<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 1997
FILE NO.: 333-28709
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 5013 95-2920557
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION
ORGANIZATION) NUMBER)
700 EAST BONITA AVENUE
POMONA, CALIFORNIA 91767
(909) 624-8041
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CHARLES J. HOGARTY
PRESIDENT
700 EAST BONITA AVENUE
POMONA, CALIFORNIA 91767
(909) 624-8041
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
PAUL H. IRVING, ESQ. DALE E. SHORT, ESQ.
MANATT, PHELPS & PHILLIPS, LLP TROY & GOULD PROFESSIONAL CORPORATION
11355 WEST OLYMPIC BOULEVARD 1801 CENTURY PARK EAST
LOS ANGELES, CALIFORNIA 90064 LOS ANGELES, CALIFORNIA 90067
(310) 312-4196 (310) 553-4441
FAX: (310) 312-4224 FAX: (312) 201-4746
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement has become effective.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 25, 1997
PROSPECTUS
3,800,000 SHARES
[LOGO OF KEYSTONE AUTOMOTIVE INDUSTRIES, INC.]
COMMON STOCK
-----------
Of the 3,800,000 shares of Common Stock being offered hereby, 1,500,000
shares are being offered by Keystone Automotive Industries, Inc. ("Keystone" or
the "Company") and 2,300,000 shares are being offered by certain shareholders
(the "Selling Shareholders"). See "Principal and Selling Shareholders." The
Company will not receive any proceeds from the sale of shares by the Selling
Shareholders.
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "KEYS." On June 5, 1997, the last reported sale price of the Common
Stock on that market was $15.25 per share. See "Price Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) TO COMPANY(2) SHAREHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................ $ $ $ $
- --------------------------------------------------------------------------------
Total(3)................. $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses, estimated to be $400,000, payable by the
Company.
(3) The Company and certain shareholders have granted the Underwriters a 30-day
option from the date of this Prospectus to purchase up to 570,000
additional shares of Common Stock (of which the first 310,0000 shares will
be sold by certain shareholders and the remaining shares will be sold by
the Company) on the same terms and conditions as set forth above solely to
cover over-allotments, if any. If such option is exercised in full, the
total Price to Public, Underwriting Discounts and Commissions, Proceeds to
Company and Proceeds to Selling Shareholders will be $ , $ ,
$ and $ , respectively. See "Underwriting."
-----------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, and subject to
the Underwriters' right to withdraw, cancel or modify such offer and to reject
orders in whole or in part. It is expected that delivery of the shares of
Common Stock offered hereby will be made on or about , 1997.
-----------
MORGAN KEEGAN & COMPANY, INC.
A.G. EDWARDS & SONS, INC.
CROWELL, WEEDON & CO.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
PHOTO CAPTIONS OF:
[KEYSTONE SERVICE CENTER]
[AUTOMOTIVE BODY PARTS]
[REMANUFACTURED ALUMINUM WHEELS]
[AUTOMOTIVE PAINT & BODY SUPPLIES]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS OR EFFECTING SYNDICATE COVERING
TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), that involve risks and uncertainties, such as statements of
the Company's strategies, plans, objectives, expectations and intentions. The
Company's actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including
those set forth under "Risk Factors" and elsewhere in this Prospectus. The
cautionary statements made in this Prospectus should be read as being
applicable to all related forward-looking statements wherever they appear in
this Prospectus.
Except as otherwise specifically set forth, all information, financial and
otherwise, with respect to Keystone Automotive Industries, Inc. ("Keystone" or
the "Company") (i) includes its wholly-owned subsidiary, North Star Plating
Company ("North Star"), which was combined with the Company on March 28, 1997
in a transaction accounted for as a pooling of interests, and (ii) assumes no
exercise of the Underwriters' over-allotment option. See "Underwriting."
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus.
THE COMPANY
Keystone is the nation's leading distributor of aftermarket collision
replacement parts produced by independent manufacturers for automobiles and
light trucks. Keystone distributes products primarily to collision repair shops
throughout most of the United States. In addition, the Company recycles and
produces chrome plated and plastic bumpers and remanufactures alloy wheels. The
Company's product lines consist of automotive body parts, bumpers, autoglass
and remanufactured alloy wheels, as well as paint and other materials used in
repairing a damaged vehicle. Keystone currently offers more than 19,000 stock
keeping units to over 22,000 collision repair shop customers, out of an
estimated 48,000 shops nationwide. Founded in Southern California in 1947, the
Company operates a "hub and spoke" distribution system consisting of 11
regional hubs and 71 service centers located in 33 states in the West, Midwest,
Northeast, Mid-Atlantic and South, as well as in Tijuana, Mexico. From these
service centers, Keystone has approximately 360 professional and highly-trained
salespersons who call on an average of over 5,000 collision repair shops per
day.
On March 28, 1997, a wholly-owned subsidiary of the Company merged into North
Star in a transaction (the "North Star Merger") accounted for as a pooling of
interests. At the time of the North Star Merger, North Star operated four
regional hubs and 23 service centers located in the Midwest and Mid-Atlantic,
and the Company believes that North Star was the second largest distributor of
aftermarket collision replacement parts in the United States. North Star's
operations are very similar to the Company's and strategically expand the
Company's geographic market coverage, as only two of the North Star service
centers operate in markets already served by Keystone. In addition, the North
Star Merger adds depth and experience to the Company's management capabilities.
For the fiscal year ended March 28, 1997, the Company generated record
revenues, net income and net income per share of $194.3 million, $6.8 million
and $0.72, respectively. These results represented increases of approximately
23.8%, 56.6% and 35.8%, respectively, over revenues of $157.0 million, net
income of $4.3 million and net income per share of $0.53 in fiscal 1996. For
fiscal 1995, 1996 and 1997, the Company generated increases in comparable
service center sales of approximately 16%, 13% and 13%, respectively.
Keystone's growth has been due primarily to a combination of (i) strategic
acquisitions of independent distributors, both in new and existing geographic
markets, (ii) expansion of existing product lines and introduction of new
product lines and (iii) increased demand for aftermarket collision parts.
3
<PAGE>
The Aftermarket Body Parts Association ("ABPA"), the principal industry trade
group, estimates that the wholesale market for aftermarket collision parts in
the United States and Canada has grown since its inception in the early 1980s
to between $800 million and $1.2 billion in annual expenditures in 1995, or
approximately 10% of the collision parts market. Substantially all of the
remainder of the collision parts market consists of parts produced by original
equipment manufacturers ("OEMs"), which prior to 1980 were the sole source of
all collision parts. Aftermarket collision parts generally sell for between 20%
and 40% less than comparable OEM parts. According to Body Shop Business' 1996
Industry Survey, the percentage of collision repair facilities using
aftermarket collision replacement parts increased from approximately 54% in
1993 to 69% in 1995. The aftermarket collision parts market has grown primarily
due to the increasing availability of quality parts and cost containment
efforts by the insurance industry. Industry sources estimate that approximately
87% of all automobile collision repair work in the United States is paid for in
part by insurance.
The aftermarket collision parts distribution industry is highly fragmented
and is in the process of consolidation. Typically, the Company's competitors
are independently owned distributors operating from one to three locations. As
a result of the increasing number of aftermarket collision parts and makes and
models of automobiles and light trucks, there is increasing pressure on
distributors to maintain larger inventories. In addition, the trend towards
larger, more efficient collision repair shops has increased the pressure on
distributors to provide price concessions, just-in-time delivery and certain
value-added services, such as training, that collision repair shops require in
their increasingly complex and competitive industry. As a result of its
competitive strengths, the Company believes that it is well-positioned to take
advantage of the consolidation in its industry and to meet the increasing
demands of its customers.
Keystone believes that its growth in sales and earnings has been and will
continue to be driven by its competitive strengths, which include the
following:
. Leading Market Position. As the nation's leading distributor of
aftermarket collision parts, Keystone offers its customers one of the
broadest available selections of aftermarket collision parts, just-in-
time delivery, lower prices due to volume purchasing, worldwide product
sourcing, priority access to new products and superior technical
expertise.
. Relationship with Insurance Companies. Since the founding of its
business in 1947, Keystone has fostered its relationship with insurance
companies, whose increasing efforts to contain the escalating cost of
collision repairs have been a principal factor in the growth of the
market for aftermarket collision parts.
. Experienced Management. Keystone's executive officers have been employed
by the Company for an average of 20 years, and the Company's service
center managers have been employed for an average of over nine years.
The experience and tenure of the Company's personnel and their long-
standing relationships with collision repair shop operators have been
instrumental in the growth of the Company.
. Entrepreneurial Corporate Culture. The manager of each Keystone service
center is responsible for its day-to-day operations and is eligible to
earn a bonus of more than 100% of base salary based on the performance
of the service center.
. Superior Customer Service. The Company strives to provide responsive
customer service and to foster close customer relations. In particular,
the Company maintains large inventories of parts to meet diverse
customer requirements, provides prompt delivery of customer orders,
usually within 24 hours, by professional and highly-trained route
salespersons and has a policy of complete customer satisfaction backed
by a limited warranty of parts for as long as the repair shop's customer
owns the repaired vehicle.
4
<PAGE>
. Management Information and Other Systems. The Company has developed its
own computerized order taking, inventory control and management
information systems in an effort to achieve additional operating
efficiencies and a higher level of customer service.
The Company intends to continue its growth through an integrated strategy of
selectively acquiring other independent distributors, expanding its existing
product lines and introducing new product lines. Since its initial public
offering in June 1996, Keystone has acquired 30 service centers by means of the
North Star Merger and six other acquisitions and has opened alloy wheel
remanufacturing operations at four centers. In addition, the Company has
entered into agreements which, if successfully completed, will result in an
expansion into the Southwest through the acquisition of six service centers
located in Arizona, Colorado, New Mexico, Nevada and Texas. The Company seeks
to acquire well-established independent distributors with strong management and
significant market share in order to expand into new geographic markets and to
increase its penetration in existing markets. Keystone also continually expands
its existing product lines as additional aftermarket collision parts become
available. Since April 1991, the Company has introduced such additional
products as paint and related supplies and equipment, radiators and condensers,
head and tail light assemblies and autoglass. In addition, in fiscal 1996 the
Company began remanufacturing alloy wheels.
The Company's principal executive offices are located at 700 East Bonita
Avenue, Pomona, California 91767, and its telephone number is (909) 624-8041.
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company............... 1,500,000 shares
Common Stock offered by the Selling Shareholders.. 2,300,000 shares(1)
Common Stock to be outstanding after the Offering. 11,250,000 shares(2)
Use of proceeds................................... The net proceeds will be
used primarily to pay down
the Company's bank line of
credit. The balance of the
proceeds and future
borrowings under the line
of credit will be used for
working capital and general
corporate purposes and
acquisitions. The Company
will not receive any
proceeds from the sale of
shares by the Selling
Shareholders. See "Use of
Proceeds."
Nasdaq National Market symbol..................... KEYS
</TABLE>
- --------
(1) See "Principal and Selling Shareholders."
(2) Excludes shares reserved for issuance under the Company's 1996 Employee
Stock Incentive Plan (the "Stock Incentive Plan"), of which 587,000 shares
were subject to outstanding options as of May 31, 1997, at a weighted
average exercise price of $12.86 per share. See "Management--Stock
Incentive Plan."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(In thousands, except share and per share amounts and operating data)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------------
MARCH 26, MARCH 25, MARCH 31, MARCH 29, MARCH 28,
1993 1994 1995(1) 1996 1997
----------- ----------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Consolidated Statement
of Income Data
Net sales............... $ 99,165 $ 110,918 $ 132,655 $ 157,021 $ 194,321
Gross profit............ 39,766 45,205 53,336 61,890 79,269
Operating income........ 2,424 3,592 5,178 8,662 12,521
Net income.............. 821 1,526 2,435 4,336 6,789
========= ========= ========= ========= =========
Net income per common
share.................. $ 0.10 $ 0.18 $ 0.29 $ 0.53 $ 0.72
========= ========= ========= ========= =========
Weighted average common
shares outstanding(2).. 8,313,000 8,313,000 8,255,000 8,250,000 9,408,000
========= ========= ========= ========= =========
Operating Data
(Unaudited)
Number of service
centers(3)
Starting sites......... 38 49 49 53 64
Sites acquired........ 14 2 6 10 10
Sites opened.......... 2 -- -- 3 --
Sites consolidated.... 3 2 1 2 3
Sites closed.......... 2 -- 1 -- 1
Ending sites........... 49 49 53 64 70
Comparable service
center sales
increase(4)
Keystone....................................... 19% 10% 13%
North Star..................................... 7% 22% 13%
Combined...................................... 16% 13% 13%
</TABLE>
<TABLE>
<CAPTION>
MARCH 28, 1997
-------------------
AS
ACTUAL ADJUSTED(5)
------- -----------
<S> <C> <C>
Consolidated Balance Sheet Data
Working capital............................................. $26,847 $48,007
Total assets................................................ 78,800 87,331
Total current liabilities................................... 35,438 22,809
Long-term debt.............................................. 1,105 1,105
Shareholders' equity........................................ 41,854 63,014
</TABLE>
- --------
(1) Fiscal 1995 contained 53 weeks.
(2) Includes Common Stock equivalents attributable to stock options
outstanding, which are not material.
(3) Information with respect to service centers includes combined operating
data of both Keystone and North Star. As a result of the North Star Merger,
the Company acquired 23 service centers. Since March 28, 1997, the Company
has acquired one additional service center.
(4) Comparable service center sales have been computed using sales of service
centers that were open throughout both fiscal years being compared.
(5) Adjusted to reflect the sale of the shares of Common Stock offered by the
Company hereunder and the application of the net proceeds at an assumed
public offering price of $15.25 per share. See "Use of Proceeds."
6
<PAGE>
RISK FACTORS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical fact included in this
Prospectus, including, without limitation, the statements under "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" regarding the Company's
strategies, plans, objectives and expectations; the Company's ability to
acquire other distributors and integrate those distributors into the Company's
operations; pricing or other competitive pressures; the continued acceptance
of the Company's aftermarket collision repair parts; the Company's ability to
expand its existing product lines and introduce new product lines; the
anticipated growth of its markets; the effect of government regulations; its
future operating results; and other matters are forward-looking statements.
Although the Company believes that the expectations reflected in such forward-
looking statements are reasonable at this time, it can give no assurance that
such expectations will prove to be correct. Important factors that could cause
actual results to differ materially from the Company's expectations
("Cautionary Statements") are set forth in these "Risk Factors," as well as
elsewhere in this Prospectus. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the Cautionary Statements.
Prospective investors should consider carefully the following factors,
together with the other information contained in this Prospectus, in
evaluating an investment in the Common Stock offered hereby.
ACQUISITION STRATEGY
A principal component of the Company's growth strategy is to acquire other
independent distributors operating in new geographic markets, as well as to
increase its penetration in existing markets. Since April 1992, the Company
has completed 18 acquisitions of a total of 42 service centers (including four
acquisitions of 11 service centers by North Star prior to the North Star
Merger), in the Northeast, Midwest, Mid-Atlantic, South and Mexico, of which
11 have been consolidated with existing locations and four have been closed.
During this same period, North Star opened five additional service centers.
The Company's ability to maintain or exceed its historical growth rate will
depend in large part on its ability to successfully execute its acquisition
strategy. The successful execution of this strategy will depend on the
Company's ability to identify and to compete for appropriate acquisition
candidates, to consummate such acquisitions on favorable terms (including
obtaining acquisition financing, if necessary), to maintain and expand the
sales and profitability of the acquired centers, and to anticipate the changes
that continued growth would impose on its financial reporting and control
systems, data processing systems and management. There can be no assurance
that the Company will be successful in executing its strategy. Although the
Company regularly evaluates new geographic markets and potential acquisition
candidates, and believes that numerous acquisition opportunities exist due to
the preponderance of small local and regional competitors, as of the date of
this Prospectus, other than as described herein, the Company has no existing
commitments or agreements with respect to any acquisition, and no assurance
can be given that significant additional acquisitions can be consummated on
terms favorable to the Company. See "Business -- Growth Strategy --
Acquisitions."
ACQUISITION RISKS
Although the Company investigates the operations and assets that it
acquires, there may be liabilities that the Company fails or is unable to
discover, and for which the Company as a successor owner or operator, may be
responsible. The Company seeks to mitigate the risk of these potential
liabilities by obtaining indemnities and warranties from the seller and, in
some cases, deferring payments of a portion of the purchase price. However,
these indemnities, warranties and holdbacks, if obtained, may not fully cover
the liabilities due to their limited scope, amounts or duration, the limited
financial resources of the indemnitor or warrantor or other reasons. In
addition, the Company's acquisitions accounted for under the purchase method
of accounting generally involve the recording of goodwill and deferred charges
on its balance sheet, which are amortized over varying periods of
7
<PAGE>
time of up to 15 years. This amortization has the effect of reducing the
Company's reported earnings. At March 28, 1997, the Company had recorded $1.3
million in goodwill, net of accumulated amortization. The Company had also
recorded $2.4 million in deferred charges net of accumulated amortization,
primarily related to noncompetition agreements, which are amortized over the
terms of those agreements.
The efficient and effective integration of acquired companies' operations is
necessary for the Company's acquisition strategy to be successful. This
generally requires, among other things, an integration of purchasing,
distribution, marketing and sales efforts, pricing, employee benefits
policies, liquidity and capital expenditure requirements, management teams and
management information and other systems. The challenges of integration may be
increased by the need to coordinate geographically separated organizations. In
addition, the integration generally requires a commitment of management
resources which may temporarily divert attention from day-to-day operations of
the Company.
The North Star Merger was only recently consummated. Although the Company
expects that the North Star Merger will result in benefits to the combined
companies, there can be no assurance that the integration issues described
above with respect to the combination of the two companies can be dealt with
in an efficient and effective manner. The inability of management to
successfully integrate the two companies could have a material adverse effect
on the business and the future results of operations of the Company.
COMPETITION
Based upon industry estimates, the Company believes that 85% of collision
parts for automobiles and light trucks are supplied by OEMs, compared with
approximately 10% by independent distributors of aftermarket collision parts
and an additional 5% by distributors of salvaged parts. The Company competes
directly with, and encounters intense competition from, OEMs, all of which
have substantially greater financial, distribution, marketing and other
resources, including greater brand recognition and a broader selection of
collision parts. Accordingly, OEMs are in a position to exert pricing and
other competitive pressures on the Company and other independent distributors,
which could have a material adverse effect on the results of operations of the
Company. The aftermarket collision parts distribution industry is highly
fragmented. Typically, the Company's competitors are independently owned
distributors having from one to three distribution centers. The Company
anticipates that it will encounter significant competition in the future,
including competition from OEMs, automobile dealerships, distributors of
salvage parts, buying groups and other large distributors. See "Business --
Competition."
