common stock have been paid during any period and none are
expected to be paid in the foreseeable future. We anticipate that all earnings
and other cash resources will be retained by us for investment in our business.
On June 30, 1998, we completed the acquisition by merger of LDI AutoPaints, Inc.
("AutoPaints") in exchange for the issuance of 1,542,416 shares of our common
stock. Such shares were issued to Lacy Distribution, Inc., our majority
shareholder and a wholly owned subsidiary of LDI. Such shares were issued
pursuant to the exemption provided in Section 4(2) of the Securities Act of
1933, as amended.
ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of and for the years ended
December 31, 2000, 1999, and 1998, are derived from our audited consolidated
financial statements that are included elsewhere herein. The selected
consolidated financial data as of and for the year ended December 31, 1997, nine
months ended December 31, 1996, and for the year ended March 31, 1996 are
derived from our audited consolidated financial statements, which are not
included herein. The financial data should be read in conjunction with our
audited consolidated financial statements and notes thereto, included elsewhere
herein, and with "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Nine Months Fiscal
Year Ended Ended Year Ended
December 31, December 31, March 31,
----------------------------------------------------------- ----------
(In thousands, except per share data) 2000(2)(3) 1999(2)(3) 1998(2)(3) 1997(2) 1996(1) 1996
---------- ---------- ----------- ------- ------- ----
Per Share
Net income
Basic $ 0.49 $ 0.49 $ 0.29 $ 0.11 $ 0.11 $ 0.44
Diluted $ 0.49 $ 0.49 $ 0.29 $ 0.11 $ 0.11 $ 0.44
Pro forma net income (loss) (4) $ - $ - $ 0.33 $ (1.01) $ - $ -
Statements of Operations Data
Net sales $ 337,213 $ 324,490 $ 309,946 $ 130,175 $ 95,822 $ 107,511
Gross margin $ 122,995 $ 117,002 $ 109,678 $ 47,107 $ 33,891 $ 38,012
Income from operations $ 19,572 $ 18,745 $ 15,895 $ 3,832 $ 2,566 $ 5,073
Net income $ 3,727 $ 3,711 $ 1,988 $ 656 $ 660 $ 2,649
Pro forma net income (loss) (4) $ - $ - $ 2,459 $ (7,585) $ - $ -
Weighted average shares
outstanding - Diluted 7,551 7,545 6,780 5,994 6,000 6,000
Pro forma weighted average
shares outstanding - Diluted - - 7,536 7,536 - -
December 31, March 31,
---------------------------------------------------------- ---------
2000(2)(3) 1999(2)(3) 1998(2)(3) 1997(2) 1996(1) 1996
---------- ---------- ---------- ------- -------- ----
Balance Sheet Data
Net working capital $ 35,209 $ 48,147 $ 43,452 $ 42,928 $ 22,819 $ 25,036
Total assets $ 218,317 $ 214,235 $ 226,475 $ 215,418 $ 66,477 $ 66,772
Long-term debt $ 90,652 $ 111,603 $ 119,120 $ 134,135 $ 17,831 $ 19,605
Shareholders' equity $ 56,806 $ 53,069 $ 49,348 $ 32,932 $ 32,326 $ 31,665
-----------------
(1) We changed our fiscal year end from March 31 to December 31, effective for
the period ended December 31, 1996.
(2) The operating results for the years ended December 31, 2000, 1999, 1998 and
1997 are affected by the acquisition of Thompson on November 21, 1997. The
operating results of Thompson are included in our consolidated operating
results since the acquisition date.
(3) The operating results for the year ended December 31, 2000, 1999, and 1998
are affected by the acquisition of AutoPaints on June 30, 1998. The
operating results of AutoPaints are included in our consolidated operating
results since the acquisition date.
(4) Pro forma amounts for the years ended December 31, 1998 and 1997 have been
prepared to give effect to the acquisitions of Thompson and AutoPaints as
if the transactions had occurred on January 1, 1997. These amounts are
unaudited and are presented for informational purposes only. No pro forma
amounts are presented for acquisitions in 2000 or 1999 as the impact of
such acquisitions are not material. The unaudited pro forma financial
amounts should be read in conjunction with Item 7 - "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and analysis about the Company's financial condition
and results of operations should be read in conjunction with the consolidated
financial statements and related notes presented in this annual report.
Overview
FinishMaster, Inc. is the leading independent distributor of automotive paints,
coatings and paint-related accessories primarily to the automotive collision
repair industry in the United States. As of March 1, 2001, the Company serves
its customers through 156 sales outlets and three major distribution centers
located in 22 states, making it the only national independent distributor in the
industry. The Company has over 35,000 customers that it provides a comprehensive
selection of brand name products supplied by BASF, DuPont, 3M and PPG in
addition to its own FinishMaster PrivateBrand refinishing accessory products.
The Company is 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's
operations are currently organized into two geographical divisions: East and
West. The Company aggregates its two divisions into a single reportable segment.
The Company is the leading consolidator in the automotive refinishing
distribution industry, having successfully completed as of March 1, 2001
approximately 36 acquisitions over the past nine years, ranging from "add-on"
acquisitions to the strategic acquisitions of Thompson and AutoPaints.
On June 30, 1998, the Company completed the acquisition by merger of AutoPaints
in exchange for the issuance of 1.5 million shares of the Company's common
stock. Since AutoPaints was acquired from the Company's majority shareholder,
the acquisition constituted a transaction within a controlled group. Thus, the
acquisition was accounted for using the historical cost basis of AutoPaints' net
assets, which approximated $14.4 million at the date of acquisition.
The Company intends to continue its strategy of expanding through acquisitions.
The Company completed six (6) acquisitions during both 2000 and 1999.
Results of Operations
As a result of the acquisition of AutoPaints and its significance to the
Company's results of operations, pro forma results of operations are presented
for the year ended December 31, 1998. The Company believes that for purposes of
Management's Discussion and Analysis, a more meaningful understanding of the
Company's performance can be obtained by comparing the pro forma results for all
years. Pro forma amounts for 2000 and 1999 are consistent with historical
results as the pro forma effects of the six acquisitions completed in each of
the years are not material.
The unaudited pro forma consolidated amounts for the year ended December 31,
1998 have been prepared to give effect to the acquisition of AutoPaints as if
the transaction had occurred on January 1, 1998. In calculating the pro forma
amounts, the historical amounts of AutoPaints for the entire year have been
included with those of the Company. The unaudited pro forma amounts do not
purport to be indicative of the results of operations that would have actually
been obtained if the transactions had occurred on January 1, 1998, or the
results of operations that may be obtained in the future.