DEPENDENCE ON KEY AND FOREIGN SUPPLIERS
The Company is dependent on a small number of suppliers. For the fiscal year
ended March 28, 1997, the ten largest suppliers accounted for approximately
43% of the products purchased by the Company. Although alternative suppliers
exist for substantially all products distributed by the Company, the loss of
any one supplier could have a material adverse effect on the Company until
alternative suppliers are located and have commenced providing products. In
fiscal 1997, approximately 75% of the products distributed by the Company were
manufactured in the United States or Canada and approximately 25% were
imported directly from manufacturers in Taiwan. As a result, the Company's
operations are subject to the customary risks of doing business abroad,
including, among other things, transportation delays, political instability,
expropriation, currency fluctuations and the imposition of tariffs, import and
export controls and other non-tariff barriers (including changes in the
allocation of quotas), as well as the uncertainty regarding future relations
between China and Taiwan. The percentage of imported products may decline in
the future if sales of autoglass, paint and related supplies and equipment and
remanufactured alloy wheels, which are manufactured in the United States,
continue to grow. Any significant disruption in the Company's Taiwanese
sources of supply or in its relationship with its suppliers located in Taiwan
could have a material adverse effect on the Company. See "Business --
Suppliers."
8
<PAGE>
CONTINUED ACCEPTANCE OF AFTERMARKET COLLISION PARTS
Based upon industry sources, the Company estimates that approximately 87% of
automobile collision repair work is paid for in part by insurance;
accordingly, the Company's business is highly dependent upon the continued
acceptance of such parts by the insurance industry. The Company's business is
also dependent upon the continued acceptance of such parts by collision repair
shops, consumers and governmental agencies. See "Business -- Industry
Overview" and "Business -- Prior Ford Litigation."
CONSOLIDATION IN THE COLLISION REPAIR INDUSTRY
The collision repair shop industry is in the process of consolidation. The
trend towards larger, more efficient repair shops will increase the
competition among distributors for the remaining accounts and the pressure on
distributors to provide price concessions, just-in-time delivery, larger
inventories, training and other value-added services, which may have a
material adverse effect on the Company's sales and profitability. See
"Business -- Industry Overview."
DECLINE IN THE NUMBER OF COLLISION REPAIRS
The number of collision repairs has declined significantly in recent years,
and may continue to do so, due to, among other things, automotive safety
improvements, more rigorous enforcement of stricter drunk driving laws
resulting in fewer accidents and the increase in unit body construction and
higher collision repair costs resulting in a larger number of automobiles
being declared a total loss in lieu of being repaired. The continuation of
such decline may have a material adverse effect on the Company. See
"Business -- Industry Overview -- Consolidation."
VARIABILITY OF QUARTERLY RESULTS AND SEASONALITY
The Company has experienced, and expects to continue to experience,
variations in its sales and profitability from quarter to quarter due, in
part, to the timing and integration of acquisitions and to the seasonal nature
of the Company's business. The number of collision repair jobs is directly
impacted by the weather. Other factors which influence quarterly variations
include the reduced number of business days during the holiday seasons, the
timing of the introduction of new products, the level of consumer acceptance
of new products, general economic conditions that affect consumer spending,
the timing of supplier price changes and the timing of expenditures in
anticipation of increased sales and customer delivery requirements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Variability of Quarterly Results and Seasonality."
RELIANCE ON KEY PERSONNEL
The operations of the Company depend to a great extent on the efforts of its
executive officers, including Charles J. Hogarty, Al A. Ronco, Kim D. Wood
(who joined the Company in March 1997 in connection with the North Star
Merger) and John M. Palumbo. The loss of the services of any such person, or
the failure of the Company to attract and retain other qualified personnel,
could have a material adverse effect on its operations. Although the Company
has employment agreements with Messrs. Hogarty, Ronco and Wood, such
agreements may be ineffective in enabling the Company to retain the services
of such officers or restricting them from competing with the Company in the
event of a termination of employment. In addition, although the Company has
generally been successful in retaining the services of its senior management
to date, there can be no assurance that it will be able to do so in the
future. See "Business -- Competitive Strengths" and "Management." In addition,
see "Certain Transactions" with respect to the resignation in May 1997 of
Virgil K. Benton II, the former Chairman of the Board and Chief Executive
Officer of the Company.
COMPLIANCE WITH GOVERNMENT REGULATIONS; ENVIRONMENTAL HAZARDS
The Company is subject to increasing restrictions imposed by various
federal, state and local laws and regulations. Various state and federal
regulatory agencies, such as the Occupational Safety and Health
9
<PAGE>
Administration and the United States Environmental Protection Agency (the
"EPA"), have jurisdiction over the Company's operations with respect to
matters including worker safety, community and employee "right-to-know" laws,
and laws regarding clean air and water. Under various federal, state and local
laws and regulations, an owner or lessee of real estate or the operator of a
business may be liable for the costs of removal or remediation of certain
hazardous or toxic substances located on or in, or emanating from, property
owned or used in the business, as well as related costs of investigation and
property damage. Such laws often impose such liability without regard to
whether the owner, lessee or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. Other than as described below
with respect to its bumper plating operations, the Company does not currently
generate substantial hazardous waste in the ordinary course of its business.
The Company believes that it currently is in substantial compliance with all
applicable laws and regulations, and is not aware of any material
environmental problem at any of its current or former facilities. No assurance
can be given, however, that the Company's prior activities or the activities
of a prior owner or operator of an acquired service center or other facility
did not create a material environmental problem for which the Company could be
responsible or that future uses or conditions (including, without limitation,
changes in applicable laws and regulations) will not result in material
environmental liability to the Company. Furthermore, compliance with
legislative or regulatory changes may cause future increases in the Company's
operating costs or otherwise adversely affect operations. Certain of the
Company's products, such as paints and solvents, are highly flammable.
Accordingly, the storage and transportation of these materials expose the
Company to the inherent risk of fire.
The Company acquired North Star's bumper plating operations in connection
with the North Star Merger. In addition, the Company currently conducts
limited bumper plating operations at one site and previously conducted similar
operations at 11 additional sites which were closed between 1983 and 1993. See
"Business -- Products-- Bumpers." The Company's bumper plating operations,
which use a number of hazardous materials, are subject to a variety of federal
and state laws and regulations relating to environmental matters, including
the release of hazardous materials into the air, water and soil. The Company
endeavors to ensure that its bumper plating operations comply with applicable
environmental laws and regulations. Compliance with such laws and regulations
has not had a material effect on the Company's capital expenditures, earnings
or competitive position, and no material capital expenditures with respect to
the Company's bumper plating operations are anticipated for the remainder of
this fiscal year. Although the Company believes it is in substantial
compliance with all applicable environmental laws and regulations relating to
its bumper plating operations, there can be no assurance that the Company's
current or former operations have not, or will not in the future, violate such
laws and regulations or that compliance with such laws and regulations will
not have a material adverse effect on the Company's operations. Any
inadvertent mishandling of hazardous materials or similar incident could
result in costly remediation efforts and administrative and legal proceedings,
which could materially and adversely affect the Company's business and results
of operations. In addition, future environmental regulations could add to
overall costs of the Company's bumper plating business or otherwise materially
and adversely affect these operations. See "Business -- Government Regulation
and Environmental Hazards."
ANTI-TAKEOVER PROVISIONS
The ownership positions of the existing officers and directors of Keystone,
together with the anti-takeover effect of certain provisions in the California
General Corporation Law and in Keystone's Articles of Incorporation and
Bylaws, may delay, defer or prevent a change in control of Keystone, may
discourage bids for Keystone's Common Stock at a premium over the market price
of the Common Stock and may adversely affect the market price of the Common
Stock. See "Description of Capital Stock."
VOLATILITY OF STOCK PRICE
The trading price of the Company's Common Stock has been, and is likely to
continue to be, subject to significant fluctuations in response to quarterly
variations in the Company's actual or anticipated operating results, changes
in general market conditions and other factors. In recent years, the stock
market generally has experienced significant price and volume fluctuations
which often have been unrelated or disproportionate to the
10
<PAGE>
operating performance of a specific company or industry. There can be no
assurance that the market price of the Company's Common Stock will not decline
below the current market price. It is possible that in some future quarter,
the Company's operating results will be below the expectations of public
market analysts or investors. In such event, the price of the Company's Common
Stock may be materially and adversely affected. See "Price Range of Common
Stock."
SHARES ELIGIBLE FOR FUTURE SALE
At May 31, 1997, there were 9,750,000 shares of Common Stock outstanding. Of
these shares, the 3,105,000 shares sold in the Company's initial public
offering and the 2,450,000 shares issued in the North Star Merger are freely
tradeable without restriction or further registration under the Securities
Act, except for any such shares held by an "affiliate" of the Company. The
remaining 4,195,000 shares are "restricted securities" as that term is defined
in Rule 144 under the Securities Act, and, accordingly, may not be sold
without registration under the Securities Act or pursuant to an applicable
exemption therefrom. Of these shares, 1,700,000 shares are being included in
this Offering by certain of the Selling Shareholders. See "Principal and
Selling Shareholders." The market price of the Company's Common Stock could be
adversely affected by the availability for sale of such shares or of shares
which may be issued under the Company's Stock Incentive Plan. The Company and
certain of its officers, directors and shareholders have agreed, in connection
with this Offering, not to offer, sell, contract to sell, transfer or
otherwise dispose of, directly or indirectly, shares of Common Stock held by
them in the public market, without the prior written consent of the
representatives of the Underwriters. This lock-up period will expire 180 days
from the date of this Prospectus, at which time such shares will become
eligible for sale in the public market under Rule 144. Upon expiration of the
lock-up period, the market price for the Company's Common Stock could be
materially and adversely affected by the sale or availability for sale of such
shares. See "Management -- Stock Incentive Plan" and "Description of Capital
Stock -- Shares Eligible for Future Sale."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
1,500,000 shares of Common Stock offered by it in this Offering, after
deducting underwriting discounts and commissions and offering expenses, are
estimated to be $21.2 million, assuming a public offering price of $15.25 per
share. The Company will not receive any proceeds from the sale of shares by
the Selling Shareholders.
The net proceeds of the Offering will be used primarily to pay down the
Company's indebtedness under its $25.0 million unsecured revolving line of
credit, which indebtedness was incurred for general corporate purposes and
acquisitions. At May 31, 1997, the outstanding balance under the Company's
primary revolving bank line of credit was $19.3 million, which bears interest
at LIBOR plus 0.75% (6.46% at May 31, 1997). The line of credit expires in
March 1998. The amounts repaid under the line of credit will be reborrowed
from time to time and may be used, together with the remaining net proceeds of
this Offering, for working capital and general corporate purposes and
acquisitions. See "Business -- Growth Strategy." For further information with
respect to the Company's line of credit, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and Note 5 of Notes to Consolidated Financial Statements.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock. The Company
currently intends to retain any future earnings to provide funds to operate
and expand its business and does not anticipate paying cash dividends on its
Common Stock in the foreseeable future. The payment of dividends is within the
discretion of the Company's Board of Directors, and will depend upon, among
other things, the Company's earnings, financial condition and capital
requirements, general business conditions and any restrictions in credit
agreements.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock began trading publicly on the Nasdaq National
Market under the symbol "KEYS" on June 20, 1996. The following table sets
forth, for the periods indicated, the range of high and low sale prices for
Keystone's Common Stock as reported by the Nasdaq National Market. These
prices do not include retail mark-ups, markdowns or commissions.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Fiscal 1997
First Quarter (beginning June 20, 1996)....................... $ 10.50 $ 9.25
Second Quarter................................................ 13.75 10.13
Third Quarter................................................. 17.25 12.00
Fourth Quarter................................................ 18.13 15.50
Fiscal 1998
First Quarter (through June 5, 1997).......................... $ 16.75 $ 15.25
</TABLE>
On June 5, 1997, the last reported sale price for the Common Stock of the
Company as reported on the Nasdaq National Market was $15.25 per share. As of
June 5, 1997, there were approximately 93 shareholders of record of the Common
Stock.
12
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and the capitalization of
the Company at March 28, 1997 and as adjusted as of that date to give effect
to the sale of the 1,500,000 shares of Common Stock offered by the Company at
an assumed public offering price of $15.25 per share and the anticipated use
of the estimated net proceeds therefrom. See "Use of Proceeds." The
information set forth below should be read in conjunction with the Company's
consolidated financial statements and notes thereto.
<TABLE>
<CAPTION>
MARCH 28, 1997
----------------
AS
ACTUAL ADJUSTED
------- --------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Line of credit.............................................. $12,629 $ --
Bankers acceptances and short-term debt..................... 3,538 3,538
Long-term debt, due within one year......................... 741 741
------- -------
Total short-term debt..................................... $16,908 $ 4,279
======= =======
Long-term debt................................................ $ 1,105 $ 1,105
Shareholders' equity:
Preferred Stock, no par value; 3,000,000 shares authorized;
none issued and outstanding................................ -- --
Common Stock, no par value; 20,000,000 shares authorized;
9,750,000 shares issued and outstanding; 11,250,000 shares
as adjusted(1)............................................. 15,921 37,081
Additional paid-in capital.................................... 553 553
Retained earnings............................................. 25,380 25,380
------- -------
Total shareholders' equity................................ 41,854 63,014
------- -------
Total capitalization...................................... $42,959 $64,119
======= =======
</TABLE>
- --------
(1) Does not include shares of Common Stock reserved for issuance under the
Stock Incentive Plan, of which 587,000 shares were subject to outstanding
options as of May 31, 1997, at a weighted average exercise price of $12.86
per share. See "Management -- Stock Incentive Plan."
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for, and as of the
end of, each of the fiscal years in the two-year period ended March 28, 1997
have been derived from financial statements of the Company, which have been
audited by Ernst & Young LLP, independent auditors, appearing elsewhere in
this Prospectus. The selected financial data presented below for, and as of
the end of the fiscal year ended March 31, 1995, have been derived from the
financial statements audited by Ernst & Young LLP, of which the balance sheet
is not included in this Prospectus. The selected financial data presented
below for, and as of the end of, each of the fiscal years in the two-year
period ended March 25, 1994 have been derived from unaudited financial
statements of the Company not included herein and which, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results for the years ended
March 26, 1993 and March 25, 1994. The operating data presented below were
derived from unaudited information maintained by the Company.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS AND
OPERATING DATA)
FISCAL YEAR ENDED
-------------------------------------------------------
MARCH 26, MARCH 25, MARCH 31, MARCH 29, MARCH 28,
1993 1994 1995(1) 1996 1997
----------- ----------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF INCOME DATA
Net sales............... $ 99,165 $ 110,918 $ 132,655 $ 157,021 $ 194,321
Cost of sales........... 59,399 65,713 79,319 95,131 115,052
--------- --------- --------- --------- ---------
Gross profit............ 39,766 45,205 53,336 61,890 79,269
Selling and distribution
expenses............... 30,632 33,773 38,601 43,800 53,503
General and administra-
tive expenses.......... 6,710 7,840 9,557 9,428 12,340
Merger costs............ -- -- -- -- 905
--------- --------- --------- --------- ---------
Operating income........ 2,424 3,592 5,178 8,662 12,521
Interest expense........ 1,037 824 1,200 1,490 1,297
--------- --------- --------- --------- ---------
Income before income
taxes.................. 1,387 2,768 3,978 7,172 11,224
Income taxes............ 566 1,108 1,543 2,836 4,435
Cumulative effect of
accounting change for
income taxes........... -- 134 -- -- --
--------- --------- --------- --------- ---------
Net income.............. $ 821 $ 1,526 $ 2,435 $ 4,336 $ 6,789
========= ========= ========= ========= =========
Net income per share.... $0.10 $0.18 $0.29 $0.53 $0.72
========= ========= ========= ========= =========
Weighted average common
shares
outstanding(2)......... 8,313,000 8,313,000 8,255,000 8,250,000 9,408,000
OPERATING DATA (UNAU-
DITED)
Number of service cen-
ters (3)
Starting sites........ 38 49 49 53 64
Sites acquired....... 14 2 6 10 10
Sites opened......... 2 -- -- 3 --
Sites consolidated... 3 2 1 2 3
Sites closed......... 2 -- 1 -- 1
--------- --------- --------- --------- ---------
Ending sites.......... 49 49 53 64 70
========= ========= ========= ========= =========
Comparable service
center sales
increase(4)
Keystone.............. 19% 10% 13%
North Star............ 7% 22% 13%
Combined............. 16% 13% 13%
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
MARCH 26, MARCH 25, MARCH 31, MARCH 29, MARCH 28,
1993 1994 1995(1) 1996 1997
----------- ----------- --------- --------- -------------------
AS
(UNAUDITED) (UNAUDITED) ACTUAL ADJUSTED(5)
----------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA
Working capital......... $10,402 $11,518 $13,583 $16,954 $26,847 $48,007
Total assets............ 39,859 45,613 49,811 64,715 78,800 87,331
Total current
liabilities............ 22,321 26,971 27,429 35,063 35,438 22,809
Long-term debt.......... 2,346 1,666 2,505 5,904 1,105 1,105
Shareholders' equity.... 14,370 16,278 19,107 23,443 41,854 63,014
</TABLE>
- --------
(1) Fiscal 1995 contained 53 weeks.
(2) Includes Common Stock equivalents attributable to stock options
outstanding, which are not material.
(3) Information with respect to service centers includes combined operating
data of both Keystone and North Star. As a result of the North Star
Merger, the Company acquired 23 service centers. Since March 28, 1997, the
Company has acquired one additional service center.
(4) Comparable service center sales have been computed using sales of service
centers that were open throughout both fiscal years being compared.
(5) As adjusted to reflect the sale of shares of Common Stock offered by the
Company hereunder and the application of the net proceeds at an assumed
public offering price of $15.25 per share. See "Use of Proceeds."
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is qualified in its entirety by, and
should be read in conjunction with, the "Selected Consolidated Financial Data"
and the financial statements and notes thereto included elsewhere in this
Prospectus. Except for the historical information contained herein, the
matters addressed in this Prospectus constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Such forward-looking statements are subject to a variety of
risks and uncertainties, such as statements of the Company's strategies,
plans, objectives, expectations and intentions, that could cause the Company's
actual results to differ materially from those anticipated in these forward-
looking statements. The Cautionary Statements made in this Prospectus should
be read as being applicable to all related forward-looking statements wherever
they appear in this Prospectus.
RECENT ACQUISITIONS
On March 28, 1997, the Company completed the North Star Merger which was
accounted for as a pooling of interests, in which the Company issued 2,450,000
shares of its Common Stock. The pooling of interests method of accounting
requires that financial information be presented on an historical combined
basis for all periods presented. Therefore, unless otherwise indicated, the
following discussion of results of operations and liquidity and capital
resources reflects the combined companies. See "Index to Financial
Statements."
In August 1996, the Company acquired five service centers located in Mobile,
Montgomery, Birmingham, Dothan and Huntsville, Alabama from After Market Parts
& Supply, Inc. In September 1996, the Company acquired the assets of Southern
Wrecker Sales, Inc. ("Augusta") located in Augusta, Georgia. Augusta will be
operated as a depot of the Company's Atlanta service center. Also in September
1996, the Company acquired the assets related to the aftermarket collision
replacement parts business of Glenn Automotive Paint & Body Supply, Inc.
("Glenn"). Glenn operated two locations, Atlanta, Georgia and Chattanooga,
Tennessee, which have been consolidated into the Company's existing service
centers in those cities. In October 1996, the Company acquired the assets
related to the bumper distribution business of Stockton Plating, Inc. located
in Stockton, California. These acquisitions were accounted for under the
purchase method of accounting.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain selected
income statement items as a percentage of net sales.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------
MARCH 31, MARCH 29, MARCH 28,
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Net sales...................................... 100.0% 100.0% 100.0%
Cost of sales.................................. 59.8 60.6 59.2
----- ----- -----
Gross profit................................... 40.2 39.4 40.8
Selling and distribution expenses.............. 29.1 27.9 27.5
General and administrative expenses............ 7.2 6.0 6.4
North Star Merger costs........................ -- -- 0.5
----- ----- -----
Operating income............................... 3.9 5.5 6.4
Interest expense............................... 0.9 0.9 0.6
----- ----- -----
Income before income taxes..................... 3.0 4.6 5.8
Income taxes................................... 1.2 1.8 2.3
----- ----- -----
Net income..................................... 1.8% 2.8% 3.5%
===== ===== =====
</TABLE>
16
<PAGE>
Fiscal 1997 Compared to Fiscal 1996
Net sales were $194.3 million in fiscal 1997 compared to $157.0 million in
fiscal 1996, an increase of $37.3 million, or 23.8%. This increase was due
primarily to an increase of $14.2 million in sales of automotive body parts,
an increase of $10.1 million in sales of paint and related materials and an
increase of $9.5 million in sales of new and recycled bumpers, which represent
increases of approximately 23.5%, 40.7% and 14.7%, respectively, over fiscal
1996. In addition, the Company sold $2.9 million of remanufactured alloy
wheels in fiscal 1997 compared to $250,000 in the prior fiscal year, an
increase of 1,060%.
The increased net sales were attributable primarily to an increase in the
number of service centers in operation and an increase in unit volume. Price
increases were not a material factor in increased net sales.
Gross profit increased to $79.3 million (40.8% of net sales) in fiscal 1997
from $61.9 million (39.4% of net sales) in fiscal 1996, an increase of 28.1%,
primarily as a result of the increase in net sales. The Company's gross profit
margin has fluctuated, and is expected to continue to fluctuate, depending on
a number of factors, including changes in product mix, acquisitions and
competition.
Selling and distribution expenses increased to $53.5 million (27.5% of net
sales) in fiscal 1997 from $43.8 million (27.9% of net sales) in fiscal 1996,
an increase of 22.2%. The decrease in these expenses as a percentage of net
sales was generally the result of certain fixed costs being absorbed over a
larger revenue base, which were partially offset by costs associated with
consolidating and assimilating acquisitions.
General and administrative expenses increased to $12.3 million (6.4% of net
sales) in fiscal 1997 from $9.4 million (6.0% of net sales) in fiscal 1996, an
increase of 30.9%. The increase in these expenses as a percentage of net sales
in fiscal 1997 was primarily the result of costs incurred in assimilating
acquired operations.
In addition, during fiscal 1997, the Company incurred $905,000 of costs
related to the North Star Merger, consisting primarily of legal, accounting
and regulatory fees which were required to be expensed as incurred. All costs
associated with the North Star Merger were expensed in fiscal 1997.
As a result of the above factors, net income increased to $6.8 million (3.5%
of net sales) in fiscal 1997 from $4.3 million (2.8% of net sales) in fiscal
1996. The increase in net income as a percentage of net sales was primarily
the result of an increase in gross profit as a percentage of sales. Gross
profit margin in fiscal 1997 increased primarily as a result of changes in
product mix, including an increase in the sale of remanufactured alloy wheels.
However, there can be no assurance that the Company can maintain its gross
profit margin at the level experienced in fiscal 1997, which was above
historical levels.
Fiscal 1996 Compared to Fiscal 1995
Net sales were $157.0 million in fiscal 1996 compared to $132.7 million in
fiscal 1995, an increase of $24.3 million, or 18.4%. This increase was due
primarily to an increase of $11.0 million in sales of automotive body parts,
an increase of $8.0 million in sales of new and recycled bumpers and an
increase of $5.3 million in the sale of paint and related materials, which
represent increases of approximately 22.3%, 14.1% and 28.2%, respectively,
over fiscal 1995.
Increased net sales were attributable primarily to an increase in the number
of service centers in operation, including centers acquired in fiscal 1995 for
which fiscal 1996 was the first full year that results of operations were
included with the Company's, and an increase in unit volume. Price increases
were not a material factor in increased net sales.
Gross profit increased to $61.9 million in fiscal 1996 from $53.3 million in
fiscal 1995, an increase of 16.0%, primarily as a result of the increase in
sales. Gross profit decreased as a percentage of sales from 40.2% in fiscal
1995 to 39.4% in fiscal 1996, primarily as a result of changes in product mix.
17
<PAGE>
Selling and distribution expenses increased to $43.8 million (27.9% of net
sales) in fiscal 1996 from $38.6 million (29.1% of net sales) in fiscal 1995,
an increase of 13.5%. The decrease in these expenses as a percentage of net
sales is generally the result of certain fixed costs being absorbed over a
larger revenue base, which were partially offset by costs associated with
consolidating and assimilating acquisitions.
General and administrative expenses decreased to $9.4 million (6.0% of net
sales) in fiscal 1996 from $9.6 million (7.2% of net sales) in fiscal 1995, a
reduction of 1.3%. These expenses decreased in amount and as a percentage of
net sales in fiscal 1996 as a result of a net reduction in certain charges
incurred in fiscal 1996 of $1.4 million as compared to fiscal 1995, of which
$1.2 million represented compensation paid in fiscal 1995 pursuant to the
Company's restricted stock option plan.
As a result of the above factors, net income increased to $4.3 million (2.8%
of net sales) in fiscal 1996 from $2.4 million (1.8% of net sales) in fiscal
1995. The increase in net income as a percentage of net sales was primarily
the result of a decrease in operating expenses as a percentage of net sales
from 36.3% in fiscal 1995 to 33.9% in fiscal 1996, which was partially offset
in part by a decrease in gross profit margin from 40.2% in fiscal 1995 to
39.4% in fiscal 1996. The decrease in operating expenses in fiscal 1996
related primarily to certain charges incurred in 1995 which are not expected
in future years and, consequently, the Company does not expect to realize
significant decreases in operating expenses as a percentage of sales in the
future.
VARIABILITY OF QUARTERLY RESULTS AND SEASONALITY
The Company has experienced, and expects to continue to experience,
variations in its sales and profitability from quarter to quarter due, in
part, to the timing and integration of acquisitions and the seasonal nature of
Keystone's business. The number of collision repairs is directly impacted by
the weather. Accordingly, the Company's sales generally are highest during the
five-month period between December and April. Such seasonality may be reduced
somewhat in the future as Keystone becomes more geographically diversified.
Other factors which influence quarterly variations include the reduced number
of business days during the holiday seasons, the timing of the introduction of
new products, the level of consumer acceptance of new products, general
economic conditions that affect consumer spending, the timing of supplier
price changes and the timing of expenditures in anticipation of increased
sales and customer delivery requirements.
The following unaudited table sets forth the Company's net sales, operating
income and net income for the eight quarters ended March 28, 1997. The
operating results for any quarter are not necessarily indicative of the
results of any future period.
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1997
------------------------------- -------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $34,667 $35,420 $38,763 $48,171 $45,561 $43,894 $49,905 $54,961
Operating income........ 1,596 1,717 2,346 3,003 3,017 2,846 3,555 3,103
Net income.............. 760 824 1,199 1,553 1,519 1,636 1,857 1,777
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
In June 1996, Keystone completed an initial public offering of 1,500,000
shares of its Common Stock, yielding net proceeds to the Company, after
discounts, commissions and expenses, of $11.6 million. An additional 1,605,000
shares were sold by shareholders.
Approximately $10.9 million of the proceeds were used to pay down the
Company's revolving credit facility with a commercial bank and approximately
$700,000 of the proceeds were used to retire two outstanding mortgages on the
Company's facilities located in Bethlehem, Pennsylvania and Louisville,
Kentucky. Subsequently, $5.4 million under the Company's line of credit was
used to fund acquisitions.
18
<PAGE>
On March 25, 1997, the Company entered into a revolving loan agreement with
a commercial lender that provides for a $25.0 million unsecured credit
facility that expires on March 24, 1998. Advances under the revolving line of
credit bear interest at LIBOR plus 0.75% (6.46% at May 31, 1997). At May 31,
1997, the outstanding balance of the line of credit was $19.3 million. The
revolving loan agreement is subject to certain restrictive covenants and
requires that the Company maintain certain financial ratios. The Company was
in compliance with all covenants as of March 28, 1997.
The Company's primary need for funds has been to finance the growth of
inventory and accounts receivable and acquisitions. At March 28, 1997, working
capital was $26.8 million compared to $17.0 million at March 29, 1996.
Historically, the Company has financed its working capital requirements from
its cash flow from operations, advances drawn under lines of credit and, to a
limited extent, indebtedness to certain of the sellers of acquired service
centers.
The Company believes that its cash flow from operations and the credit
available under its line of credit will enable it to finance its anticipated
growth in sales (excluding growth from acquisitions) for at least the next 12
months.
The Company believes that consolidation among independent distributors of
aftermarket collision parts is creating opportunities for the Company to
acquire service centers in new and existing markets. The Company intends to
explore acquisition opportunities that may arise from time to time. To date,
the Company's acquisitions have been financed by cash flow from operations,
advances drawn under its credit facilities and indebtedness to certain of the
sellers of acquired service centers. The Company is offering the shares set
forth in this Prospectus primarily to allow it to implement its acquisition
strategy. As of the date of this Prospectus, other than as described herein,
there are no existing commitments or agreements with respect to any
acquisition and no assurance can be given that significant additional
acquisitions can be consummated on terms favorable to the Company. See
"Business -- Growth Strategy -- Acquisitions." Once the proceeds of this
Offering are utilized, the Company may incur indebtedness or issue equity or
debt securities to third parties or the sellers of the acquired businesses to
complete additional acquisitions. There can be no assurance that additional
capital, if and when required, will be available on terms acceptable to the
Company, or at all. In addition, current and future issuance of equity
securities, if any, will result in dilution to the shareholders of the
Company, including investors in this Offering.
INFLATION
The Company does not believe that the relatively moderate rates of inflation
over the past three years have had a significant effect on its net sales or
its profitability.
NEW ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company has adopted Statement
121 in fiscal 1997 and the effect of adoption was not material. In October
1995, the FASB issued Statement No. 123, Accounting for Stock-based
Compensation, which establishes financial accounting and reporting standards
for stock-based compensation plans. The Company has adopted Statement No. 123
in fiscal 1997.
19
<PAGE>
BUSINESS
GENERAL
Keystone is the nation's leading distributor of aftermarket collision
replacement parts produced by independent manufacturers for automobiles and
light trucks. Keystone distributes products primarily to collision repair
shops throughout most of the United States. In addition, the Company recycles
and produces chrome plated and plastic bumpers and remanufactures alloy
wheels. The Company's product lines consist of automotive body parts, bumpers,
autoglass and remanufactured alloy wheels, as well as paint and other
materials used in repairing a damaged vehicle. Keystone currently offers more
than 19,000 stock keeping units to over 22,000 collision repair shop
customers, out of an estimated 48,000 shops nationwide. Founded in Southern
California in 1947, the Company operates a "hub and spoke" distribution system
consisting of 11 regional hubs and 71 service centers located in 33 states in
the West, Midwest, Northeast, Mid-Atlantic and South, as well as in Tijuana,
Mexico. From these service centers, Keystone has approximately 360
professional and highly-trained salespersons who call on an average of over
5,000 collision repair shops per day.
On March 28, 1997, a wholly-owned subsidiary of the Company merged into
North Star in a transaction (the "North Star Merger") accounted for as a
pooling of interests. At the time of the North Star Merger, North Star
operated four regional hubs and 23 service centers located in the Midwest and
Mid-Atlantic, and the Company believes that North Star was the second largest
distributor of aftermarket collision replacement parts in the United States.
North Star's operations are very similar to the Company's and strategically
expand the Company's geographic market coverage, as only two of the North Star
service centers operate in markets already served by Keystone. In addition,
the North Star Merger adds depth and experience to the Company's management
capabilities.
For the fiscal year ended March 28, 1997, the Company generated record
revenues, net income and net income per share of $194.3 million, $6.8 million
and $0.72, respectively. These results represented increases of approximately
23.8%, 56.6% and 35.8%, respectively, over revenues of $157.0 million, net
income of $4.3 million and net income per share of $0.53 in fiscal 1996. For
fiscal 1995, 1996 and 1997, the Company generated increases in comparable
service center sales of approximately 16%, 13% and 13%, respectively.
Keystone's growth has been due primarily to a combination of (i) strategic
acquisitions of independent distributors, both in new and existing geographic
markets, (ii) expansion of existing product lines and introduction of new
product lines and (iii) increased demand for aftermarket collision parts.
INDUSTRY OVERVIEW
History. The Aftermarket Body Parts Association ("ABPA") estimates that the
wholesale market for aftermarket collision parts in 1995 ranged between $800
million and $1.2 billion in annual expenditures, or approximately 10% of the
collision parts market. In addition, industry sources estimate that wholesale
sales of paint and related supplies and equipment for collision repair, which
constitute a growing part of the Company's business, accounted for
approximately $2.4 billion in 1995. Substantially all of the remainder of the
collision parts market consists of parts produced by OEMs, and a substantial
number of collision parts are available exclusively from OEMs and are likely
to remain so. The growth in sales of aftermarket collision parts has been due
primarily to the increased availability of quality parts and to cost
containment efforts by the insurance industry.
Before 1980, automotive collision parts were manufactured almost exclusively
by OEMs. During the 1960s and 1970s, due to prohibitive tariffs in Taiwan on
imported automobiles and restrictions on foreign ownership of manufacturing
facilities in Taiwan, certain Taiwanese automobile manufacturers commenced
producing automobiles for sale in Taiwan. Since the early 1980s, these
Taiwanese manufacturers have sought to reduce the effect on their business of
the cyclical demand for new automobiles by producing aftermarket collision
parts.
Collision Repair Industry Insight ("Insight"), an industry trade
publication, estimates that approximately 87% of all automobile collision
repair work is paid for in part by insurance. Accordingly, major insurance
20
<PAGE>
companies exert significant influence over the selection of collision parts
used by collision repair shops. The availability of aftermarket collision
parts has been a major factor in the insurance industry's efforts to contain
the escalating cost of collision repairs. According to Body Shop Business'
1996 Industry Survey, the percentage of collision repair facilities using
aftermarket collision replacement parts increased from approximately 54% in
1993 to 69% in 1995.
Aftermarket collision parts generally sell for between 20% and 40% less than
comparable OEM parts. The ABPA estimates that the competition afforded by
aftermarket collision parts has resulted in price reductions of between 25%
and 50% for selected OEM collision parts, and that the availability of
aftermarket collision parts saved insurance companies approximately $800
million in 1994 by providing consumers with less expensive aftermarket parts
and creating competition resulting in lower prices for comparable OEM parts.
The Company believes that it is somewhat insulated from downturns in the
general economy as a result of the fact that 87% of all automobile collision
repair work is paid for in part by insurance.
As a part of their ongoing efforts to improve customer service, most major
insurance companies have adopted programs designating selected collision
repair shops in particular geographic areas as Direct Repair Providers
("DRPs"). DRPs are generally directed additional collision repair business by
the insurers in return for adhering to certain criteria, which include the use
of aftermarket collision parts when available. To encourage consumers to use
DRPs, the insurers authorize the repair of collision damage without obtaining
the prior approval of the insurer's adjuster (thereby generally providing for
a quicker return of the vehicle to its owner) and offer additional warranties
concerning the repair services and parts used. According to Insight, during
1996, DRPs accounted for approximately 9% to 11% of total collision repair
costs and this market share is estimated to grow to 25% by 1998.
Companies offering collision support services, including Automated Data
Processing ("ADP"), Mitchell International and CCC Information Services, Inc.,
have developed proprietary software and databases to provide insurance claims
adjustors and collision repair shops with computerized access to the
inventories and prices of selected distributors of both aftermarket and OEM
collision parts nationwide. The Company's inventory and prices are included in
these databases. Access to the providers' databases enables distributors with
computerized inventory control systems, such as the Company, to update prices
rapidly and notify collision repair shops of the availability of new products.
Quality Assurance. In 1987, the Certified Automotive Parts Association
("CAPA") was founded to provide insurance companies, distributors, collision
repair shops and consumers with an objective method of evaluating the
functional equivalence of aftermarket collision parts and OEM collision parts.
CAPA, a non-profit association of insurance companies, manufacturers,
importers, distributors, collision repair shops and consumer groups,
establishes the specifications for, tests and certifies the quality of
aftermarket automotive collision parts. Through independent testing
laboratories, CAPA develops engineering specifications for aftermarket
collision parts based upon an examination of OEM parts; certifies the
factories, manufacturing processes and quality control procedures used by
independent manufacturers; and certifies the materials, fit and finish of
specific aftermarket collision parts. According to CAPA, the number of
collision part applications entitled to bear the CAPA certification had
increased from approximately 600 in January 1994 to approximately 1,600 by
October 1996. CAPA randomly reviews both the factories and individual parts
previously certified by it and solicits comments concerning the quality of
certified parts from collision repair shops and consumers on a regular basis.
Most major insurance companies have adopted policies recommending or
requiring the use of parts certified by CAPA, when available. The Company
distributes parts certified by CAPA when available and actively participates
with CAPA, insurance companies and consumer groups in encouraging independent
manufacturers of collision parts to seek CAPA certification. Management
believes that the Company is the largest distributor of CAPA-certified parts
in the United States.