Net Sales
--------------------------------------------------------------------------------
(In thousands) 2000 Change 1999 Change 1998
--------------------------------------------------------------------------------
Historical $ 337,213 3.9% $ 324,490 4.7% $ 309,946
--------------------------------------------------------------------------------
Pro forma $ 337,213 3.9% $ 324,490 0.9% $ 321,710
--------------------------------------------------------------------------------
Net sales increased $12.7 million or 3.9% from 1999 to 2000 due to "same outlet
sales" growth and acquisitions. "Same outlet sales" grew approximately 2.4%
while net sales acquired through acquisitions contributed approximately 1.5%.
During 2000, the Company completed six acquisitions.
Pro forma net sales increased $2.8 million or 0.9% from 1998 to 1999 due
primarily to acquisitions. During 1999, the Company completed six acquisitions.
The Company experienced minimal "same outlet sales" growth as a result of
competitive market conditions and flat industry demand.
Approximately 70% of net sales consisted of automotive paint products while the
remaining portion was paint-related accessories.
Gross Margin
--------------------------------------------------------------------------------
(In thousands) 2000 Change 1999 Change 1998
--------------------------------------------------------------------------------
Historical $ 122,995 5.1% $ 117,002 6.7% $ 109,678
Percentage of net sales 36.5% 36.1% 35.4%
--------------------------------------------------------------------------------
Pro forma $ 122,995 5.1% $ 117,002 2.5% $ 114,199
Percentage of net sales 36.5% 36.1% 35.5%
--------------------------------------------------------------------------------
Gross margin for 2000 increased $6.0 million or 5.1% over 1999 due to higher
sales volume of $4.6 million and improved margins of $1.4 million. Pro forma
gross margin for 1999 increased $2.8 million or 2.5% over 1998 due to improved
margins of $1.8 million and higher sales volume of $1.0 million. Gross margin as
a percentage of net sales has improved over the last two years as a result of
supplier incentive programs and the optimization of early payment discounts.
Operating Expenses
--------------------------------------------------------------------------------
(In thousands) 2000 Change 1999 Change 1998
--------------------------------------------------------------------------------
Historical $ 52,195 6.5% $ 49,029 (1.0%) $ 49,518
Percentage of net sales 15.5% 15.1% 16.0%
--------------------------------------------------------------------------------
Pro forma $ 52,195 6.5% $ 49,029 (4.1%) $ 51,103
Percentage of net sales 15.5% 15.1% 15.9%
--------------------------------------------------------------------------------
Operating expenses consist of wages, facility, vehicle and related costs for the
Company's store and distribution locations.
Operating expenses as a percentage of net sales increased from 15.1% in 1999 to
15.5% in 2000 due primarily to higher vehicle fuel costs and increased
depreciation expense associated with the new point-of-sale computer system
implemented during the current year.
Pro forma operating expenses as a percentage of net sales improved from 15.9% in
1998 to 15.1% in 1999 as a result of management's focus during the year on
increased productivity and cost containment.
Selling, General and Administrative Expenses
--------------------------------------------------------------------------------
(In thousands) 2000 Change 1999 Change 1998
--------------------------------------------------------------------------------
Historical $ 44,928 5.9% $ 42,436 12.3% $ 37,789
Percentage of net sales 13.3% 13.1% 12.2%
--------------------------------------------------------------------------------
Pro forma $ 44,928 5.9% $ 42,436 7.7% $ 39,404
Percentage of net sales 13.3% 13.1% 12.2%
--------------------------------------------------------------------------------
Selling, general and administrative expenses ("SG&A") consist of costs
associated with the Company's corporate support staff and expenses for
commissions, wages, and customer sales support activities.
SG&A expenses as a percentage of net sales increased from 13.1% to 13.3% from
1999 to 2000 as a result of increased wages and benefit costs, higher bad debt
expenses and increased costs associated with attracting and retaining customers.
Pro forma SG&A expenses as a percentage of net sales increased from 12.2% in
1998 to 13.1% in 1999 as a result of higher selling expenses, finalization of
staffing requirements at the Company's corporate headquarters, increased costs
associated with attracting and retaining customers, and higher professional
fees.
Amortization of Intangible Assets
--------------------------------------------------------------------------------
(In thousands) 2000 Change 1999 Change 1998
--------------------------------------------------------------------------------
Historical $ 6,300 (7.2%) $ 6,792 4.9% $ 6,476
Percentage of net sales 1.9% 2.1% 2.1%
--------------------------------------------------------------------------------
Pro forma $ 6,300 (7.2%) $ 6,792 (2.9%) $ 6,996
Percentage of net sales 1.9% 2.1% 2.2%
--------------------------------------------------------------------------------
The decrease in amortization expense between 1999 and 2000, and the decrease in
pro forma amortization expense between 1998 and 1999 was a result of certain
intangible assets, principally non-compete agreements, becoming fully amortized
in those years.
Interest Expense, net
--------------------------------------------------------------------------------
(In thousands) 2000 Change 1999 Change 1998
--------------------------------------------------------------------------------
Historical $ 11,604 7.4% $ 10,802 (5.9%) $ 11,475
Percentage of net sales 3.4% 3.3% 3.7%
--------------------------------------------------------------------------------
Pro forma $ 11,604 7.4% $ 10,802 (6.2%) $ 11,510
Percentage of net sales 3.4% 3.3% 3.6%
--------------------------------------------------------------------------------
The $0.8 million or 7.4% increase in interest expense between 2000 and 1999 was
due to increased interest rates of approximately 110 basis points, partially
offset by lower average outstanding borrowings. The Company repaid $25.3 million
of outstanding borrowings during 2000.
The $0.7 million or 6.2% decrease in pro forma interest expense between 1999 and
1998 was due to lower outstanding borrowings. The implied interest rates on
these borrowings remained relatively stable between years. The Company repaid
$6.9 million of outstanding borrowings in 1999.
Income Tax Expense
--------------------------------------------------------------------------------
(In thousands) 2000 Change 1999 Change 1998
--------------------------------------------------------------------------------
Historical $ 4,241 0.2% $ 4,232 74.0% $ 2,432
Percentage of net sales 1.3% 1.3% 0.8%
Effective tax rate 53.2% 53.3% 55.0%
--------------------------------------------------------------------------------
Pro forma $ 4,241 0.2% $ 4,232 55.2% $ 2,727
Percentage of net sales 1.3% 1.3% 0.8%
Effective tax rate 53.2% 53.3% 52.6%
--------------------------------------------------------------------------------
The increase in income tax expense between 1999 and 2000, and pro forma income
tax expense between 1998 and 1999 was directly attributable to higher income
before income taxes. The effective tax rate has remained flat over the periods,
and has varied from the statutory rates because of certain expenses, principally
nondeductible intangible amortization.