Consolidation. The collision repair shop industry is in the process of
consolidation due to, among other things, (i) an increase in the technical
complexity of collision repairs generally, (ii) an increase in governmental
21
<PAGE>
regulations, including environmental regulations, applicable to collision
repair shops, (iii) the designation of certain collision repair shops as DRPs
and (iv) a reduction in the number of collision repairs generally. The
increasing number of aftermarket collision parts and makes and models of
automobiles has resulted in distributors being required to maintain larger
inventories. In addition, the trend towards fewer, larger and more efficient
collision repair shops has increased the pressure on distributors to provide
price concessions, just-in-time delivery and certain value-added services,
such as training, that collision repair shops require in their increasingly
complex and competitive industry. The above factors, in turn, are contributing
to a consolidation of distributors of aftermarket collision parts, providing
the Company with an opportunity through acquisitions to expand its operations
into new markets and to penetrate further existing markets.
COMPETITIVE STRENGTHS
Keystone believes that the following characteristics enable it to compete
effectively.
Leading Market Position. As the nation's leading distributor of aftermarket
collision parts, Keystone offers its customers one of the broadest available
selections of aftermarket collision parts, just-in-time delivery, lower prices
as a result of volume purchasing power, worldwide product sourcing and
priority access to new products and superior technical expertise, and thereby
allows its customers to simplify their business by relying on fewer vendors.
As a result of the Company's volume purchases, it can assemble entire
containers for shipment from foreign manufacturers more efficiently than its
generally smaller competitors. In addition, as a result of its leading market
position, the Company periodically is requested by independent producers to
introduce new aftermarket collision parts.
Relationship with Insurance Companies. Since the founding of its business in
1947, the Company has fostered its relationship with insurance companies whose
increasing efforts to contain escalating costs of collision repairs have been
a principal factor in the growth of the market for aftermarket collision
parts. The Company's inventory and prices are included in the parts databases
used by most major insurance companies. In addition, the Company's national
marketing staff routinely conducts seminars for regional insurance executives
and claims adjusters to explain the role of aftermarket collision parts in
containing the cost of claims and to encourage the implementation of the
insurance companies' policies favoring such parts. Charles J. Hogarty, the
Company's President and Chief Executive Officer, and Kim D. Wood, the
President of North Star, were active in the efforts of ABPA and CAPA to
provide insurance companies an objective method of evaluating the quality of
aftermarket collision parts. As a result of its distribution system, which
covers 33 states and Tijuana, Mexico, and its position as the nation's largest
distributor of aftermarket collision parts, the Company believes that it is
well-positioned to deal with major insurance companies on a national basis.
The Company's business is highly dependent upon the continued acceptance of
aftermarket collision parts by the insurance industry.
Experienced Executive Management and Service Center Managers. Keystone
believes that its key employees, including its service center managers, are
among the most experienced in its industry. The Company's executive officers
have been employed by the Company for an average of 20 years, and the
Company's service center managers have been employed for an average of over
nine years. The experience and tenure of the Company's service center managers
and their long-standing relationships with collision repair shop operators
have enabled the Company to compete successfully in local markets.
Entrepreneurial Corporate Culture. Keystone fosters an entrepreneurial
corporate culture in which the manager of each service center is responsible
for its day-to-day operations, including the management of a staff of six to
70 employees. Each service center manager participates in an incentive
compensation program through which the manager is eligible to earn a bonus
which may exceed 100% of base salary. The Company believes that its
entrepreneurial corporate culture has contributed to its growth in sales and
profitability and has enabled the Company to attract and retain employees and
to be highly responsive to customer requirements and preferences, actions by
competitors and changes in local market conditions.
Superior Customer Service. Keystone believes that its high level of customer
service is one of the most important factors which differentiates it from its
competitors. The Company periodically introduces new
22
<PAGE>
programs to provide responsive customer service and to foster close customer
relations. For example, most orders are filled by the Company within 24 hours
of receipt out of inventories maintained in its regional hubs and service
centers utilizing a computerized inventory control system and its own fleet of
over 600 delivery trucks. In addition, the Company offers its customers one of
the broadest available selections of aftermarket collision parts and it makes
placing orders convenient and accurate through computerized order taking
systems which regularly update the prices and the availability of parts.
Moreover, the Company generally warrants its products against defects in
material and workmanship for as long as the repair shop's customer owns the
vehicle. To date the Company's warranty costs have been immaterial. The
Company has approximately 360 professional and highly-trained route
salespersons, who call on an average of over 5,000 collision repair shops per
day, and are a resource for customers concerning technical and regulatory
developments in an increasingly complex and competitive industry. The Company
believes that its superior customer service has resulted in long-term customer
relationships which present the opportunity to cross-sell additional products.
Management Information Systems. The Company believes that its computerized
order taking, inventory control and management information systems are among
the most advanced in its industry. The Company periodically upgrades these
systems to achieve additional operating efficiencies and a higher level of
customer service. The ordering, shipment, storage and delivery of the
Company's products are managed through two centralized information systems
that allow the Company's and North Star's corporate headquarters, regional
hubs and service centers to obtain timely information regarding the location
and availability of products, customers, sales and other financial and
operating data. The Company's electronic parts catalog and price list allows
rapid updating of prices and availability of products both within the
Company's distribution system and within the electronic databases maintained
by various collision support services for use by claims adjusters and
collision repair shops. The Company's computerized order taking system reduces
the time required for a customer to place an order, reduces errors in order
taking and facilitates the cross-selling of related products.
North Star has developed and maintains its own computerized order taking,
inventory control and management information systems, which are similar to
Keystone's systems. Summary financial information is transmitted weekly from
North Star's corporate headquarters to the Company's executive offices.
GROWTH STRATEGY
The Company's growth strategy includes the following key elements:
Acquisitions and Service Center Additions. From April 1992 through the end
of fiscal 1997, the Company had completed 18 acquisitions of 42 service
centers in the Northeast, Midwest, Mid-Atlantic, South and Mexico, of which 11
had been consolidated with existing locations and four had been closed. Of
these, North Star had completed four acquisitions of 11 service centers.
During the same period, North Star opened five additional service centers.
Since the North Star Merger, the Company has acquired an alloy wheel
remanufacturing operation with facilities located in Minnesota and Illinois
and a distributor of new and recycled bumpers located in Florida. In addition,
the Company has entered into agreements which, if successfully completed, will
result in an expansion into the Southwest through the acquisition of six
service centers located in Arizona, Colorado, New Mexico, Nevada and Texas.
The Company intends to continue to take advantage of the consolidation of
its industry by acquiring service centers in new and existing markets. In the
ordinary course of its business, the Company regularly evaluates new
geographic markets and potential acquisitions and believes that numerous
acquisition opportunities exist due to the preponderance of small local or
regional competitors. In evaluating potential acquisitions, the Company seeks
well-established local distributors with strong management and significant
market share, which operate in markets which the Company believes will provide
additional growth and acquisition opportunities. Through a combination of
broader product lines, volume purchase discounts, efficient inventory
management, experienced management and a national distribution system, the
Company believes that it generally has been able to increase revenues and to
operate acquired service centers more profitably than the prior owners.
Expansion of Products. Since April 1992, the Company has introduced several
new product lines, including autoglass, remanufactured alloy wheels and paint
and related supplies and equipment. In addition, the
23
<PAGE>
Company has expanded its existing product lines as additional aftermarket
collision parts have become available, to include such products as radiators,
condensers and head and tail light assemblies for the growing number of makes
and models of automobiles and light trucks on the road today. The number of
automotive and light truck parts distributed by the Company has increased from
approximately 3,000 at December 31, 1992 to more than 4,900 at March 28, 1997.
The Company intends to continue to expand its existing product lines, as well
as to continue to introduce new product lines compatible with its distribution
system.
Increase in Comparable Service Center Sales. Comparable service center sales
for the Company increased approximately 16% in fiscal 1995, 13% in fiscal 1996
and 13% in fiscal 1997. The Company's strategy is to continue to increase its
market share in existing markets by introducing new products and product
lines, by capitalizing on the competitive advantages provided by its position
as a market leader and by continuing to emphasize customer service.
PRODUCTS
The Company distributes more than 19,000 stock keeping units of aftermarket
collision parts and repair materials for most popular models of domestic and
foreign automobiles and light trucks, generally for the seven most recent
model years. The Company's principal product lines consist of automotive body
parts, bumpers, paint and other materials, autoglass, light truck accessories
and remanufactured alloy wheels. In addition, the Company, primarily through
North Star, recycles, produces and distributes new and remanufactured plastic
and chrome bumpers to wholesale bumper distributors and manufacturers of truck
accessories.
Automotive Body Parts. The Company distributes automotive and light truck
parts manufactured by six foreign and nine domestic manufacturers, including
fenders, hoods, radiators and condensers and head and tail light assemblies.
These products accounted for $74.9 million, or 38.5% of the Company's net
sales in the fiscal year ended March 28, 1997.
Bumpers. The Company distributes new and remanufactured plastic bumper
covers and steel bumpers manufactured by five foreign and six domestic
manufacturers. For the fiscal year ended March 28, 1997, sales of plastic and
steel bumpers accounted for $74.0 million, or 38.1% of the Company's net
sales.
In addition, the Company recycles, produces and distributes new and recycled
chrome and plastic bumpers, primarily at North Star. Management believes that
North Star is one of the nation's largest non-OEM producers of new and
recycled chrome plated bumpers to the collision repair and restoration
markets. On an annual basis, North Star electro-plates approximately 150,000
steel plated bumpers for automobiles and light trucks. Bumpers used in the
operations include new steel stampings, collision-damaged bumpers that require
straightening and replating and older model or antique bumpers that require
restoration and replating. The bumper repair and replating process generally
includes some or all of the following steps: straightening or reforming to
original dimensions; welding breaks or cracks; surface grinding to remove rust
and corrosion; chemical stripping to remove the original electro-plated
finishes; metal polishing and buffing; electro-plating layers of copper,
nickel and chromium; and inspecting and packaging.
Beginning in the late 1970s and the early 1980s, manufacturers of new
automobiles began changing from an almost exclusive use of chrome plated steel
bumpers to painted plastic bumpers. By the 1996 model year, manufacturers were
using painted plastic bumpers almost exclusively for their automobiles. Chrome
plated steel bumpers are still used extensively on light trucks and sport
utility vehicles. The Company's sales of chrome bumpers accounted for $27.7
million, or 14.3% of the Company's net sales for the fiscal year ended March
28, 1997.
Paint and Other Materials. Beginning in fiscal 1993, the Company
significantly increased its emphasis on the sale of paint and other materials
used in repairing a damaged vehicle, including sandpaper, abrasives, masking
products and plastic filler. The paint and other materials distributed by the
Company are purchased from approximately 20 domestic suppliers. For the fiscal
year ended March 28, 1997, sales of paint and other materials accounted for
$34.8 million, or 18.0% of the Company's net sales. Certain of these products
are distributed under the name "Keystone."
24
<PAGE>
Light Truck Accessories. The Company distributes parts and accessories for
light trucks, including grills, step bumpers and bedliners. For the fiscal
year ended March 28, 1997, sales of parts and accessories for light trucks
accounted for $9.3 million, or 4.8% of the Company's net sales.
Autoglass. The Company distributes autoglass, including windshields, side
windows and rear windows, which are purchased from two domestic manufacturers.
For the fiscal year ended March 28, 1997, sales of autoglass, which was
introduced in fiscal 1993, accounted for $2.7 million, or 1.4% of the
Company's net sales.
Remanufactured Alloy Wheels. In October 1995, the Company acquired a
remanufacturer of collision damaged alloy wheels located in Denver, Colorado,
and during fiscal 1997 it opened remanufacturing operations in four of its
facilities. The Company opened a remanufacturing operation in Atlanta, Georgia
in May 1997 and acquired remanufacturing operations located in Roseville,
Minnesota and Chicago, Illinois in June 1997. According to industry sources,
the percentage of new automobiles equipped with alloy wheels, as opposed to
steel wheels and hub caps, has increased from approximately 11% in 1985 to 45%
for the 1996 model year. The average wholesale cost of a new replacement alloy
wheel is $225, compared to an average wholesale cost of $140 for a
remanufactured alloy wheel. The alloy wheel remanufacturing process generally
includes some or all of the following steps: straightening, welding minor
breaks or chips, machining, painting and applying clear coat. For the fiscal
year ended March 28, 1997, sales of remanufactured alloy wheels accounted for
$2.9 million, or 1.5% of the Company's net sales.
The remanufacturing of alloy wheels is generally conducted by many small
independent operators. The Company believes that there is a large and growing
demand for remanufactured alloy wheels and that, using its existing
distribution system and customer base, the Company is well-positioned to
service that demand.
DISTRIBUTION, MARKETING AND SALES
The Company's distribution system is designed to provide responsive customer
service and to foster long-term customer relations.
Distribution System. The Company has developed a national "hub and spoke"
distribution system consisting of 11 regional hubs and 71 service centers.
Each regional hub receives container shipments directly from foreign and
domestic manufacturers. Using the Company's fleet of over 600 delivery trucks,
each regional hub makes regular shipments to the service centers in its
region, which in turn make regular deliveries to its repair shop customers. By
maintaining a fleet of delivery trucks, the Company ensures rapid delivery
within its distribution system and to its customers. In addition, each service
center can order products directly from any hub or service center. The Company
manages its inventory and the ordering, shipment, storage and delivery of
products through centralized information systems that allow the Company's and
North Star's corporate headquarters, regional hubs and service centers to
obtain timely information regarding the location and availability of products.
The continuing increase in the number of makes and models of automobiles and
light trucks and the number of aftermarket collision parts has increased the
pressure on distributors to maintain larger inventories. The Company believes
that its "hub and spoke" distribution system allows it to offer its customers
one of the broadest available selections of aftermarket collision parts and to
fill most orders within 24 hours, while minimizing inventory costs.
Sales and Marketing Staff. The Company has a ten-person marketing staff,
which operates from its corporate headquarters, and has 78 sales
representatives and approximately 360 route salespersons who operate from its
service centers. The marketing staff develops all marketing and promotional
materials, assists the service centers in recruiting and training sales
representatives, route salespersons and customer service representatives,
supervises the Company's in-house management training program and supports
general managers of its service centers, sales representatives and route
salespersons with computerized analyses of sales by product, route and
customer. In addition, the marketing staff conducts educational programs for
regional insurance executives and claims adjusters to explain the role of
aftermarket collision parts in containing the escalating costs of claims and
in order to facilitate the implementation of insurance companies' policies
favoring aftermarket collision parts.
25
<PAGE>
The general managers of the Company's service centers have been employed by
the Company for an average of over nine years and are actively involved in
customer calls. The Company believes that this local control and expertise
have contributed significantly to its growth. In addition, through periodic
training programs and performance reviews, the Company seeks to enhance the
professionalism and technical expertise of its route salespersons. As a
result, the Company believes that its route salespersons are highly attendant
to the needs of the Company's customers.
Marketing Programs. The Company offers various marketing programs to foster
closer customer relations, including a warranty program in which the Company
generally warrants its products against defects in material and workmanship
for as long as the repair shop's customer owns the vehicle. In addition, the
Company's management information systems allow it to provide individual
collision repair shops with personalized product usage reports which enable
its customers to better manage their inventory by controlling inventory
shrinkage and ensuring timely reordering.
CUSTOMERS
The Company's current customers consist of more than 22,000 collision repair
shops located in 33 states and Tijuana, Mexico, none of which accounted for
more than 1% of the Company's net sales during the fiscal year ended March 28,
1997. The Company also distributes its bumpers to wholesale distributors and
manufacturers of truck accessories. The size of its customer base reduces the
Company's dependence on any single customer and its national scope mitigates
the effects of regional economic changes and regional weather patterns.
Insight estimates that there are over 48,000 collision repair shops
nationwide. The number of collision repair shops to whom Keystone sold
products increased from approximately 13,400 in fiscal 1993 to approximately
22,000 following the North Star Merger in March 1997.
The Company's regional hubs also sell collision parts to local distributors
who may compete with the Company. Approximately 12% of the Company's net sales
during the fiscal year ended March 28, 1997 were attributable to sales to
other local distributors. No distributor accounted for more than 1% of the
Company's net sales for such fiscal year.
SUPPLIERS
The products distributed by the Company are manufactured by over 60
manufacturers, the ten largest of which provided approximately 43% of the
products purchased by the Company during the fiscal year ended March 28, 1997,
and no single supplier provided as much as ten percent. The Company believes
that it is one of the largest customers of each of its ten largest suppliers.
In fiscal 1997, approximately 75% of the products distributed by the Company
were manufactured in the United States or Canada, and approximately 25% were
imported directly from manufacturers in Taiwan. The Company's orders from
domestic suppliers generally are received within 10 days and orders from
foreign manufacturers generally are received in between 60 and 90 days.
Although the Company has no manufacturing agreements with any of its suppliers
and competes with other distributors for production capacity, the Company
believes that its sources of supply and its relationships with its suppliers
are satisfactory. Although alternative suppliers exist for substantially all
products distributed by the Company, the loss of any one supplier could have a
material adverse effect on the Company until alternative suppliers are located
and have commenced providing products.
North Star generally sells only automotive paint manufactured by PPG
Industries, Inc. ("PPG") at certain of its service centers. Keystone derived
approximately 5% of its revenues from North Star's sale of PPG paint in fiscal
1997. In the event PPG's paint became unavailable for any reason, the Company
believes North Star could replace its use of PPG paint by using a different
company's paint products.
26
<PAGE>
COMPETITION
Based upon industry estimates, the Company believes that approximately 85%
of collision parts are supplied by OEMs, compared with approximately 10% by
distributors of aftermarket collision parts and 5% by distributors of salvage
parts. The Company encounters intense competition from OEMs, all of which have
substantially greater financial, distribution, marketing and other resources,
including greater brand recognition and a broader selection of collision
parts, than the Company. Accordingly, OEMs are in a position to exert pricing
and other competitive pressure on the Company. The distribution industry for
aftermarket collision parts is highly fragmented. The Company's competitors
generally are independently owned distributors having from one to three
distribution centers. The Company expects to encounter significant competition
in the future, including competition from OEMs, automobile dealerships,
distributors of salvage parts, buying groups and other large distributors.
The Company competes with OEMs primarily on the basis of price, and it
competes with distributors of aftermarket collision parts primarily on the
basis of the competitive advantages provided by its position as a market
leader, experienced executive management and service center managers,
entrepreneurial corporate culture, superior customer service, relationship
with insurance companies and management information systems and centralized
administrative functions, and, to a lesser extent, on the basis of price.