Net Income and Income Per Share
--------------------------------------------------------------------------------
(In thousands, except 2000 Change 1999 Change 1998
per share data)
--------------------------------------------------------------------------------
Historical net income $ 3,727 0.4% $ 3,711 86.7% $ 1,988
Percentage of net sales 1.1% 1.1% 0.6%
Net income per share $ 0.49 0.0% $ 0.49 69.0% $ 0.29
--------------------------------------------------------------------------------
Pro forma net income $ 3,727 0.4% $ 3,711 50.9% $ 2,459
Percentage of net sales 1.1% 1.1% 0.8%
Pro forma net income
per share $ .049 0.0% $ 0.49 48.5% $ 0.33
--------------------------------------------------------------------------------
Factors contributing to the changes in net income and pro forma net income and
the related per share amounts are discussed in the detail above.
Inflation and Other Economic Factors
Inflation affects FinishMaster's cost 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. The Company's financial performance is also
dependent on its ability to acquire businesses and profitably integrate them
into its operations.
Quantitative and Qualitative Disclosure about Market Risk
The Company did not have significant holdings of derivative financial or
commodity based instruments at December 31, 2000 or 1999. A review of the
Company's other financial instruments and risk exposures indicated the Company
has exposure to interest rate risk. Based upon the Company's outstanding debt at
December 31, 2000 and the term for which current interest rates are fixed, a 10%
increase in interest rates would increase interest expense for 2001 by an
estimated $0.4 million.
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, 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 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
its suppliers that extend the due date of inventory purchases beyond terms
normally available with large volume purchases. The timing of these programs can
contribute to fluctuations in the Company's quarterly cash flows. 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 flows will not continue to
display seasonal patterns.
Financial Condition, Liquidity and Capital Resources
--------------------------------------------------------------------------------
(In thousands) 2000 1999 1998
--------------------------------------------------------------------------------
Net working capital $ 35,209 $ 48,147 $ 43,452
Long-term debt $ 90,652 $ 111,603 $ 119,120
Cash provided by operating activities $ 29,646 $ 8,781 $ 16,094
Cash used in investing activities $ (5,059) $ (2,371) $ (663)
Cash used in financing activities $ (23,693) $ (6,800) $ (14,786)
--------------------------------------------------------------------------------
The Company's primary sources of funds over the past three years were from
operations and borrowings under its credit facilities. The Company's principal
uses of cash were to fund working capital, capital expenditures, acquisitions,
and the repayment of outstanding borrowings.
Net cash generated from operating activities was $29.6 million in 2000 compared
with $8.8 million in 1999. This increase was the result of a positive change in
operating assets and liabilities, primarily accounts payable and other
liabilities. The increase in cash flows of $21.3 million in accounts payable and
other liabilities resulted from differences in payment terms between years on
large "year end" inventory purchases. Partially offsetting this increase was
higher investment in inventory, prepaid and other assets.
Net cash used in investing activities was $5.1 million in 2000 compared with
$2.4 million in 1999. The increase was primarily the result of increased capital
spending for the implementation of a new "point-of-sale" computer system and a
consolidated general ledger system. The Company estimates that capital
expenditures for 2001, principally for information technology equipment, will
approximate $2.0 million.
Net cash used in financing activities was $23.7 million in 2000, compared with
$6.8 million in 1999, primarily from the repayment of debt. The increase in debt
repayments was a result of improved working capital management and favorable
payment terms with our vendors on "year end" inventory purchases.
Total capitalization at December 31, 2000, was $158.4 million, comprised of
$101.6 million of debt and $56.8 million of equity. Debt as a percentage of
total capitalization decreased from 69.9% to 64.1% between 1999 and 2000. This
improvement was attributable to the increase in equity resulting from current
year net income, along with the decrease in debt resulting from repayments.
At December 31, 2000, the Company had term credit and revolving credit
facilities totaling $65.4 million and senior subordinated debt of $30 million.
The Company was in compliance with the covenants underlying its credit
facilities, and had availability under its revolving credit facility of $24.9
million as of year end. The Company also had availability under its acquisitions
revolving credit facility of $5.7 million.
Based on current and projected operating results and giving effect to total
indebtedness, the Company believes that cash flow from operations and funds
available from lenders and other creditors will provide adequate funds for
ongoing operations, debt service and planned capital expenditures.
Other Matters
The Company has reviewed the impact and subsequent disclosure requirements of
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities" and does not expect it to have a
material impact on the financial condition or results of operations.
Forward-Looking Statements
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. The Company may make
similar forward-looking statements 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 in general, difficulties associated
with assimilating acquisitions, the emergence of new or growing competitors,
seasonal and quarterly fluctuations, governmental regulations, the potential
loss of key suppliers, 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
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Statements: Page
Report of Independent Accountants 17
Consolidated Balance Sheets 18
Consolidated Statements of Operations 19
Consolidated Statements of Cash Flows 20
Consolidated Statements of Shareholders' Equity 21
Notes to Consolidated Financial Statements 22
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts 35
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or the notes thereto.
Report of Independent Accountants
To the Board of Directors and Shareholders of FinishMaster, Inc.:
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
FinishMaster, Inc. and its subsidiaries at December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Indianapolis, Indiana
March 2, 2001
CONSOLIDATED
BALANCE SHEETS
FinishMaster, Inc.