The Company's chrome bumper plating operations compete in the wholesale
bumper distribution segment of the market with four companies, whom the
Company believes have greater regional sales than the Company. It also
competes with small chrome bumper platers or distributors in virtually every
geographical market in which it operates. The Company competes with small
chrome bumper platers and distributors primarily on the basis of quality and
service. Over the last ten years, there has been a significant decrease in the
number of small bumper platers as a result of the decreasing use of chrome
plated bumpers on new automobiles and the increasing environmental
requirements for electro-platers. Bumper Recyclers Association of North
America ("BRANA"), the nation's only bumper trade association, membership
decreased from approximately 100 companies in 1982 to approximately 32
companies in 1996. The Company believes that this trend will continue,
creating more sales opportunities for larger regional chrome bumper platers,
who are capable of meeting the increased financial and environmental
requirements in the future.
The Company also encounters competition from the OEM's who supply new
replacement bumpers to the collision repair market, and have significantly
greater resources than the Company. The Company competes with the OEM's
primarily on the basis of price.
GOVERNMENT REGULATION AND ENVIRONMENTAL HAZARDS
The Company is subject to increasing restrictions imposed by various
federal, state and local laws and regulations. Various state and federal
regulatory agencies, such as the Occupational Safety and Health Administration
and the EPA, have jurisdiction over the Company's operations with respect to
matters including worker safety, community and employee "right-to-know" laws,
and laws regarding clean air and water. Under various federal, state and local
laws and regulations, an owner or lessee of real estate or the operator of a
business may be liable for the costs of removal or remediation of certain
hazardous or toxic substances located on or in, or emanating from, property
owned or used in the business, as well as related costs of investigation and
property damage. Such laws often impose such liability without regard to
whether the owner, lessee or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. Other than as described below
with respect to its bumper plating operations, the Company does not currently
generate substantial hazardous waste in the ordinary course of its business.
The Company believes that it currently is in substantial compliance with all
applicable laws and regulations, and is not aware of any material
environmental problem at any of its current or former facilities. No assurance
can be given, however, that the Company's prior activities or the activities
of a prior owner or operator of an acquired service center or other facility
did not create a material environmental problem for which the Company could be
responsible or that future uses or conditions (including, without limitation,
changes in applicable laws and regulations) will not result in material
environmental liability to the
27
<PAGE>
Company. Furthermore, compliance with legislative or regulatory changes may
cause future increases in the Company's operating costs or otherwise adversely
affect operations. Certain of the Company's products, such as paints and
solvents, are highly flammable. Accordingly, the storage and transportation of
these materials expose the Company to the inherent risk of fire.
The Company acquired North Star's bumper plating operations in connection
with the North Star Merger. In addition, the Company currently conducts
limited bumper plating operations at one site and previously conducted similar
operations at 11 additional sites which were closed between 1983 and 1993. See
"Business -- Products-- Bumpers." The Company's bumper plating operations,
which use a number of hazardous materials, are subject to a variety of federal
and state laws and regulations relating to environmental matters, including
the release of hazardous materials into the air, water and soil. The Company
endeavors to ensure that its bumper plating operations comply with applicable
environmental laws and regulations. Compliance with such laws and regulations
has not had a material effect on the Company's capital expenditures, earnings
or competitive position, and no material capital expenditures with respect to
the Company's bumper plating operations are anticipated for the remainder of
this fiscal year. Although the Company believes it is in substantial
compliance with all applicable environmental laws and regulations relating to
its bumper plating operations, there can be no assurance that the Company's
current or former operations have not, or will not in the future, violate such
laws and regulations or that compliance with such laws and regulations will
not have a material adverse effect on the Company's operations. Any
inadvertent mishandling of hazardous materials or similar incident could
result in costly remediation efforts and administrative and legal proceedings,
which could materially and adversely affect the Company's business and results
of operations. In addition, future environmental regulations could add to
overall costs of the Company's bumper plating business or otherwise materially
and adversely affect these operations.
PRIOR FORD LITIGATION
In 1987, Ford Motor Company ("Ford") filed suit against the Company on the
grounds that between 1982 and 1987, the Company had misrepresented the quality
of the aftermarket collision parts sold by it for Ford automobiles. In May
1992, Ford and the Company settled this lawsuit. As part of the settlement,
the Company and its insurance companies paid Ford $1.8 million, of which the
Company contributed $450,000, as damages and agreed to finance a one-year
corrective advertising campaign conducted by Ford using the Company's name. As
a result of this settlement and the corrective advertising campaign, certain
insurance companies ceased listing the Company as an approved supplier of
aftermarket collision parts. Currently, most major insurance companies list
the Company as an approved supplier of aftermarket collision parts, and all
major insurance companies reimburse the cost of collision repairs using the
Company's products. The Company's business is highly dependent on the
continued acceptance of aftermarket collision parts in general, and the
Company's products in particular, by insurers, collision repair shops,
consumers and governmental agencies.
EMPLOYEES
At May 31, 1997, the Company had approximately 1,537 full-time employees, of
whom 11 were engaged in corporate management, 131 in administration, 809 in
sales and customer service, 235 in warehousing and shipping and 351 in
manufacturing. Seven persons in the Newark, New Jersey chrome bumper recycling
facility and six persons in its Kenilworth, New Jersey service center are
covered by collective bargaining agreements. The Company considers its
relations with its employees to be satisfactory.
PROPERTIES
Keystone's principal executive offices are located in Pomona, California and
North Star's principal executive offices are located in Minneapolis,
Minnesota. These premises contain approximately 20,000 square feet and 75,000
square feet, respectively. The Pomona, California offices are owned by the
Company and the Minneapolis, Minnesota offices are leased. In addition, the
Company owns facilities used as service centers in
28
<PAGE>
Chicago, Illinois; Bethlehem, Pennsylvania; Denver, Colorado; New Albany,
Indiana and Palmyra, New Jersey, of which two of the facilities also serve as
regional hubs and three serve as wheel remanufacturing facilities. The Company
leases its remaining facilities, consisting of 65 service centers, of which
eight serve as regional hubs and four also serve as remanufacturing centers.
The Company also leases small depots in ten larger cities to facilitate
distribution.
The Company's regional hubs range from approximately 25,000 square feet to
163,000 square feet. Its service centers range from approximately 2,500 square
feet to 30,000 square feet. All of its leased properties are leased for terms
expiring on dates ranging from the date hereof to February 2005, many with
options to extend the lease term. The Company believes that no single lease is
material to its operations, its facilities are adequate for the foreseeable
future and alternative sites presently are available at market rates.
Of the Company's service centers, eight are leased from parties in whom
current or former officers or directors of the Company have an interest. The
Company believes that the terms and conditions of leases with affiliated
parties are no less favorable to the Company than could have been obtained
from unaffiliated parties in arm's-length transactions at the time of the
execution of such leases. See "Management -- Certain Transactions."
LEGAL PROCEEDINGS
The Company is from time to time involved in litigation incidental to the
conduct of its business. The Company currently is not a party to any material
pending litigation.
29
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
YEARS
EMPLOYED
NAME AGE POSITION BY COMPANY
---- --- -------- ----------
<C> <C> <S> <C>
Ronald G. Brown...... 60 Chairman of the Board 29(1)
Charles J. Hogarty... 56 President, Chief Executive Officer 36
and Director
Al A. Ronco.......... 61 Executive Vice President and Director 37
Kim D. Wood.......... 40 Vice President and President and 15(1)
Chief Operating Officer of North
Star
John M. Palumbo...... 41 Vice President, Treasurer, and Chief 1
Financial Officer
Robert L. Blanton.... 54 Vice President -- Finance 27
Christopher Northup.. 37 Vice President -- Sales and Marketing 13
James C. Lockwood.... 59 Vice President -- General Counsel and *
Secretary
Timothy C. McQuay(2). 45 Director --
George E. Seebart(2). 68 Director --
</TABLE>
- --------
* Less than one year.
(1) Includes years of service at North Star.
(2) Member of the Audit Committee and the Compensation Committee.
RONALD G. BROWN was elected a director of the Company upon completion of the
North Star Merger pursuant to the terms of the Merger Agreement and was
elected as Chairman of the Board of Directors in May 1997. Mr. Brown served as
President of North Star from its founding in 1968 until the North Star Merger
and he is currently the Vice-President -- Manufacturing of North Star. From
1982 to the present, he has been a member of the Board of Directors of First
Bank N.A. of Brainerd, Minnesota, an affiliate of North Star's primary bank
lender. Mr. Brown has served as a member of the Board of Directors and Vice
President of the Bumper Recycling Association of North America.
CHARLES J. HOGARTY has served as the President, Chief Operating Officer and
a director of the Company since 1987 and was appointed the Chief Executive
Officer of the Company in May 1997. From his joining the Company in 1960 until
1987, Mr. Hogarty held various positions, including salesman, sales manager,
general manager and regional manager. Mr. Hogarty served as a director of the
Aftermarket Body Parts Association from 1984 to 1993, President in 1989 and
Chairman in 1990.
AL A. RONCO has served as the Executive Vice President and a director of the
Company since 1987 and as Secretary from 1987 until he resigned that position
in May 1997. From his joining the Company in 1959 until 1987, Mr. Ronco held
various positions, including salesman, production manager, general manager and
regional manager.
KIM D. WOOD was elected President and Chief Operating Officer of North Star
upon completion of the North Star Merger in March 1997 and was elected a Vice
President of the Company in May 1997. Mr. Wood served as Vice President of
North Star from 1982 until the completion of the North Star Merger. Mr. Wood
is a member of the Aftermarket Body Parts Association and the Certified
Automotive Parts Association. From 1993 through 1995, he was the Chairman of
the Board of the Aftermarket Body Parts Association.
JOHN M. PALUMBO joined the Company as Vice President and Treasurer in March
1996 and was appointed Chief Financial Officer in May 1997. From 1988 until he
joined the Company in 1996, Mr. Palumbo served as Chief Financial Officer,
Treasurer and Corporate Secretary of American United Global, Inc., a public
company engaged in the manufacture of certain automotive parts.
30
<PAGE>
ROBERT L. BLANTON has served as the Vice President -- Finance of the Company
since 1976. From his joining the Company in 1969 until 1976, Mr. Blanton held
various positions, including office manager of a wheel fabrication plant and
staff accountant.
CHRISTOPHER NORTHUP has served as Vice President -- Sales and Marketing
since October 1996. From 1987 until October 1996, Mr. Northup served as the
National Marketing Director. From his joining the Company in 1983 until 1987,
Mr. Northup held the position of Publications Manager.
JAMES C. LOCKWOOD joined the Company in April 1997 and was appointed Vice
President -- General Counsel and Secretary in May 1997. From July 1985 until
he joined the Company in April 1997, Mr. Lockwood was a member of the law firm
of Troy & Gould Professional Corporation.
TIMOTHY C. MCQUAY was appointed a director of the Company upon the
completion of its initial public offering in June 1996. Mr. McQuay joined the
Corporate Finance Department of Crowell, Weedon & Co. as Managing Director --
Corporate Finance in October 1994. From May 1993 to October 1994, Mr. McQuay
was Vice President, Corporate Development with Kerr Group, Inc., a NYSE-listed
plastics manufacturing company. From May 1990 to May 1993, Mr. McQuay was
Managing Director -- Merchant Banking with Union Bank. Mr. McQuay is a
director of Meade Instruments Corp., a publicly-held company.
GEORGE E. SEEBART was appointed a director of the Company upon the
completion of its initial public offering in June 1996. From 1964 until his
retirement in 1993, Mr. Seebart was employed in various executive positions
with Farmers Group, Inc., including as Senior Vice President, Field Operations
and Vice President, Sales and Marketing. From 1987 to 1992, Mr. Seebart was
also President of Mid-Century Insurance Company, a subsidiary of Farmers
Group, Inc.
Pursuant to the North Star Merger, certain shareholders of the Company,
including Virgil K. Benton II, Charles J. Hogarty, Al A. Ronco, Robert L.
Blanton and John M. Palumbo, agreed to vote all shares held by them to elect
Ronald G. Brown as a director of Keystone.
All directors are elected annually and serve until the next annual meeting
of shareholders or until their successors have been elected and qualified. The
Company's Articles of Incorporation provide that, upon the satisfaction of
certain conditions, the Board of Directors will be divided into three classes
of directors, each serving for staggered three-year terms. The Company
believes that the conditions have been satisfied and that the Board of
Directors will be divided into three classes of Directors at the annual
meeting of shareholders scheduled to be held in August 1997. See "Description
of Capital Stock -- Certain Provisions in the Company's Articles and Bylaws."
COMMITTEES OF THE BOARD
The Board of Directors has established an Audit Committee and a Compensation
Committee, whose members are currently Messrs. McQuay and Seebart.
DIRECTOR COMPENSATION
The Company pays an annual retainer of $7,500 to each director who is not
also an employee, payable in equal quarterly installments, $1,000 for each
board meeting and $500 for each committee meeting attended; and reimburses
such person for all reasonable and documented expenses incurred as a director.
In addition, each non-employee director, upon joining the Board of Directors,
receives an option to purchase 10,000 shares of the Common Stock of the
Company pursuant to the Stock Incentive Plan. Such options will have an
exercise price equal to the market price of such shares on the date of grant,
will be immediately exercisable and will have a term of ten years. The Board
of Directors may modify such compensation in the future.
31
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company for services rendered in all capacities during each of the three
fiscal years ended March 28, 1997 to the Company's Chief Executive Officer and
the Company's four other most highly compensated executive officers at the end
of fiscal 1997 (the "Named Executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------- --------------
OTHER ANNUAL LONG TERM ALL OTHER
NAME AND PRINCIPAL COMPENSATION INCENTIVE PLAN COMPENSATION
POSITION YEAR SALARY($) BONUS($) ($)(1) PAYOUTS($)(2) ($)(3)
------------------ ---- --------- -------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Virgil K. Benton II(4).. 1997 295,000 142,345 20,718 -- 3,979
1996 425,000 182,744 20,718 -- 9,069
1995 402,870 -- 20,718 -- 2,930
Charles J. Hogarty...... 1997 250,000 122,010 11,616 -- 2,099
1996 145,000 214,395 11,616 -- 310
1995 134,006 172,266 328,564 278,259 1,518
Al A. Ronco............. 1997 185,000 101,675 11,640 -- 3,725
1996 125,000 187,787 11,640 -- 3,682
1995 117,258 150,887 233,501 194,778 10,000
Robert L. Blanton....... 1997 100,000 40,670 3,195 -- 5,070
1996 102,000 25,000 3,195 -- 5,391
1995 68,250 87,983 66,595 55,661 3,170
John M. Palumbo(5)...... 1997 97,500 -- 6,000 -- 783
1996 3,958 -- -- -- --
</TABLE>
- --------
(1) Consists of automobile lease and related expenses. Amounts shown for
fiscal 1995 include amounts paid for reimbursement of taxes.
(2) Represents compensation relating to the vesting of shares of Common Stock
awarded under the Company's Restricted Stock Plan in prior periods.
(3) Consists of reimbursement of medical and dental expenses not covered by
insurance plans provided to employees generally.
(4) Mr. Benton resigned as Chairman of the Board and Chief Executive Officer
of the Company in May 1997. See "Principal and Selling Shareholders" and
"Certain Transactions."
(5) Mr. Palumbo joined the Company in March 1996.
The Company has entered into employment agreements with Messrs. Hogarty,
Ronco and Blanton, terminable by either party at the end of three years by
written notice, pursuant to which each such person is entitled to (i) receive
an annual base salary of $250,000, $195,000 and $100,000, respectively, (ii)
receive such performance-based bonus, if any, as may be determined by the
Board of Directors, (iii) participate in all plans sponsored for executive
officers in general and (iv) receive the use of an automobile leased and
maintained by the Company. In the event the Company terminates employment
before the end of the stated term without cause or the individual terminates
his employment for specified causes, the Company is obligated to pay the base
salary through the stated term of the agreement. In the event the Company
terminates employment before the end of the stated term with cause, the
Company is obligated to pay the base salary only through the date of
termination.
Upon consummation of the North Star Merger, North Star entered into
employment agreements with Messrs. Brown and Wood. Under a five-year
employment agreement, Mr. Brown is employed as the Vice President-
Manufacturing of North Star and is entitled to (i) receive an annual base
salary for the 12 months commencing March 1, 1997, 1998, 1999, 2000 and 2001
of $325,000, $300,000, $275,000, $225,000 and $150,000, respectively, and (ii)
participate in any group health, medical reimbursement or dental plan
sponsored by the Company or North Star for executive officers in general. In
the event North Star terminates his employment before the end of the stated
term with cause, or Mr. Brown terminates his employment for specified causes,
North Star is obligated to pay the compensation described in clauses (i) and
(ii) only through the date of
32
<PAGE>
termination. In the event North Star terminates his employment before the end
of the stated term other than with cause, North Star is obligated to pay such
compensation through the stated term of the agreement. The agreement further
provides that Mr. Brown will not engage in any "competitive activity" (as
defined in the agreement) during the period commencing on the date of the
employment agreement and ending on the later to occur of the seventh
anniversary of such date or two years after the termination of his employment.
Under an employment agreement terminable by either party at the end of three
years by giving written notice, Mr. Wood is employed as the President and
Chief Operating Officer of North Star and is entitled to (i) receive an annual
base salary of $175,000, (ii) receive such performance-based bonus, if any, as
may be determined by the Board of Directors, (iii) participate in all plans
sponsored by North Star for employees in general and (iv) receive the use of
an automobile leased and maintained by North Star. In the event North Star
terminates his employment before the end of the stated term with cause, or Mr.
Wood terminates his employment for specified causes, North Star is obligated
to pay such compensation only through the date of termination. In the event
North Star terminates employment before the end of the stated term other than
with cause, North Star is obligated to pay such compensation through the
stated term of the agreement, but in no event for less than 12 months. The
agreement further provides that Mr. Wood will not engage in any "competitive
activity" (as defined in the agreement) during the 12-month period commencing
on the termination of his employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the initial public offering of the Company's Common Stock, all
decisions involving executive officer compensation were made by the Company's
Board of Directors, which consisted of Virgil K. Benton, Sr., John G. Jordan,
Virgil K. Benton II, Charles J. Hogarty, Al A. Ronco and Robert L. Blanton.
Since completion of the initial public offering of the Company's Common Stock
in June 1996, the Company's Compensation Committee, consisting of Messrs.
McQuay and Seebart, has made recommendations to the Board of Directors
regarding executive compensation.
STOCK INCENTIVE PLAN
General. The Board of Directors of the Company adopted the 1996 Employee
Stock Incentive Plan (the "Stock Incentive Plan") pursuant to which officers,
directors, employees and independent contractors are eligible to receive
shares of the Common Stock of the Company or other securities or benefits with
a value derived from the value of the Common Stock of the Company. The purpose
of the Stock Incentive Plan is to enable the Company to attract, retain and
motivate officers, directors, employees and independent contractors by
providing for or increasing their proprietary interests in the Company and, in
the case of non-employee directors, to attract such directors and further
align their interests with those of the Company's shareholders by providing
for or increasing their proprietary interests in the Company. The maximum
number of shares of Common Stock that may be issued pursuant to awards granted
under the Stock Incentive Plan currently is 730,000 (subject to adjustments to
prevent dilution), of which options to purchase 587,000 shares were
outstanding as of May 31, 1997. The Board of Directors has approved an
increase in the number of shares issuable under the Stock Incentive Plan to
1,100,000, subject to completion of this Offering and obtaining shareholder
approval.
Administration. The Stock Incentive Plan is administered by a committee of
two or more disinterested directors appointed by the Board of Directors (the
"Committee"), except that grants to non-employee directors are made by the
Board of Directors pursuant to a predetermined formula. The Committee has full
and final authority to select the recipients of awards and to grant such
awards. Subject to the provisions of the Stock Incentive Plan, the Committee
has a wide degree of flexibility in determining the terms and conditions of
awards and the number of shares to be issued pursuant thereto, including
conditioning the receipt or vesting of awards upon the achievement by the
Company of specified performance criteria. The expenses of administering the
Stock Incentive Plan are borne by the Company.
Terms of Awards. The Stock Incentive Plan authorizes the Committee to enter
into any type of arrangement with an eligible recipient that, by its terms,
involves or might involve the issuance of Common
33
<PAGE>
Stock or any other security or benefit with a value derived from the value of
Common Stock. Awards are not restricted to any specified form or structure and
may include, without limitation, sales or bonuses of stock, restricted stock,
stock options, reload stock options, stock purchase warrants, other rights to
acquire stock, securities convertible into or redeemable for stock, stock
appreciation rights, phantom stock, dividend equivalents, performance units or
performance shares. An award may consist of one such security or benefit or
two or more of them in tandem or in the alternative.
An award granted under the Stock Incentive Plan may include a provision
accelerating the receipt of benefits upon the occurrence of specified events,
such as a change of control of the Company or a dissolution, liquidation,
merger, reclassification, sale of substantially all of the property and assets
of the Company or other significant corporate transactions. The Committee may
grant options that either are intended to be "incentive stock options" as
defined under Section 422 of the Internal Revenue Code of 1986, as amended, or
are not intended to be incentive stock options ("non-qualified stock
options"). Awards to non-employee directors may only be non-qualified stock
options.
An award may permit the recipient to pay all or part of the purchase price
of the shares or other property issuable pursuant thereto, or to pay all or
part of such recipient's tax withholding obligation with respect to such
issuance, by (i) delivering previously owned shares of capital stock of the
Company or other property, (ii) reducing the amount of shares or other
property otherwise issuable pursuant to the award or (iii) delivering a
promissory note, the terms and conditions of which will be determined by the
Committee. If an option permits the recipient to pay for the shares issuable
pursuant thereto with previously owned shares, the recipient would be able to
exercise the option in successive transactions, starting with a relatively
small number of shares and, by a series of book-entry exercises using shares
acquired from each such transaction to pay the purchase price of the shares
acquired in the following transaction, to exercise an option for a large
number of shares with no more investment than the original share or shares
delivered. The exercise price and any withholding taxes are payable in cash by
non-employee directors, although the Board of Directors at its discretion may
permit such payment by delivery of shares of Common Stock, or by delivery of
broker instructions authorizing a loan secured by the shares acquired upon
exercise or payment of proceeds from the sale of such shares.
Subject to limitations imposed by law, the Board of Directors may amend or
terminate the Stock Incentive Plan at any time and in any manner. However, no
such amendment or termination may deprive the recipient of an award previously
granted under the Stock Incentive Plan of any rights thereunder without his
consent.
Fiscal 1997 Awards. During the fiscal year ended March 28, 1997, options
were granted to (i) Messrs. McQuay and Seebart, upon their appointment to the
Board of Directors, to purchase 10,000 shares of Common Stock each, (ii) John
M. Palumbo and Robert L. Blanton to purchase 5,000 and 10,000 shares of Common
Stock, respectively, (iii) two non-employees to purchase 45,000 shares of
Common Stock and (iv) 75 other employees to purchase 352,000 shares of Common
Stock, at a weighted average exercise price equal to $12.92. The options
granted to Messrs. McQuay and Seebart became exercisable immediately upon
grant. The options granted to Mr. Palumbo and to the other employees are
exercisable in four equal annual installments. Other than the grant to Mr.
Palumbo, no options were granted to the Named Executives during fiscal 1997.
All such options expire on the tenth anniversary of the date of grant.
Fiscal 1998 Awards. During the current fiscal year, options were granted to
(i) Messrs. Hogarty, Ronco and Wood to purchase 40,000 shares of Common Stock
each, (ii) John M. Palumbo to purchase 15,000 shares of Common Stock and (iii)
James C. Lockwood to purchase 20,000 shares of Common Stock, at an exercise
price equal to $15.75 per share. No other options have been granted to the
Named Executives during fiscal 1998. All such options expire on the tenth
anniversary of the date of grant and are exercisable in four equal annual
installments.
34
<PAGE>
The following table sets forth certain information with respect to options
granted under the Stock Incentive Plan during fiscal 1997 to the Named
Executives.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENTAGE OF TOTAL VALUE AT ASSUMED
OPTIONS GRANTED ANNUAL RATE OF STOCK
SHARES OF COMMON STOCK TO EMPLOYEES IN EXERCISE EXPIRATION PRICE APPRECIATION
NAME UNDERLYING OPTIONS FISCAL YEAR PRICE DATE FOR OPTION TERM
---- ---------------------- ------------------- -------- -------------- ---------------------
5% 10%
---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John M. Palumbo......... 5,000(1) 1.4% $15.50 March 27, 2007 $ 21,390 $ 47,353
Robert L. Blanton....... 10,000(1) 2.7% $15.50 March 27, 2007 $ 42,780 $ 74,705
</TABLE>
- --------
(1) The options vest in four equal annual installments, with the first
installment vesting on March 28, 1998.
OPTION EXERCISES AND YEAR-END VALUE TABLE
AGGREGATED OPTION EXERCISES IN LAST FISCAR YEAR
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS IN-THE-MONEY OPTIONS AT
ACQUIRED AT YEAR-END YEAR-END
ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- -------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
John M. Palumbo......... -- -- 0/ 5,000 $0/0
Robert L. Blanton....... -- -- 0/10,000 0/0
</TABLE>
The Company has registered under the Securities Act the shares of its Common
Stock issuable pursuant to the Stock Incentive Plan. See "Description of
Capital Stock -- Shares Eligible For Future Sale."
EMPLOYEE DEFINED BENEFIT PENSION PLAN
General. The Board of Directors adopted the Employee Defined Benefit Pension
Plan (the "Pension Plan"), originally effective as of April 1, 1978, for the
benefit of the eligible employees of the Company. Since the implementation of
the Pension Plan, the Company has amended the Pension Plan from time to time.
The primary purpose of the Pension Plan was to provide a retirement benefit
for participating employees who continue in the employ of the Company until
their retirement. Effective April 30, 1997, the Pension Plan was suspended
with no further benefits to accrue on behalf of any participant or beneficiary
and no further contributions, except as may be required for fiscal 1997 or by
law, to be made. It is anticipated that the Pension Plan will be terminated
within the next two years and that the termination will not have a material
adverse impact on the financial condition of the Company upon that event. The
Pension Plan has been replaced with the 401(k) Savings Plan described below.
35
<PAGE>
Estimated Monthly Benefits. The following table sets forth the estimated
monthly benefit under the Pension Plan based on the current benefit structure.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------
REMUNERATION 15 20 25 30 35
------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
$125,000.............................. $1,172 $1,563 $1,953 $2,344 $2,734
150,000.............................. 1,407 1,875 2,344 2,813 3,281
175,000.............................. 1,407 1,875 2,344 2,813 3,281
200,000.............................. 1,407 1,875 2,344 2,813 3,281
225,000.............................. 1,407 1,875 2,344 2,813 3,281
250,000.............................. 1,407 1,875 2,344 2,813 3,281
300,000.............................. 1,407 1,875 2,344 2,813 3,281
400,000.............................. 1,407 1,875 2,344 2,813 3,281
450,000.............................. 1,407 1,875 2,344 2,813 3,281
500,000.............................. 1,407 1,875 2,344 2,813 3,281
</TABLE>
The compensation covered by the Pension Plan includes basic salary or wages,
overtime payments, bonuses, commissions and all other direct current
compensation, but does not include contributions by Keystone to Social
Security, benefits from stock options (whether qualified or not),
contributions to this or any other retirement plans or programs, or the value
of any other fringe benefits provided at the expense of Keystone. For benefit
calculation purposes, a "highest-five-year" average of compensation is used.
Benefits are paid as straight-life annuities with no subsidies or offsets. The
compensation covered by the Pension Plan for all of the Named Executive
Officers was limited to $150,000 in accordance with Section 401(a)(17) of the
Internal Revenue Code of 1986, as amended.
The years of credited service for each Named Executive who participates in
the Pension Plan are as follows:
<TABLE>
<CAPTION>
NAME YEARS
---- -----
<S> <C>
Virgil K. Benton II................ 22
Charles J. Hogarty................. 37
Al A. Ronco........................ 38
Robert L. Blanton.................. 28
John M. Palumbo.................... 1
</TABLE>
401(K) SAVINGS PLAN
Effective April 1, 1997, the Section 401(k) Savings Plan (the "Plan") in
effect at North Star was amended to make the Plan available to Keystone
employees. Pursuant to the amendment, the Company became the Plan sponsor and
North Star became an adopting employer. All employees of the Company as of
April 1, 1997, became participants in the Plan and the amendment had no affect
upon those persons who were employed at North Star on April 1, 1997. Persons
becoming employees of the Company subsequent to April 1, 1997 are not eligible
to participate until they complete one year of service and are at least 21
years of age.
Under the terms of the Plan, participants can contribute, by way of payroll
deductions, from 1% to 15% of their pre-tax compensation annually, subject to
certain legal limitations. The Plan also provides for a matching contribution
by the Company equal to 50% of a participant's contribution, up to a maximum
6% of compensation. For purposes of determining the amount of contributions
and matching contributions to be allocated to a participant's account,
compensation is defined as the annual income amount reportable by the Company
for federal income tax purposes, including overtime, commissions and bonuses.
36
<PAGE>
A participant is always 100% vested in his own Plan contributions. A
participant becomes 100% vested in the matching contributions allocated to his
account upon his attainment of early retirement age (age 55 and four years of
service), normal retirement age (age 65), disability while employed by the
Company, his death while employed by the Company or the termination or
complete discontinuance of contributions to the Plan.
If a participant terminates employment with the Company for any other
reason, a participant vests 25% in his benefits after one year of service, 25%
each year thereafter, with 100% vesting after four or more years of service.
EMPLOYEE STOCK OWNERSHIP PLAN
General. The Board of Directors adopted the Employee Stock Ownership Plan
(the "ESOP"), originally effective as of April 1, 1975, for the benefit of the
eligible employees of the Company. Since the implementation of the ESOP, the
Company has amended the ESOP from time to time. Most recently, the Company
amended and restated the ESOP in order to comply with the requirements of the
Tax Reform Act of 1986 and later legislation, generally effective as of April
1, 1989. The primary purpose of the ESOP is to permit participating employees
to share in the growth and prosperity of the Company through the ownership of
the Company's Common Stock under the ESOP. All employees of the Company are
eligible to participate in the ESOP as of their date of hire. The Company does
not intend to make contributions to the ESOP for the foreseeable future.
Administration. The ESOP is administered by a committee (the "Committee")
that is appointed by the Board of Directors. The Committee oversees the day-
to-day administration of the ESOP and is responsible for making determinations
on questions of administration, interpretation and application of ESOP terms,
including questions of eligibility, service and distribution of plan benefits
to participants. The Committee will carry out its responsibilities under the
ESOP in a uniform and nondiscriminating manner.
ESOP Contributions and Vesting. The ESOP provides for employer contributions
only, the amount of which is determined by the Board of Directors on an annual
basis. Tax law limits deductible contributions to the ESOP to 15% of the total
compensation paid during the year to participating employees.
For purposes of calculating the amount of a participant's employer
contributions in any year, compensation means all wages and salaries paid to
the participant during the year, including bonuses, overtime and commissions.
A participant will become fully vested in his employer contributions upon
the attainment of normal retirement age, death or termination of the ESOP. If
the participant terminates employment prior to retirement age, the vested
interest he has in his employer contributions will be based on his years of
service, with 20% of vesting upon the completion of three years of service,
and 20% for each additional year thereafter, with 100% vesting after seven or
more years of service.
ESOP Investments. Because the ESOP is an employee stock ownership plan, it
is designed to comply with the legal requirement that all plan assets be
invested primarily in the Company's Common Stock. Cash contributions made by
the Company to the ESOP, therefore, are used by the trustee to purchase the
Company's Common Stock at such time as the trustee deems it prudent to do so.
In compliance with applicable legal requirements, the ESOP also permits
eligible participants to diversify the investment of their plan assets under
the ESOP. An eligible participant is a participant who has attained age 55 and
who has at least ten years of participation in the ESOP. An eligible
participant is entitled to diversify up to 25% of his account balance for a
six-year period, and at the end of the six-year period, he will be entitled to
diversify up to 50% of his account balance. For purposes of meeting
diversification requirements, the Company will either make a distribution to
the eligible participant of his diversified amount, or provide three
investment funds under the ESOP to enable the eligible participant to
diversify the investment of his plan assets.
37
<PAGE>
ESOP Amendment or Termination. Under the terms of the ESOP, the Company
reserves the right to amend or terminate the ESOP at any time and in any
manner. No amendment or termination, however, may deprive a participant of any
benefit he has accrued under the ESOP prior to the effective date of the
amendment or termination.
CERTAIN TRANSACTIONS
The Company has entered into three lease agreements with two partnerships
whose partners include certain of the Company's directors and officers and two
lease agreements with a corporation which is owned by a family member of a
former officer and director of the Company. In addition, as a result of the
North Star Merger, the Company is a party to four leases with partnerships
whose partners include persons, or their spouses, who are currently officers
or directors of the Company. The Company believes that the terms and
conditions of such leases with affiliated parties are no less favorable to the
Company than could have been obtained from unaffiliated parties in arm's
length transactions at the time such leases were entered into.
The Company entered into a lease dated January 5, 1995, with V-JAC
Properties, Ltd. for an 8,000 square feet warehouse facility in Ontario,
California, with a lease term of three years (with an option to renew the
lease for an additional three years on the same terms and conditions), for a
monthly rent of $3,494. V-JAC Properties, Ltd. is a partnership whose
interests are held equally by Virgil K. Benton, Sr., and John G. Jordan, each
of whom is a co-founder of the Company, and Al A. Ronco and Charles J.
Hogarty, who are currently directors and executive officers of the Company.
The Company has also entered into a lease dated January 5, 1995, with V- JAC
Properties, Ltd. for a 10,000 square feet warehouse facility in Palmyra, New
Jersey, with a lease term of three years (with an option to renew the lease
for an additional three years on the same terms and conditions), for a monthly
rent of $2,985.
The Company entered into a lease dated January 5, 1995, with B-J Properties,
Ltd. for a 25,000 square feet warehouse facility in St. Louis, Missouri, with
a lease term of three years (with an option to renew the lease for an
additional three years on the same terms and conditions), for a monthly rent
of $5,067. B-J Properties, Ltd. is a partnership whose interests are held
61.75% by Virgil K. Benton, Sr. and 38.25% by John G. Jordan, the Company's
co-founders, both of whom retired as directors effective March 31, 1996.
The Company entered into a lease dated April 1, 1995, with Benton Real
Properties, Inc. relating to approximately 24,082 square feet in Ontario,
California, with a lease term of five years, for a monthly rent of $6,088 in
the first year of the lease, increasing to $6,271, $6,549, $6,653 and $6,853,
respectively, in each year thereafter. In January 1996, the Company exercised
a five-year lease option expiring December 31, 2000, with respect to a lease
dated January 1, 1991, with Benton Real Properties, Inc. relating to
approximately 20,000 square feet in Ontario, California for a monthly rent of
$5,634 in the first year of the lease, increasing to $5,803, $5,977, $6,157
and $6,341, respectively, in each year thereafter. Benton Real Properties,
Inc. is wholly owned by Bertha Benton, the mother of Virgil Benton II. Mr.
Benton resigned as the Company's Chief Executive Officer and a director in May
1997.
On January 1, 1995, North Star entered into a ten-year lease agreement with
a partnership owned by the spouses of Ronald G. Brown and Kim D. Wood to lease
property occupied by North Star's East Peoria, Illinois service center. The
initial base rent under the lease was $6,975 per month, which is subject to
increase on each anniversary of the lease term by the percentage increase in
the Consumer Price Index during the preceding year. In addition to the base
rent, North Star pays real estate taxes, maintenance, utilities and insurance
costs associated with the property.
On January 1, 1995, North Star entered a ten-year lease agreement with a
partnership owned by the spouse of Raymond Wood, a former shareholder, officer
and director of North Star, and the spouse of Ronald G. Brown to lease the
property occupied by North Star's Brainerd, Minnesota chrome bumper plating
center. The initial base rent under the lease was $21,300 per month, which is
subject to increase on each anniversary of the lease
38
<PAGE>
term by the percentage increase in the Consumer Price Index during the
preceding year. In addition to the base rent, North Star pays real estate
taxes, maintenance, utilities and insurance costs associated with the
property. Pursuant to the lease agreement, North Star is responsible for
certain occurrences on the premises, including any environmental
contamination.
On January 1, 1995, North Star entered into a ten-year lease agreement with
a partnership owned by Kim D. Wood and Richard Monson, the general manager of
North Star's Brainerd, Minnesota chrome bumper manufacturing and recycling
center to lease the property occupied by North Star's St. Cloud, Minnesota
service center. The initial base rent under the lease was $5,000 per month,
which is subject to increase on each anniversary of the lease term by the
percentage increase in the Consumer Price Index during the preceding year. In
addition to the base rent, North Star pays real estate taxes, maintenance,
utilities and insurance costs associated with the property.
On May 20, 1996, North Star entered into a ten-year lease agreement with a
partnership owned by the spouses of Ronald G. Brown and Kim D. Wood and the
Brown Family Limited Partnership to lease property occupied by North Star's
headquarters and Minneapolis, Minnesota service center hub. The initial base
rent under the lease was $12,000 per month, which is subject to increase on
the anniversary of the lease term by the percentage increase in the Consumer
Price Index during the preceding year. In addition to the base rent, North
Star pays real estate taxes, maintenance utilities and insurance costs
associated with the property. In an amendment to the lease dated September 23,
1996, the partnership agreed to construct a 37,260 square foot addition to the
existing building. North Star began occupying the addition in January 1997
and, accordingly, the base rent increased to $25,627 per month.