December 31, December 31,
(In thousands, except share amounts) 2000 1999
ASSETS
Current assets
Cash $ 1,513 $ 619
Accounts receivable, net of allowance for doubtful
accounts of $1,337 and $1,419, respectively 29,063 30,135
Inventory 63,346 56,830
Refundable income taxes 710 295
Deferred income taxes 3,459 3,301
Prepaid expenses and other current assets 4,349 3,328
-----------------------------------------
Total current assets 102,440 94,508
Property and equipment
Land 368 368
Vehicles 1,432 1,244
Buildings and improvements 5,903 5,489
Machinery, equipment and fixtures 11,922 8,845
-----------------------------------------
19,625 15,946
Accumulated depreciation (10,649) (8,226)
-----------------------------------------
8,976 7,720
Other assets
Intangible assets, net 102,858 108,115
Deferred income taxes 1,870 2,250
Other 2,173 1,642
-----------------------------------------
106,901 112,007
-----------------------------------------
$ 218,317 $ 214,235
=========================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 46,470 $ 25,856
Amounts due to LDI 506 767
Accrued compensation and benefits 6,033 5,312
Other accrued expenses and current liabilities 3,232 2,908
Current maturities of long-term debt 10,990 11,518
-----------------------------------------
Total current liabilities 67,231 46,361
Long-term debt, less current maturities 90,652 111,603
Other long-term liabilities 3,628 3,202
Commitments and contingencies (Note 8)
Shareholders' equity
Preferred stock, no par value; 1,000,000 shares authorized;
no shares issued and outstanding - -
Common stock, $1 stated value; 25,000,000 shares authorized;
7,540,804 and 7,537,636 shares issued and outstanding 7,540 7,538
Additional paid-in capital 27,367 27,359
Retained earnings 21,899 18,172
-----------------------------------------
56,806 53,069
-----------------------------------------
$ 218,317 $ 214,235
=========================================
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS
OF OPERATIONS
FinishMaster, Inc.
Year Year Year
Ended Ended Ended
December 31, December 31, December 31,
(In thousands, except per share data) 2000 1999 1998
Net sales $ 337,213 $ 324,490 $ 309,946
Cost of sales 214,218 207,488 200,268
--------------------------------------------------------------
Gross margin 122,995 117,002 109,678
Expenses
Operating 52,195 49,029 49,518
Selling, general and administrative 44,928 42,436 37,789
Amortization of intangible assets 6,300 6,792 6,476
--------------------------------------------------------------
103,423 98,257 93,783
--------------------------------------------------------------
Income from operations 19,572 18,745 15,895
Interest expense, net 11,604 10,802 11,475
--------------------------------------------------------------
Income before income taxes 7,968 7,943 4,420
Income tax expense 4,241 4,232 2,432
--------------------------------------------------------------
Net income $ 3,727 $ 3,711 $ 1,988
==============================================================
Net income per share (Note 10):
Basic $ 0.49 $ 0.49 $ 0.29
==============================================================
Diluted $ 0.49 $ 0.49 $ 0.29
==============================================================
Weighted average shares outstanding - Basic 7,540 7,536 6,775
==============================================================
Weighted average shares outstanding - Diluted 7,551 7,545 6,780
==============================================================
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS
OF CASH FLOWS
FinishMaster, Inc.
Year Year Year
Ended Ended Ended
December 31, December 31, December 31,
(In thousands) 2000 1999 1998
Operating activities
Net income $ 3,727 $ 3,711 $ 1,988
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 11,144 11,019 10,464
Deferred income taxes 222 1,125 2,249
Changes in operating assets and liabilities
(excluding the impact of acquisitions):
Accounts receivable, net 1,854 785 758
Inventories (4,530) 1,639 (15)
Prepaid and other assets (4,091) 440 (1,740)
Accounts payable and other liabilities 21,320 (9,938) 2,390
----------------------------------------------
Net cash provided by operating activities 29,646 8,781 16,094
Investing activities
Business acquisitions and payments under
earn-out provisions for prior acquisitions (1,853) (1,280) (191)
Purchases of property and equipment (3,110) (973) (1,844)
Proceeds from disposal of property and equipment 10 20 58
Cash acquired through merger with LDI
AutoPaints, Inc. - - 1,786
Other (106) (138) (472)
----------------------------------------------
Net cash used in investing activities (5,059) (2,371) (663)
Financing activities
Proceeds from the exercise of stock options - - 7
Debt issuance costs (166) (155) (168)
Proceeds from debt 95,357 98,280 43,300
Repayment of debt (118,884) (104,925) (57,925)
----------------------------------------------
Net cash used in financing activities (23,693) (6,800) (14,786)
----------------------------------------------
Increase(decrease) in cash 894 (390) 645
Cash at beginning of period 619 1,009 364
----------------------------------------------
Cash at end of period $ 1,513 $ 619 $ 1,009
==============================================
Supplemental disclosure of cash flow information
Cash paid (received) during the
period for:
Interest $ 10,687 $ 10,998 $10,360
==============================================
Taxes $ 4,230 $ 2,158 $ (291)
==============================================
Non-cash activities
Acquisition of LDI AutoPaints, Inc.:
Assets acquired $17,667
Less liabilities assumed 3,246
--------
Equity purchased 14,421
Less cash acquired in transaction 1,786
--------
Net assets acquired, excluding cash $12,635
==============================================
Earn-out adjustments for prior acquisitions $ - $ - $ 810
==============================================
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS
OF SHAREHOLDERS' EQUITY
FinishMaster, Inc.
Additional
Common Paid-in Retained
(In thousands) Stock Capital Earnings Totals
Balances at December 31, 1997 5,993 14,466 12,473 32,932
Options exercised 1 6 - 7
Issuance of stock related
to merger of
LDI AutoPaints, Inc. 1,542 12,879 - 14,421
Net income for the year - - 1,988 1,988
------------------------------------------
Balances at December 31, 1998 7,536 27,351 14,461 49,348
Stock grants issued 2 8 - 10
Net income for the year - - 3,711 3,711
------------------------------------------
Balances at December 31, 1999 $ 7,538 $ 27,359 $ 18,172 $ 53,069
Stock grants issued 2 8 - 10
Net income for the year - - 3,727 3,727
------------------------------------------
Balances at December 31, 2000 $ 7,540 $ 27,367 $ 21,899 $ 56,806
==========================================
The accompanying notes are an integral part of the consolidated financial
statements.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
FinishMaster, Inc.
1. SIGNIFICANT ACCOUNTING POLICIES
Nature of Business: FinishMaster, Inc. ("the Company" or "FinishMaster") is the
leading national distributor of automotive paints, coatings, and paint-related
accessories to the automotive collision repair industry. As of March 1, 2001,
the Company operated 156 sales outlets and three major distribution centers in
22 states and is organized into two major geographical divisions - East and
West. The Company aggregates its two geographic divisions into a single
reportable segment. The Company has over 35,000 customers to which it provides a
comprehensive selection of brand name products supplied by BASF, DuPont, 3M and
PPG, in addition to its own FinishMaster PrivateBrand refinishing accessory
products. The Company is highly dependent on the key suppliers outlined above,
which account for approximately 80% of the Company's purchases.
Principles of Consolidation: The Company's consolidated financial statements
include the accounts of FinishMaster and its wholly owned subsidiaries from the
dates of their respective acquisition. All significant intercompany accounts and
transactions have been eliminated. References to the Company or FinishMaster
throughout this report relate to the consolidated entity.