From time to time, the Company has borrowed funds from its directors,
officers and principal shareholders for general working capital purposes. In
March 1996, all such indebtedness was repaid. During the last three fiscal
years, the maximum principal amount outstanding under each such loan was
$123,668 and $240,596 to John G. Jordan, who retired as a director effective
March 31, 1996, and Charles J. Hogarty, respectively. The Company believes the
terms of such transactions were no less favorable to the Company than could
have been obtained from an unaffiliated party.
Crowell, Weedon & Co., one of the representatives of the underwriters of the
Company's initial public offering, provided certain financial advisory
services to the Company during fiscal 1996. In January 1996, the Company
entered into an agreement with Crowell, Weedon & Co. to provide certain
financial advisory services to the Company in connection with evaluating the
North Star Merger. Upon the consummation of the North Star Merger, Crowell,
Weedon & Co. received $125,000 in consideration of such services. Timothy C.
McQuay, a director of the Company, is a Managing Director -- Corporate Finance
of Crowell, Weedon & Co.
In May 1997, Virgil K. Benton II resigned as the Chairman of the Board,
Chief Executive Officer and director of the Company. In connection with his
resignation, the Company and Mr. Benton entered into a Resignation Agreement
and General Release, pursuant to which the Company (i) paid Mr. Benton cash
and properties having a value of approximately $700,000, representing its
obligations to Mr. Benton under the remaining two years of his employment
agreement; (ii) agreed to register Mr. Benton's and certain related and
affiliated persons' shares for sale in this Offering; and (iii) granted Mr.
Benton a piggyback registration right in the event less than one million of
the shares of Common Stock being offered by Mr. Benton and certain of his
relatives and affiliates pursuant to this Prospectus are sold, unless the
shares are withdrawn by those Selling Shareholders.
The Company intends that it will not enter into any material transaction in
which a director or officer of the Company has a direct or indirect financial
interest, unless the transaction is determined by the Company's Board of
Directors to be fair to the Company and is approved by a majority of the
Company's disinterested directors or by the Company's shareholders, as
provided for under California law.
39
<PAGE>
LIMITATION ON LIABILITY AND INDEMNIFICATION
The Articles of Incorporation of the Company limit the liability of the
Company's directors for monetary damages arising from a breach of their
fiduciary duties to the Company and its shareholders, except to the extent
otherwise required by the California General Corporation Law. Such limitation
of liability does not affect the availability of equitable remedies such as
injunctive relief or rescission.
The Company's Bylaws provide that the Company shall indemnify its directors
and officers to the fullest extent permitted by applicable law, including
circumstances in which indemnification is otherwise discretionary. The Company
has entered into indemnification agreements with each of its directors and
executive officers containing provisions which are in some respects broader
than the specific indemnification provisions contained in the California
General Corporation Law. Such agreements may require the Company, among other
things, (i) to indemnify its officers and directors against certain
liabilities that may arise by reason of their status or service as directors
or officers provided such persons acted in good faith and in a manner
reasonably believed to be in the best interests of the Company and, with
respect to any criminal action, had no cause to believe their conduct was
unlawful, (ii) to advance the expenses actually and reasonably incurred by its
officers and directors as a result of any proceeding against them as to which
they could be indemnified and (iii) to obtain directors' and officers'
insurance if available on reasonable terms. There is no action or proceeding
pending or, to the knowledge of the Company, threatened which may result in a
claim for indemnification by any director, officer, employee or agent of the
Company.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions described above or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the shares offered hereby, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
40
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the shares of
Common Stock beneficially owned as of June 23, 1997, and as adjusted to
reflect the sale of the shares offered hereby, by (i) each person known to the
Company to be the beneficial owner of more than five percent of the
outstanding Common Stock of the Company, (ii) those shareholders of the
Company who are selling shares in this Offering (the "Selling Shareholders"),
(iii) each director and the Named Executives and (iv) all directors and
executive officers as a group.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO AFTER OFFERING
OFFERING(2) (2)(3)
------------------ ------------------
PERCENT NUMBER OF PERCENT
NUMBER OF OF SHARES NUMBER OF OF
NAME AND ADDRESS(1) SHARES CLASS(4) OFFERED SHARES CLASS(4)
------------------- --------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Ronald G. Brown (5)....... 1,447,878 15.9% 500,000 947,878 8.4%
Employee Stock Ownership
Plan..................... 1,398,285 14.3 -- 1,398,285 12.4
Virgil K. Benton II (6)... 1,162,019 11.9 1,162,019 -- --
Charles J. Hogarty (7).... 504,014 5.2 142,427 361,587 3.2
Al A. Ronco (8)........... 399,570 4.1 150,000 249,570 2.2
Kim D. Wood (9)........... 252,166 2.6 100,000 152,166 1.4
John M. Palumbo (10)...... 25,000 * 10,000 15,000 *
Robert L. Blanton (11).... 93,559 * 6,376 87,183 *
Timothy C. McQuay (12).... 10,000 * -- 10,000 *
George E. Seebart (12).... 10,000 * -- 10,000 *
Philip Wolfe, Trustee
(13)..................... 100,000 1.0 100,000 -- --
Virgil K. Benton.......... 72,000 * 72,000 -- --
C. Tucker Cheadle, Trustee
(14)..................... 44,868 * 44,868 -- --
Tally Benton.............. 12,310 * 12,310 -- --
Teen Challenge of Arizona,
Inc. (15) 100,000 1.0 -- 100,000 *
Rhonda Brown Miller (16).. 186,861 1.92 -- 186,861 1.66
Vanessa Brown Smith (16).. 186,861 1.92 -- 186,861 1.66
Vincent B. Brown (16)..... 186,861 1.92 -- 186,861 1.66
Ronald K. Brown (16)...... 29,347 * -- 29,347 *
All directors and execu-
tive officers as a group
(10 persons) (17)........ 2,753,187 28.2 908,803 1,844,384 16.4
</TABLE>
- -------
* Less than one percent.
(1) The business address of each beneficial owner is 700 East Bonita Avenue,
Pomona, California 91767.
(2) Each person has sole voting and investment power over the shares of
Common Stock shown as beneficially owned, subject to community property
laws where applicable.
(3) Assumes no exercise of the Underwriters' over-allotment option.
(4) Shares of Common Stock which the person (or group) has the right to
acquire within 60 days after May 31, 1997 are deemed to be outstanding in
calculating the percentage ownership of the person (or group) but are not
deemed to be outstanding as to any other person or group.
(5) Mr. Brown has granted the Underwriters an option to purchase 5,000 shares
of Common Stock solely to cover over-allotments, if any. To the extent
such option is exercised, the number and percent of shares shown as
beneficially owned by Mr. Brown after the Offering will be reduced
accordingly.
(6) Mr. Benton resigned as the Chairman of the Board, Chief Executive Officer
and director of the Company in May 1997. Excludes 261,887 shares held by
or in trust for members of the Benton family, as to which shares Mr.
Benton disclaims beneficial ownership.
(7) Includes 56,788 shares held for the benefit of Mr. Hogarty by the ESOP
and excludes options to acquire 40,000 shares of Common Stock under the
Stock Incentive Plan, which are not exercisable within 60 days of May 31,
1997. Mr. Hogarty has granted the Underwriters an option to purchase
60,000 shares of Common Stock solely to cover over-allotments, if any. To
the extent such option is exercised, the number of shares shown as
beneficially owned by Mr. Hogarty after the Offering will be reduced
accordingly.
(8) Includes (i) 347,677 shares held by the Ronco Family Trust and (ii)
51,893 shares held for the benefit of Mr. Ronco by the ESOP and excludes
options to acquire 40,000 shares of Common Stock under the Stock
Incentive Plan, which are not exercisable within 60 days of May 31, 1997.
Mr. Ronco has granted the Underwriters an option to purchase 50,000
shares of Common Stock solely to cover over-allotments, if any. To the
extent such option is exercised, the number and percent of shares shown
as beneficially owned by Mr. Ronco after the Offering will be reduced
accordingly.
(9) Includes 81,700 shares of Common Stock held by Mr. Wood as Trustee for
Kristine and Kathryn Wood pursuant to irrevocable trusts, of which 80,000
shares are being sold in this Offering. Excludes options to acquire
40,000 shares of Common Stock under the Stock Incentive Plan, which are
not exercisable within 60 days of May 31, 1997.
(10) Excludes options to acquire 20,000 shares of Common Stock under the Stock
Incentive Plan, which are not exercisable within 60 days of May 31, 1997.
(11) Includes 27,183 shares held for the benefit of Mr. Blanton by the ESOP.
(12) Consists of shares issuable upon the exercise of stock options granted
under the Company's Stock Incentive Plan to the named individual.
(13) Represents shares held by Mr. Wolfe as Trustee for the Benton Charitable
Trust.
(14) Represents shares held by Mr. Cheadle as Trustee for the Benton
Irrevocable Trust.
(15) This shareholder has granted the Underwriters an option to purchase up to
100,000 shares of Common Stock solely to cover over-allotments, if any.
To the extent such option is exercised, the number and percent of shares
shown as beneficially owned after the Offering will be reduced
accordingly.
(16) Each of these shareholders, except for Ronald K. Brown, has granted the
Underwriters an option to purchase up to 30,000 shares of Common Stock
solely to cover over-allotments, if any. Mr. Brown has granted the
Underwriters an option to purchase up to 5,000 shares. To the extent such
option is exercised, the number and percent of shares shown as
beneficially owned by each of these shareholders after the Offering will
be reduced accordingly.
(17) Excludes 200,000 shares subject to options which are not exercisable
within 60 days of May 31, 1997 and includes (i) 135,864 shares held for
the benefit of directors and executive officers by the ESOP and
(ii) 30,000 shares subject to options exercisable within 60 days of May
31, 1997.
41
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company currently is authorized to issue up to (i) 20,000,000 shares of
Common Stock, of which 9,750,000 shares were outstanding at May 31, 1997, and
(ii) 3,000,000 shares of Preferred Stock, none of which are outstanding. At
the annual meeting of shareholders, scheduled to be held in August 1997, the
Company intends to seek shareholder approval to amend its Restated Articles of
Incorporation to increase the authorized number of shares of Common Stock from
20,000,000 to 50,000,000.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held of
record on each matter submitted to a vote of shareholders. While the Company's
shareholders currently may cumulate their votes for the election of directors,
cumulative voting will no longer be required or permitted under the Company's
Articles of Incorporation (the "Articles") at such time as the Company's
shares of Common Stock are listed on the Nasdaq National Market and the
Company has at least 800 holders of its equity securities as of the record
date of the Company's most recent annual meeting of shareholders. At the same
time, the Company will divide its Board into three classes of directors. The
Common Stock is listed on the Nasdaq National Market and the Company believes
that it has, and will at the record date for its annual meeting of
shareholders scheduled to be held in August 1997 have, at least 800 holders of
its Common Stock. Subject to preferences which may be granted to the holders
of Preferred Stock, each holder of Common Stock is entitled to share ratably
in distributions to shareholders and to receive ratably such dividends as may
be declared by the Board of Directors out of funds legally available therefor
and, in the event of the liquidation, dissolution or winding up of the
Company, is entitled to share ratably in all assets of the Company remaining
after payment of liabilities. Holders of Common Stock have no conversion,
preemptive or other rights to subscribe for additional shares, and there are
no redemption rights or sinking fund provisions with respect to the Common
Stock. The outstanding shares of Common Stock are, and the shares to be sold
by the Company in this Offering will be, when issued and delivered against
receipt of the consideration set forth in this Prospectus, validly issued,
fully paid and nonassessable. Additional shares of Common Stock may be issued
by the Company from time to time.
PREFERRED STOCK
The Board of Directors, without further action by the holders of Common
Stock, may issue shares of Preferred Stock in one or more series and may fix
or alter the relative, participating, optional or other rights, preferences,
privileges and restrictions, including the voting rights, redemption
provisions (including sinking fund provisions), dividend rights, dividend
rates, liquidation preferences and conversion rights, and the description of
and number of shares constituting any wholly unissued series of Preferred
Stock. The Board of Directors, without further shareholder approval, can issue
Preferred Stock with voting and conversion rights which could adversely affect
the voting power of the holders of Common Stock. No shares of Preferred Stock
presently are outstanding, and the Company currently has no plans to issue
shares of Preferred Stock. The issuance of Preferred Stock in certain
circumstances may delay, defer or prevent a change in control of the Company
without further action by the shareholders, may discourage bids for the
Company's Common Stock at a premium over the market price of the Common Stock
and may adversely affect the market price, and the voting and other rights of
the holders, of Common Stock.
CERTAIN PROVISIONS IN THE COMPANY'S ARTICLES AND BYLAWS
Shareholder Meetings. The Articles provide that any action required to be
taken or that may be taken at any meeting of the Company's shareholders may
only be taken at a meeting of shareholders or by the written consent of the
holders of two-thirds of the outstanding voting shares. In addition, if a
shareholder wishes to propose an item for consideration at a special meeting
of shareholders, or at the annual meeting of shareholders to be held in August
1997, he must give written notice to the Company not less than 30 nor more
than 60 days prior to the meeting or, if later, the tenth day following the
first public announcement of such meeting, or such other date as is necessary
to comply with applicable federal proxy solicitation rules or other
regulations. The Bylaws of the Company (the "Bylaws") provide that, if a
shareholder wishes to propose an item for
42
<PAGE>
consideration at any annual meeting of shareholders, he must give written
notice to the Company not less than 90 days prior to the day and month on
which, in the immediately preceding year, the annual meeting for such year had
been held.
Board of Directors. The Bylaws provide that the number of directors shall be
not less than five nor more than nine until changed by an amendment duly
adopted by the Company's shareholders. The Bylaws further provide that the
exact number of directors shall be fixed from time to time, within such range,
by the Board of Directors. The number of directors currently is fixed at five.
The Articles provide that, upon the satisfaction of certain conditions, the
Board of Directors will be divided into three classes of directors, each
serving for staggered three-year terms. It is anticipated that this will occur
at the next annual meeting of shareholders of the Company, which is scheduled
to be held in August 1997.
Amendment of Articles and Bylaws. The Bylaws may not be amended without the
approval of the holders of at least two-thirds of the outstanding voting
shares or the approval of at least two-thirds of the authorized directors;
provided, however, that the provisions of the Bylaws relating to shareholder
proposals and the number and nomination of directors require the approval of
the holders of at least two-thirds of the outstanding voting shares. In
addition, the provisions contained in the Articles and Bylaws with respect to
the required vote for shareholder action without a meeting, the classification
of the Board of Directors, the elimination of cumulative voting,
indemnification of directors, officers and others and the Preferred Stock may
not be amended without the affirmative vote of at least two-thirds of the
outstanding voting shares.
The foregoing provisions of the Articles and the Bylaws may delay, defer or
prevent a change in control of the Company without further action by the
shareholders, may discourage bids for the Company's Common Stock at a premium
over the market price of the Common Stock and may adversely affect the market
price of the Common Stock.
TRANSFER AGENT AND REGISTRAR
The Company has appointed U.S. Stock Transfer Corporation, Glendale,
California as the transfer agent and registrar for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of the Common Stock of the Company in
the public market could adversely affect prevailing market prices.
At May 31, 1997, there were 9,750,000 shares of Common Stock outstanding. Of
these shares, the 3,105,000 shares sold in the Company's initial public
offering and the 2,450,000 shares issued in the North Star Merger are freely
tradeable without restriction or further registration under the Securities
Act, except for any such shares held by an "affiliate" of the Company. The
remaining 4,195,000 shares are "restricted securities" as that term is defined
in Rule 144 and, accordingly, may not be sold without registration under the
Securities Act or pursuant to an applicable exemption therefrom. Of these
shares, 1,700,000 shares are being included in this Offering by certain of the
Selling Shareholders.
In general, under Rule 144 promulgated under the Securities Act, as
currently in effect, a person (or persons whose shares are aggregated) who has
beneficially owned Restricted Shares for at least one year (including the
holding period of any prior owner other than an "affiliate" of the Company),
or who is an "affiliate" of the Company, is entitled to sell within any three-
month period a number of such Restricted Shares or, in the case of an
"affiliate," a number of such Restricted Shares and shares purchased in the
public market, that does not exceed the greater of (i) 1% of the then
outstanding shares of the Company's Common Stock (approximately 97,500 shares,
112,500 shares if this Offering is completed) or (ii) the average weekly
trading volume of the Company's Common Stock in the public market during the
four calendar weeks immediately preceding such sale. Sales under Rule 144 are
also subject to certain requirements as to the manner of sale, notice and
availability
43
<PAGE>
of current public information regarding the Company. A person who has not been
an "affiliate" of the Company at any time during the three months preceding a
sale, and who has beneficially owned Restricted Shares for at least two years,
is entitled to sell such shares under Rule 144 without regard to the volume
limitations, manner of sale provisions or notice requirements. On the date of
this Prospectus substantially all of the Restricted Shares may be deemed to
have been held for more than one year.
The Company and certain of its officers, directors and shareholders have
agreed, in connection with this Offering, not to, directly or indirectly, sell
or otherwise dispose of shares of Common Stock held by them in the public
market, without the prior written consent of the representatives of the
Underwriters. The lock-up period will expire 180 days from the date of this
Prospectus, at which time such shares will become eligible for sale in the
public market under Rule 144. Upon expiration of the lock-up period, the
market price for the Company's Common Stock could be materially and adversely
affected by the sale or availability for sale of such shares.
An aggregate of 730,000 shares, which the Company proposes to increase to
1,100,000 shares, are currently reserved for issuance under the Stock
Incentive Plan. The Company has registered the sale of such shares under the
Securities Act. Accordingly, as awards under the Company's stock incentive
plan vest, shares issued pursuant thereto will be freely tradeable, except
such shares as may be acquired by an "affiliate" of the Company.
44
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), represented by Morgan
Keegan & Company, Inc., A.G. Edwards & Sons, Inc. and Crowell, Weedon & Co.
(the "Representatives"), have severally agreed, subject to the terms and
conditions set forth in the Underwriting Agreement (the "Underwriting
Agreement"), to purchase from the Company and the Selling Shareholders the
number of shares of Common Stock indicated below opposite their respective
names at the public offering price less the underwriting discount set forth on
the cover page of this Prospectus.
<TABLE>
<CAPTION>
NUMBER OF
NAME OF UNDERWRITER SHARES
------------------- ---------
<S> <C>
Morgan Keegan & Company, Inc.......................................