Majority Shareholder: From July 9, 1996, the date of acquisition, to June 29,
1998, AutoPaints owned 4,045,100 shares of FinishMaster common stock,
representing a 67.5% ownership interest in the Company. AutoPaints was a
wholly-owned subsidiary of Lacy Distribution, Inc. ("Distribution"), an Indiana
corporation, which is an indirect wholly-owned subsidiary of LDI, Ltd., ("LDI"),
an Indiana limited partnership. Effective June 30, 1998, AutoPaints was merged
into the Company in exchange for the issuance of an additional 1,542,416 shares
of FinishMaster common stock. Upon completion of this transaction, Distribution
became the majority shareholder of the Company with 5,587,516 shares of common
stock, representing 74.1% of the outstanding shares at December 31, 2000, 1999
and 1998. Throughout the remainder of these financial statements, LDI and
Distribution are collectively referred to as "LDI."
Transactions with Majority Shareholder: The Company reimburses its majority
shareholder, LDI, for the cost of insurance and certain other expenses. Those
expenses amounted to $183,000, $158,000, and $538,000 for the years ended
December 31, 2000, 1999, and 1998, respectively. In addition, the Company leases
from LDI its corporate office space to which it moved in 1998. Lease expense and
payments for repairs and maintenance to LDI totaled approximately $202,000,
$214,000, and $105,000 for the years ended December 31, 2000, 1999 and 1998,
respectively. The Company also has subordinated debt payable to LDI (see Note 4,
Long-Term Debt).
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents: The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents. At
December 31, 2000, and 1999, checks drawn on future deposits and borrowings of
$10,622,000 and $3,300,000, respectively, were classified as accounts payable.
These amounts represent outstanding checks in excess of funds on deposit.
Receivables: Trade accounts receivable represents amounts due primarily from
automotive body repair shops and dealerships. Trade receivables are typically
not collateralized. No single customer exceeds 10% of the Company's receivables
at December 31, 2000.
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 is stated at cost and
includes expenditures for new facilities, equipment and improvements that
materially extend the useful lives of existing assets.
Expenditures for normal repairs and maintenance are charged to expense as
incurred. Depreciation is computed using a combination of straight-line and
accelerated methods over the following range of estimated useful lives:
Buildings & improvements.................................... Up to 30 years
Vehicles.................................................... Up to 5 years
Leasehold improvements...................................... Life of lease
Machinery, equipment & fixtures............................. 3 to 12 years
Depreciation expense for 2000, 1999 and 1998 was $2,215,000, $2,427,000 and
$2,772,000, respectively.
Revenue Recognition: Revenues from product sales are recognized at the time of
shipment or delivery to the customer. The company has reviewed the accounting
and disclosure requirements of Staff Accounting Bulletin (SAB) No. 101 "Revenue
Recognition in Financial Statements" and has determined that it is in
compliance.
Income Taxes: Deferred income taxes are recognized for the temporary differences
between the tax basis of assets and liabilities and their financial reporting
amounts in accordance with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes." The income tax
provision is the tax payable for the period and the change during the period in
deferred tax assets and liabilities.
Intangibles: Intangibles consist primarily of the excess of cost over the fair
market value of net assets of acquired businesses ("goodwill"). Intangible
assets, including goodwill and non-compete agreements, are amortized on a
straight-line basis over periods ranging from 5 to 30 years. The majority of the
Company's goodwill relates to its November 1997 acquisition of Thompson and is
being amortized over 30 years. The carrying value of goodwill is periodically
reviewed to determine if an impairment has occurred. The Company measures for
potential impairment of recorded goodwill based on the estimated undiscounted
cash flows of acquired entities over the remaining amortization period. If the
estimated future undiscounted cash flows are less than the carrying amount of
such goodwill, an impairment would be deemed to have occurred and a loss would
be recognized. Such loss would be determined based upon expected discounted cash
flows or market prices. Debt issuance costs are amortized over the term of the
related debt agreements.
Internal Use Software: Costs incurred to develop or obtain software for internal
use within the business are capitalized in accordance with the provisions of
Accounting Standards Executive Committee Statement of Position 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use."
During 2000 and 1999, the Company capitalized approximately $2,223,000 and
$589,000, respectively, of costs related to efforts to migrate to a single
information technology platform. Once placed in service, software costs incurred
are depreciated over their estimated useful life that range from 3 to 5 years.
Derivative Instruments and Hedging Activities: As the Company is not routinely
involved in derivative and hedging activities, the adoption of SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities" beginning in the
first quarter of 2001 is not expected to have a material impact on the financial
condition or results of operations.
Shipping and Handling Fees and Costs: The Company includes the cost of
delivering the product to the customer in the operating expense section of the
consolidated statements of operations. The total delivery costs incurred for
2000, 1999, and 1998 are estimated at $17,564,000, $17,035,000, and $16,465,000,
respectively.
Reclassification: Certain amounts in the consolidated financial statements have
been reclassified to conform to the current year presentation.
2. ACQUISITIONS
The following table summarizes the assets acquired and liabilities assumed in
acquisitions made by FinishMaster in each of the periods presented. All
acquisitions, except for the merger with AutoPaints discussed below, 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, if appropriate. Operating results of acquired entities
have been included in FinishMaster's consolidated financial statements from the
respective date of purchase.
Year Year Year
Ended Ended Ended
December 31, December 31, December 31,
(In thousands) 2000 1999 1998
Accounts receivable $ 782 $ 708 $ 2,225
Inventory 1,985 725 4,389
Deferred taxes - - 535
Equipment and other 370 202 3,128
Intangible assets 1,278 650 7,390
----------------------------------------------
4,415 2,285 17,667
Less liabilities assumed 513 714 3,246
----------------------------------------------
Acquisition price 3,902 1,571 14,421
Acquisition debt 2,049 291 -
----------------------------------------------
Net assets of businesses acquired, net of acquisition debt $ 1,853 $ 1,280 $ 14,421
==============================================
Number of acquisitions 6 6 1
----------------------------------------------
During 2000, the Company completed six acquisitions. The acquisitions occurred
in California, South Carolina, Washington DC, Ohio and Texas, and were funded
with cash and debt.
During 1999, the Company completed six acquisitions. The acquisitions occurred
in Illinois, New Jersey and Texas, and were funded with cash and debt.
On June 30, 1998, the Company completed the acquisition by merger of AutoPaints
pursuant to which the Company merged with AutoPaints and issued to LDI an
additional 1,542,416 shares of common stock. Since this was a transaction within
a controlled group, the acquisition of AutoPaints was accounted for using its
historical cost basis. Equity securities issued to LDI in exchange for the net
assets of AutoPaints were recorded at the historical cost basis of the net
assets acquired as of the effective date of the transaction.
The following table sets forth the unaudited pro forma results of operations for
1998 for the acquisition occurring during such period as if the transaction was
consummated as of January 1, 1998. The acquisitions in 2000 and 1999 did not
have a significant impact on the Company's unaudited results of operations
including sales, net income and earnings per share, and therefore are not
presented in the table. The unaudited pro forma results of operations consist of
the historical results of the Company and the acquired entity, as adjusted to
give effect to additional interest, depreciation and amortization expense
arising from the acquisitions. This pro forma information does not include
reductions to operating expenses resulting from the elimination of duplicate
functions and facilities directly attributable to the acquisitions. This pro
forma information does not purport to be indicative of the combined results of
operations which would have actually been obtained had the acquisition been made
as of that date, or which may be obtained in the future.
Year
Ended
December 31,
(In thousands) 1998
Pro forma net sales $ 321,710
Pro forma net income (loss) $ 2,459
Pro forma net income (loss) per common share:
Basic $ 0.33
Diluted $ 0.33
Weighted average number of common shares - Diluted 7,536
3. INTANGIBLE ASSETS
Intangible assets consisted of the following:
December 31, December 31,
(In thousands) 2000 1999
Goodwill $ 121,018 $ 120,364
Non-compete agreements 12,262 11,534
Debt issuance costs 2,179 2,013
----------------------------------------
135,459 133,911
Less accumulated amortization 32,601 25,796
----------------------------------------
Intangible assets, net $ 102,858 $ 108,115
========================================
4. LONG-TERM DEBT
Long-term debt consisted of the following:
December 31, December 31,
(In thousands) 2000 1999
Revolving Credit Facility $ 35,100 $ 48,900
Acquisition Revolving Credit Facility 1,797 -
Term Credit Facility 28,495 35,495
Senior Subordinated Debt 30,000 30,000
Notes payable to former owners of acquired businesses
with interest at various rates up to 11%, due at
various dates through 2007 4,624 6,905
Other long-term financing at various rates, due at
various dates through 2010 1,626 1,821
----------------------------------------
101,642 123,121
Less current maturities 10,990 11,518
----------------------------------------
$ 90,652 $ 111,603
========================================
Revolving Credit Facility: The Company has a revolving credit facility with a
syndicate of banks, limited to the lesser of (1) $60 million less letter of
credit obligations, or (2) 80 percent of eligible accounts receivable plus 65
percent of eligible inventory plus $7.5 million 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 and term options selected by management. Interest rates at
December 31, 2000 on outstanding revolving credit borrowings varied from 8.91%
to 10.25%. Revolving credit borrowings are subject to interest rates, which
fluctuate based on the Company's Leverage Ratio, as defined in the Credit
Facility, which in 2000 was 2.25% over LIBOR or 0.75% over prime in the case of
Floating Rate Advances. Effective January 1, 2001, the interest rates will be
2.00% over LIBOR or 0.50% over prime based upon the Company's Leverage Ratio as
of September 30, 2000. The Company is charged an annual administrative fee of
$50,000, and an annual commitment fee, payable monthly, that ranges between 0.2%
and 0.5% of the unused portion of the revolving line of credit. At December 31,
2000, the Company had $24.9 million of available borrowings under its revolving
credit facility.
Acquisitions Revolving Credit Facility: The Company has a revolving credit
facility with a syndicate of banks to finance future business acquisitions.
Interest rates and payments are based upon one of two options selected by
management, LIBOR plus 3.0% or an alternative base rate that is prime plus 1%.
The Company is charged a commitment fee of 0.5% on the average daily unused
portion of the facility, due quarterly. This credit facility expires in February
2002.
Term Credit Facility: The term loan, which expires on November 19, 2003,
requires quarterly principal payments that began on March 31, 1999. Quarterly
principal payments in 2000 were $1.5 million and increase in amount each year
over the remaining term of the loan. Interest rates and payment dates are
variable based upon interest rate and term options selected by management.
Interest rates at December 31, 2000 were at 8.98% on outstanding term
borrowings. Term borrowings are subject to interest rates, which fluctuate based
on the Company's Leverage Ratio, as defined in the Credit Facility, of 2.25%
over LIBOR. Effective January 1, 2001, the interest rate will be 2.00% over
LIBOR based upon the Company's Leverage Ratio as of September 30, 2000.
Combined Facilities: Substantially all of the Company's assets serve as
collateral for the revolving credit facility and term credit facility. These
credit agreements contain various quarterly and annual covenants pertaining to,
among other things, achieving a minimum fixed charge coverage ratio, a maximum
leverage ratio, a minimum interest expense coverage ratio and a minimum
consolidated net worth level. The covenants also limit purchases and sales of
assets and restrict payment of dividends.
As of December 31, 2000, the Company was in compliance with its covenants.
Senior Subordinated Debt: The senior subordinated debt owed to LDI and two LDI
affiliated trusts matures May 19, 2004. Interest accrues at 9.0% annually and is
payable quarterly. The subordinated debt is expressly subordinate in right of
payment to all senior indebtedness.
The aggregate principal payments for the next five years subsequent to December
31, 2000 are as follows:
(In thousands)
2001 $ 10,990
2002 11,066
2003 47,319
2004 30,673
2005 268
Thereafter 1,326
------------------
$ 101,642
==================
The carrying amounts of certain financial instruments such as cash, accounts
receivable, accounts payable, and long-term debt approximate their fair values.
The fair value of long-term debt is estimated using discounted cash flows and
the Company's current incremental borrowing rates for similar types of
arrangements.
5. EMPLOYEE SAVINGS PLAN
The Company has an Employee Savings Plan ("Plan"), which covers substantially
all employees who have met certain requirements as to date of service. The
Company currently contributes up to 25% of each $1.00 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 up to 4% of
employees' annual compensation. Company contributions charged to operations
under the Plan were approximately $279,000, $213,000 and $191,000 for years
ended December 31, 2000, 1999 and 1998, respectively. Employees of Thompson and
AutoPaints were merged into the plan during 1999 and 1998, respectively.
6. STOCK OPTIONS
The Company has a stock option plan that was amended on April 29, 1999, under
which officers, key employees, and directors may be granted options to purchase
stock. The amendments included increasing the number of shares of common stock
reserved for issuance under the plan from 600,000 to 750,000 and changing the
method for determining the exercise price of the options on the date of grant.
All options granted under this plan have been granted at a price not less than
the fair market value of the Company's common stock on the date of grant and
have a maximum life of ten years from the date of the grant. All grants prior to
1998 were fully vested at the date of issue. Certain stock options granted in
2000, 1999 and 1998 were also fully vested at the date of issue, while others
vest over periods ranging from one to four years.
The Company recognizes compensation expense related to its stock option plan in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Options are granted at a price not less than the fair market value of the
Company's common stock on the date of grant, therefore, no compensation expense
is recognized. Had compensation expense been determined at the date of grant
based on the fair value of the awards consistent with SFAS No. 123, "Accounting
for Stock Based Compensation," the Company's net income and net income per share
would have been reduced to the pro forma amounts indicated in the following
table:
Year Year Year
Ended Ended Ended
December 31, December 31, December 31,
2000 1999 1998
(In thousands, except per share data)
Net income:
As reported $ 3,727 $ 3,711 $ 1,988
Pro forma $ 3,135 $ 3,201 $ 1,299
Net income per share:
As reported, Basic $ 0.49 $ 0.49 $ 0.29
As reported, Diluted $ 0.49 $ 0.49 $ 0.29
Pro forma, Basic $ 0.42 $ 0.42 $ 0.19
Pro forma, Diluted $ 0.42 $ 0.42 $ 0.19
The fair value of each option granted was estimated on the date of the grant
using the Black-Scholes option pricing model with the following assumptions for
the years ended December 31, 2000, 1999, and 1998 respectively: Risk free
interest rate of 6.4%, 5.6%, and 5.0%; no dividend yield; expected option lives
of nine years; and stock price volatility of 48.5%, 50.4%, and 49.6%.
December 31, December 31, December 31,
2000 1999 1998
---- ---- ----
Weighted Weighted Weighted
-Average -Average -Average
Exercise Exercise Exercise
Options Price Options Price Options Price
Outstanding-beginning of year 524,034 $ 8.35 426,490 $ 8.89 210,000 $ 9.92
Granted 92,200 $ 7.28 100,024 $ 6.03 263,800 $ 8.38
Exercised - $ - - $ - 800 $ 8.25
Forfeited 3,900 $ 8.50 2,480 $ 8.96 46,510 $ 10.65
--------------------------------------------------------------------------------------
Outstanding-end of year 612,334 $ 8.13 524,034 $ 8.35 426,490 $ 8.89
======================================================================================
Exercisable-end of year 563,534 $ 8.06 363,034 $ 8.61 260,890 $ 9.09
======================================================================================
Exercise Price Range
--------------------------------------------------------------
$5.34-$8.25 $10.25-$11.55 Total
------------------- ------------------- --------------------
Options outstanding 412,624 199,710 612,334
Weighted average exercise price $ 6.83 $ 10.82 $ 8.13
Average remaining contractual life 8.1 years 7.9 years 8.1 years
Options exercisable 392,624 170,910 563,534
Weighted average exercise price $ 6.88 $ 10.78 $ 8.06
The weighted-average fair value of options granted during the years ended
December 31, 2000, 1999, and 1998 were $4.75, $3.84, and $4.62 per option,
respectively, where the exercise price of the options equaled the market price
on the date of grant. Certain options were granted during 2000, 1999 and 1998
where the exercise price of the options exceeded the market value of the stock
on the date of grant. The weighted-average fair value of these options was
$4.61, $3.67 and $6.51 per option at December 31, 2000, 1999 and 1998,
respectively. The remaining contractual life of options outstanding at December
31, 2000 is 8.1 years.
7. INCOME TAXES
The provision for federal and state income taxes consisted of the following:
Year Year Year
Ended Ended Ended
December 31, December 31, December 31,
(In thousands) 2000 1999 1998
Current:
Federal $ 3,202 $ 2,383 $ 96
State 817 724 87
---------------------------------------------------
4,019 3,107 183
---------------------------------------------------
Deferred:
Federal 193 952 2,082
State 29 173 167
---------------------------------------------------
222 1,125 2,249
---------------------------------------------------
$ 4,241 $ 4,232 $ 2,432
===================================================
The reconciliation of income taxes computed at the federal statutory tax rate to
the Company's effective tax rate is as follows:
Year Year Year
Ended Ended Ended
December 31, December 31, December 31,
2000 1999 1998
Federal statutory tax rate 34.0% 34.0% 34.0%
State tax provision 7.0% 7.5% 3.8%
Nondeductible intangible amortization 8.4% 8.4% 14.7%
Other 3.8% 3.4% 2.5%
--------------------------------------------------------------
Effective tax rate 53.2% 53.3% 55.0%
==============================================================
Significant components of the Company's deferred tax assets as of December 31,
2000, and 1999 are as follows:
December 31, December 31,
(In thousands) 2000 1999
Deferred tax assets:
Depreciation $ 553 $ 887
Amortization of intangibles 1,167 1,450
Allowances 856 838
Inventory 1,065 915
Accrued expenses and other 1,688 1,461
------------------------------
$ 5,329 $ 5,551
==============================
8. COMMITMENTS AND CONTINGENCIES
FinishMaster occupies facilities and uses equipment and vehicles under operating
lease agreements requiring annual rental payments approximating the following
amounts for the five years subsequent to December 31, 2000:
(In thousands)
2001 $ 7,540
2002 6,092
2003 4,680
2004 3,445
2005 2,077
Thereafter 858
------------------
$ 24,692
==================
Rent expense charged to operations, including short-term leases, totaled
approximately $8.4 million, $8.5 million, and $6.3 million for the years ended
December 31, 2000, 1999, and 1998, respectively.
The Company is dependent on four main suppliers for the purchases of the paint
and related supplies that it distributes. A loss of one of the suppliers or a
disruption in the supply of the products provided could have a material adverse
effect on the Company's operating results. The suppliers also provide purchase
discounts, prompt payment discounts, extended terms, and other incentive
programs to the Company. To the extent these programs are changed or terminated,
there could be a material adverse impact to the Company.
In January 1999, we were named in an unfair business practices lawsuit by an
automotive paint distributor located in the State of California. The plaintiff
in such suit alleged that we offered, in a manner that injured the plaintiff,
rebates and cash bonuses to businesses in the Southern California area if those
businesses would buy exclusively from us and use our products. The plaintiff
claimed damages in the amount of $3.8 million, trebled to $11.4 million. During
2000, the court granted summary judgment in our favor. The plaintiff has not
appealed the judgment against it, and the decision is now final.
The Company is subject to various claims and contingencies arising out of the
normal course of business, including those relating to commercial transactions,
product and vehicle liability, taxes, discrimination, employment and other
matters. Management believes that the ultimate liability, if any, in excess of
amounts already provided or covered by insurance, is not likely to have a
material adverse effect on the Company's financial condition, results of
operations or cash flows.
9. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table presents the quarterly results of operations for each period
presented.
Three Months ended
--------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
(In thousands, except per share data) 2000 2000 2000 2000
---------------- ---------------- ------------------ -----------------
Net sales $ 84,670 $ 87,343 $ 85,600 $ 79,600
Gross margin $ 29,933 $ 31,359 $ 31,391 $ 30,312
Income from operations $ 4,643 $ 5,457 $ 4,980 $ 4,492
Income before income taxes $ 1,755 $ 2,407 $ 2,012 $ 1,794
Net income $ 904 $ 1,061 $ 957 $ 805
Net income per share - Diluted $ 0.12 $ 0.14 $ 0.13 $ 0.10
Three Months ended
--------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
(In thousands, except per share data) 1999 1999 1999 1999
---------------- ---------------- ------------------ -----------------
Net sales $ 80,106 $ 83,212 $ 82,460 $ 78,712
Gross margin $ 28,620 $ 29,777 $ 29,878 $ 28,727
Income from operations $ 5,073 $ 5,270 $ 4,728 $ 3,674
Income before income taxes $ 2,326 $ 2,609 $ 2,076 $ 932
Net income $ 1,176 $ 1,302 $ 1,051 $ 182
Net income per share - Diluted $ 0.16 $ 0.17 $ 0.14 $ 0.02
10. NET INCOME PER SHARE
In 1997, the Company adopted the provisions of SFAS No. 128, "Earnings Per
Share." SFAS No. 128 requires disclosure of basic and diluted earnings per
share. Basic earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share is computed based upon the weighted average number of common
shares outstanding, adjusted for the effect of dilutive stock options. All net
income per share amounts reported herein are in accordance with the provisions
of this Statement.
The following table sets forth the computation of basic and diluted net income
per share:
Year Year Year
Ended Ended Ended
December 31, December 31, December 31,
(In thousands, except per share data) 2000 1999 1998
Numerator:
Net income $ 3,727 $ 3,711 $ 1,988
-----------------------------------------------------------
Denominator:
Basic-weighted average shares 7,540 7,536 6,775
Effect of dilutive stock options 11 9 5
-----------------------------------------------------------
Diluted-weighted average shares 7,551 7,545 6,780
-----------------------------------------------------------
Basic net income per share $ 0.49 $ 0.49 $ 0.29
===========================================================
Diluted net income per share $ 0.49 $ 0.49 $ 0.29
===========================================================
For all years presented, antidilutive stock options were excluded in the
determination of dilutive earnings per share.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Item 10 is incorporated by reference from the Registrant's definitive proxy
statement to be filed within 120 days of December 31, 2000.
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, 2000.
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, 2000.
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, 2000.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents have been filed as a part of this report, or where
noted, incorporated by reference:
(1) Financial Statements: The Consolidated Financial Statements of the
Company are included in Item 8 of this report.
(2) Financial Statement Schedule: The financial statement schedule filed
in response to Item 8 and Item 14(d) of Form 10-K is listed in the
Index to Consolidated Financial Statements included in Item 8 of this
report.
(3) The Exhibits filed herewith or incorporated herein by reference are
set forth in the Exhibit Index on page 35.
(b) Reports on Form 8-K: None
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 28, 2001 FINISHMASTER, INC.
By: /s/ Robert R. Millard
----------------------
Robert R. Millard
Senior Vice President, Finance
And Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Date Title
--------------------------------------------------------------------------------
(1) Principal Executive Officer:
/s/ Andre B. Lacy
-----------------
Andre B. Lacy March 28, 2001 Chairman of the Board
(2) Principal Financial
and Accounting Officer:
/s/ Robert R. Millard
---------------------
Robert R. Millard March 28, 2001 Senior Vice President,
Finance and Chief
Financial Officer
(3) A Majority of the
Board of Directors:
/s/ Andre B. Lacy
-----------------
Andre B. Lacy March 28, 2001 Director
/s/ Thomas U. Young
-------------------
Thomas U. Young March 28, 2001 Director
/s/ Margot L. Eccles
--------------------
Margot L. Eccles March 28, 2001 Director
/s/ Wes N. Dearbaugh
--------------------
Wes N. Dearbaugh March 28, 2001 Director
/s/ Peter L. Frechette
----------------------
Peter L. Frechette March 28, 2001 Director
/s/ David W. Knall
------------------
David W. Knall March 28, 2001 Director
/s/ Michael L. Smith
--------------------
Michael L. Smith March 28, 2001 Director
/s/ Walter S. Wiseman
---------------------
Walter S. Wiseman March 28, 2001 Director
FINISHMASTER, INC. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
EXHIBITS
Exhibit No. Description of Document
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. (previously filed with Form 10-K dated
March 31, 1998)
3.1 Articles of Incorporation of FinishMaster, Inc., an Indiana
corporation, as amended June 30, 1998 (previously filed with
Form 10-Q dated August 14, 1998)
3.2 Amended and Restated Code of Bylaws of FinishMaster, Inc.,
an Indiana corporation (previously filed with Form 10-K/A
dated April 14, 1998)
10.1 FinishMaster, Inc. Stock Option Plan (Amended and Restated
as of April 29, 1999) (previously filed with Registrant's
proxy statement on Schedule 14/A dated April 9, 1999)
10.2* FinishMaster, Inc. Deferred Compensation Plan dated as of
November 1, 2000
21* Subsidiaries of the Registrant
23* Consent of Independent Accountants
99(a) Amended and Restated Credit Agreement, dated as of February
1, 2000, among FinishMaster, Inc., the Institutions from
Time to Time Parties Thereto as Lenders and Bank One,
Indiana, N.A., as Agent (previously filed with Form 10-K
dated March 29, 2001)
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)
*filed herein
Schedule II - Valuation and Qualifying Accounts (In thousands)
Additions
-------------------------------
Balance
Balance at Charged to Charged to at End
Beginning Costs and Other of
Description of Period Expenses Accounts Deductions Period
-----------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2000:
(A) Represents allowance for doubtful accounts of acquired entities.
(B) Represents uncollectible accounts written off, less recoveries.