A.G. Edwards & Sons, Inc...........................................
Crowell, Weedon & Co...............................................
---------
Total.......................................................... 3,800,000
=========
</TABLE>
The Underwriting Agreement provides that the Underwriters are obligated to
purchase all of the shares of Common Stock offered hereby (other than those
covered by the over-allotment option described below) if any of such shares
are purchased. The Company and the Selling Shareholders have been advised by
the Underwriters that the Underwriters propose to offer the shares of Common
Stock to the public at the public offering price set forth on the cover page
of this Prospectus and to certain dealers at such price less a concession not
in excess of $ per share of Common Stock. The Underwriters may allow, and
such dealers may reallow, a discount not in excess of $ per share to
other dealers. The public offering price and the concessions and discount to
dealers may be changed by the Underwriters after the public offering.
The Company and certain shareholders have granted to the Underwriters an
option, exercisable for 30 days from the date of this Prospectus, to purchase
up to an additional 570,000 shares of Common Stock (of which the first 310,000
shares will be sold by certain shareholders and the remaining shares will be
sold by the Company) at the public offering price, less underwriting discounts
and commissions, as shown on the cover page of this Prospectus. The
Underwriters may exercise such option solely for the purpose of covering over-
allotments incurred in the sale of the shares of Common Stock offered hereby.
The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters or to contribute to losses arising out of certain
liabilities, including liabilities under the Securities Act.
The Company and each of its executive officers and directors have agreed,
for a period of 180 days from the date of this Prospectus, not to offer, sell,
offer to sell, contract to sell, grant any option to purchase, or otherwise
dispose of, directly or indirectly, any shares of Common Stock, or any
securities convertible into, or exercisable or exchangeable for, shares of
Common Stock, in the public market, without the prior written consent of the
Representatives.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
Timothy C. McQuay, a partner with Crowell, Weedon & Co., serves as a
director of the Company. See "Management" and "Certain Transactions."
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, and penalty bids in accordance with
Regulation M under the Exchange Act. Over-allotment involves syndicate sales
in excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids for and purchases of Common Stock so long
as the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve the purchase of Common Stock in the open market in order
to cover a
45
<PAGE>
syndicate short position. Penalty bids permit the Underwriters to reclaim a
selling concession from a syndicate member when the shares of Common Stock
originally sold by such syndicate member are purchased in a stabilizing
transaction or syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions, and
penalty bids may cause the price of the Common Stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the Nasdaq National Market, or otherwise, and, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Shareholders by Manatt, Phelps &
Phillips, LLP, Los Angeles, California. Certain legal matters will be passed
upon for the Underwriters by Troy & Gould Professional Corporation, Los
Angeles, California.
EXPERTS
The consolidated financial statements of the Company at March 29, 1996 and
March 28, 1997 and for each of the three years in the period ended March 28,
1997, and the financial statements of North Star at September 30, 1995 and
1996 and for each of the three years in the period ended September 30, 1996,
appearing in this Prospectus and the Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their reports
thereon appearing elsewhere herein, and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement
(including any amendments thereto) on Form S-1 under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus, which constitutes
a part of the Registration Statement, omits certain of the information
contained in the Registration Statement and the exhibits and schedules thereto
on file with the Commission pursuant to the Securities Act and the rules and
regulations of the Commission thereunder. The Registration Statement,
including exhibits and schedules thereto, may be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 and copies may be obtained at prescribed rates
from the Public Reference Section of the Commission at its principal office in
Washington, D.C. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith, files reports, proxy or
information statements, and other information with the Commission. Such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at
the following Regional Offices: 7 World Trade Center, 13th Floor, New York,
New York 10048, and Northwestern Atrium Center, 500 W. Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such materials also can be obtained
from the Public Reference Section of the Commission, Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, by mail at prescribed
rates. In addition, the Commission has a Web site on the World Wide Web at
http://www.sec.gov, containing registration statements, reports, proxy and
information statements and other information that registrants, such as the
Company, file electronically with the Commission. The Common Stock is traded
on the Nasdaq National Market, and the Company's reports, proxy or information
statements and other information may be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
46
<PAGE>
INDEX TO FINANCIAL STATEMENTS
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
<TABLE>
<S> <C>
Report of Independent Auditors............................................ F-2
Consolidated Balance Sheets at March 29, 1996 and March 28, 1997.......... F-3
Consolidated Statements of Income for the years ended March 31, 1995,
March 29, 1996 and March 28, 1997........................................ F-4
Consolidated Statements of Shareholders' Equity for the years ended March
31, 1995, March 29, 1996 and March 28, 1997.............................. F-5
Consolidated Statements of Cash Flows for the years ended March 31, 1995,
March 29, 1996 and March 28, 1997........................................ F-6
Notes to Consolidated Financial Statements................................ F-7
NORTH STAR PLATING COMPANY
Report of Independent Auditors............................................ F-18
Balance Sheets at September 30, 1995 and September 30, 1996............... F-19
Statements of Income and Shareholders' Equity for the years ended
September 30, 1994, September 30, 1995 and September 30, 1996............ F-20
Statements of Cash Flows for the years ended September 30, 1994, September
30, 1995 and September 30, 1996.......................................... F-21
Notes to Financial Statements............................................. F-22
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Keystone Automotive Industries, Inc.
We have audited the accompanying balance sheets of Keystone Automotive
Industries, Inc. and subsidiaries as of March 28, 1997 and March 29, 1996, and
the related statements of income, shareholders' equity, and cash flows for
each of the three years in the periods ended March 28, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Keystone Automotive
Industries, Inc. at March 28, 1997 and March 29, 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
March 28, 1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
May 23, 1997
F-2
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 29, MARCH 28,
1996 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 3,876 $ 1,352
Accounts receivable, less allowance for doubtful accounts
of $355 in 1996 and $658 in 1997......................... 15,919 18,738
Inventories, primarily finished goods..................... 30,576 39,512
Prepaid expenses and other current assets................. 867 897
Deferred taxes............................................ 779 1,786
------- -------
Total current assets.................................... 52,017 62,285
Property, plant and equipment, at cost:
Land...................................................... 376 486
Buildings and leasehold improvements...................... 4,973 5,959
Machinery and equipment................................... 5,823 7,359
Furniture and fixtures.................................... 6,820 8,187
------- -------
17,992 21,991
Accumulated depreciation and amortization................. (9,470) (11,241)
------- -------
8,522 10,750
Intangibles................................................ 2,584 3,719
Other assets............................................... 1,592 2,046
------- -------
Total assets............................................ $64,715 $78,800
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit............................................ $13,250 $12,629
Bankers acceptances and other short term debt............. 3,520 3,538
Accounts payable.......................................... 13,086 15,994
Accrued salaries, wages and related benefits.............. 1,540 1,432
Other accrued liabilities................................. 1,140 718
Long-term debt, due within one year....................... 2,527 741
Deferred taxes............................................ -- 386
------- -------
Total current liabilities............................... 35,063 35,438
Long-term debt, less current maturities................... 5,712 913
Notes payable to officers, shareholders and other related
parties 192 192
Deferred taxes............................................ 269 403
Accrued pension cost...................................... 36 --
Shareholders' equity:
Preferred stock, no par value:
Authorized shares--3,000,000
None issued and outstanding............................... -- --
Common stock, no par value:
Authorized shares--20,000,000
Issued and outstanding shares--8,250,000 in 1996 and
9,750,000 in 1997, at stated value....................... 4,299 15,921
Additional paid-in capital................................ 553 553
Retained earnings......................................... 18,591 25,380
------- -------
Total shareholders' equity.............................. 23,443 41,854
------- -------
Total liabilities and shareholders' equity.............. $64,715 $78,800
======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------
MARCH 31, MARCH 29, MARCH 28,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net sales..................................... $ 132,655 $ 157,021 $ 194,321
Cost of sales................................. 79,319 95,131 115,052
---------- ---------- ----------
Gross profit.................................. 53,336 61,890 79,269
Operating expenses:
Selling and distribution expenses............ 38,601 43,800 53,503
General and administrative................... 9,557 9,428 12,340
Merger costs................................. -- -- 905
---------- ---------- ----------
48,158 53,228 66,748
---------- ---------- ----------
Operating income.............................. 5,178 8,662 12,521
Interest expense.............................. 1,200 1,490 1,297
---------- ---------- ----------
Income before income taxes.................... 3,978 7,172 11,224
Income taxes.................................. 1,543 2,836 4,435
---------- ---------- ----------
Net income.................................... $ 2,435 $ 4,336 $ 6,789
========== ========== ==========
Net income per share.......................... $ .29 $ .53 $ .72
========== ========== ==========
Weighted averages shares outstanding.......... 8,255,000 8,250,000 9,408,000
========== ========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
MARCH 28, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance at March 25, 1994, as
previously reported.......... 5,682,622 $ 3,905 $436 $ 6,228 $10,569
Pooling of interests with
North Star Plating
Company..................... 2,450,000 -- 117 5,592 5,709
--------- ------- ---- ------- -------
Balance at March 25, 1994, as
adjusted..................... 8,132,622 3,905 553 11,820 16,278
Retirement of 62,755 shares
of common stock ($3.32 per
share)...................... (62,755) (209) -- -- (209)
Issuance of 180,133 shares of
common stock to
officers ($3.35 per share).. 180,133 603 -- -- 603
Net income................... -- -- -- 2,435 2,435
--------- ------- ---- ------- -------
Balance at March 31, 1995..... 8,250,000 4,299 553 14,255 19,107
Net income................... -- -- -- 4,336 4,336
--------- ------- ---- ------- -------
Balance at March 29, 1996..... 8,250,000 4,299 553 18,591 23,443
Issuance of 1,500,000 shares
in connection with initial
public offering at $9.00 a
share net of offering costs
and commissions of $1,878... 1,500,000 11,622 -- -- 11,622
Net income................... -- -- -- 6,789 6,789
--------- ------- ---- ------- -------
Balance at March 28, 1997..... 9,750,000 $15,921 $553 $25,380 $41,854
========= ======= ==== ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------
MARCH 31, MARCH 29, MARCH 28,
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income...................................... $2,435 $4,336 $ 6,789
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization................. 1,401 1,607 2,617
Deferred taxes................................ (639) 239 (487)
Provision of losses on uncollectible accounts. 270 317 673
Provision for losses on inventory............. 1,324 641 322
(Gain) loss on sales of assets................ 87 (11) (150)
Stock issued for compensation................. 603 -- --
Changes in operating assets and liabilities:
Accounts receivable.......................... (857) (4,672) (2,736)
Inventories.................................. (267) (5,700) (6,834)
Prepaid expenses and other receivables....... (454) 574 (30)
Other assets................................. 176 445 (454)
Accounts payable............................. (520) 3,947 2,908
Accrued salaries, wages and related benefits. (195) 539 (108)
Other accrued liabilities and accrued pension
costs....................................... (60) (524) (458)
------ ------ -------
Net cash provided by operating activities....... 3,304 1,738 2,052
INVESTING ACTIVITIES:
Proceeds from sales of assets................... 66 75 270
Acquisitions of certain service centers......... (1,289) (3,051) (3,175)
Intangible assets acquired...................... (175) (2,003) (1,751)
Purchases of property, plant and equipment...... (2,504) (1,945) (3,854)
------ ------ -------
Net cash used in investing activities........... (3,902) (6,924) (8,510)
FINANCING ACTIVITIES:
Borrowings under bank credit facility........... 2,950 1,560 19,129
Payments under bank credit facility............. (1,210) (50) (19,750)
Bankers acceptances and other short-term debt,
net............................................ (1,024) 1,067 18
Borrowings on notes payable to officers,
shareholders and other related parties......... 14 178 --
Payments on notes payable to officers,
shareholders and other related parties......... (13) (364) --
Borrowings on long-term debt.................... 2,944 4,351 24
Principal payments on long-term debt............ (1,762) (2,131) (7,109)
Proceeds from initial public offering........... -- -- 11,622
Principal payments on capital lease obligations. (141)
Retirement of stock............................. (209) -- --
------ ------ -------
Net cash provided by financing activities....... 1,549 4,611 3,934
------ ------ -------
Net increase (decrease) in cash................. 951 (575) (2,524)
Cash at beginning of year....................... 3,500 4,451 3,876
------ ------ -------
Cash at end of year............................. $4,451 $3,876 $ 1,352
====== ====== =======
Supplemental disclosures
Interest paid during the year................. $1,145 $1,503 $ 1,338
Income taxes paid during the year............. $2,631 $2,412 $ 5,311
Acquisition of businesses using debt.......... $ -- $1,666 $ 500
------ ------ -------
</TABLE>
See accompanying notes.
F-6
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 28, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS INFORMATION
The principal business of Keystone Automotive Industries, Inc. (the
"Company") is the distribution of replacement parts for automobiles and light
trucks to collision repair shops through a network of seventy service centers
located within the United States and one in Mexico.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Keystone Automotive Industries, Inc. and its wholly-owned subsidiary, North
Star Plating Co. All significant intercompany transactions have been
eliminated in consolidation.
CASH EQUIVALENTS
The Company considers all highly liquid instruments with an original
maturity of three months or less when purchased to be cash equivalents. Cash
and cash equivalents are held by major financial institutions.
FISCAL YEAR
The Company uses a 52/53 week fiscal year. The Company's fiscal year ends on
the last Friday of March. The fiscal years ended March 31, 1995, March 29,
1996 and March 28, 1997, included 53, 52 and 52 weeks, respectively.
FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair values of cash and cash equivalents, short-term borrowings and the
current portion of long-term debt approximate cost due to the short period of
time to maturity. Fair values of long-term debt, which have been determined
based on borrowing rates currently available to the Company for loans with
similar terms or maturity, approximate the carrying amounts in the
consolidated financial statements.
INVENTORIES
The Company's inventories consist primarily of automotive collision
replacement parts, paint and related materials and bumpers. Inventories are
stated at the lower of cost (first-in, first-out) or market.
DEPRECIATION
The Company uses the straight-line method for depreciation of property,
plant, and equipment over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings............................... 20 years
Machinery and equipment................. 5-12 years
Furniture and fixtures.................. 5-6 years
Auto and truck.......................... 3-5 years
Leasehold improvements.................. Term of lease or life of the asset,
whichever is shorter, or 5-20 years.
</TABLE>
Depreciation expenses amounted to approximately $1,369,000, $1,483,000, and
$2,001,000 for the years ended March 31, 1995, March 29, 1996 and March 28,
1997, respectively.
F-7
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 28, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATIONS OF RISK
Accounts receivable subject the Company to a potential concentration of
credit risk. Substantially all of the Company's customers are in the auto body
repair business, none representing more than 1% of sales. The Company performs
periodic credit evaluations of its customers' financial condition and
generally does not require collateral. Receivables are generally due within 30
days. Credit losses have consistently been within management's expectations.
During 1997 Keystone imported 25% of its products from the Far East.
ACCOUNTING 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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from these estimates.
STOCK-BASED COMPENSATION
The Company elected to continue to account for stock-based compensation
plans using the intrinsic value-based method of accounting prescribed by
Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock
Issued to Employees," and related interpretations. Management has determined
that the effect of applying Financial Accounting Standards Board Statement No.
123's fair value method to the Company's stock-based awards results in net
income and earnings per share that are not materially different from amounts
reported. Under the provisions of APB 25, compensation expense is measured at
the grant date for the difference between the fair value of the stock and the
exercise price.
REVENUE RECOGNITION
The Company recognizes revenue from product sales at the time of shipment.
The Company provides its customers the right to return products that are
damaged or defective. The effect of these programs is estimated and current
period sales and costs of sales are reduced accordingly.
INTANGIBLES
Excess of cost over net assets acquired is amortized over a fifteen-year
period using the straight-line method. Covenants not to compete are amortized
using the straight-line method over the terms of the agreements. Amortization
expense for the years ended March 31, 1995, March 29, 1996, and March 28, 1997
were $32,000, $124,000, and $616,000, respectively.
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Covenants not to compete..................................... $1,135 $3,012
Excess of cost over net assets acquired...................... 1,605 1,479
------ ------
2,740 4,491
Less: Accumulated amortization............................... (156) (772)
------ ------
Total........................................................ $2,584 $3,719
====== ======
</TABLE>
F-8
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 28, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
The Board of Directors authorized management of the Company to file a
Registration Statement with the Securities and Exchange Commission permitting
the Company to sell shares of its common stock to the public. The Company
restated its Articles of Incorporation and Bylaws to increase the authorized
shares of common stock to 20,000,000 and to authorize 3,000,000 shares of
preferred stock. No preferred stock has been issued. Additionally, the Board
of Directors and shareholders approved a common stock split of 3.8467 to 1 on
April 16, 1996. All share and per share amounts in these financial statements
have been adjusted for the common stock split.
Earnings per share are computed using the weighted average number of shares
of common stock and common stock equivalents (attributable to stock options
which are not material) outstanding during each period. Common stock
equivalents were calculated using the treasury stock method.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted for fiscal years
ending after December 15, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to restate
all prior periods. Under the new requirements for calculating basic earnings
per share, the dilutive effect of stock options will be excluded. The impact
of Statement 128 on the calculation of basic earnings per share and fully
diluted earnings per share for the years ended March 31, 1995, March 29, 1996,
and March 28, 1997 will not be material.
2. MERGER AND ACQUISITIONS
Effective March 28, 1997, the Company completed a merger with North Star
Plating Company ("North Star"). An aggregate of 2,450,000 shares of Keystone
common stock was exchanged for all of the outstanding common stock of North
Star. The transaction was accounted for as a pooling of interests and
therefore, all prior period financial statements presented include North
Star's historical activities. North Star used a September 30 year end. The
North Star balance sheets and statements of income and cash flow have been
conformed to Keystone's fiscal years ended March 31, 1995, March 29, 1996 and
March 28, 1997.
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------
MARCH 31, MARCH 29, MARCH 28,
1995 1996 1997
---------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales:
Keystone..................................... $101,596 $115,326 $138,380
North Star................................... 32,479 43,317 58,227
Intercompany eliminations.................... (1,420) (1,622) (2,286)
-------- -------- --------
Combined....................................... $132,655 $157,021 $194,321
======== ======== ========
Net income:
Keystone..................................... $ 1,406 $ 3,106 $ 4,836
North Star................................... 1,029 1,230 1,953
-------- -------- --------
Combined....................................... $ 2,435 $ 4,336 $ 6,789
======== ======== ========
Other changes in shareholders' equity:
Keystone..................................... $ 394 $ -- $ 11,622
North Star................................... -- -- --
-------- ------- --------
Combined....................................... $ 394 $ $ 11,622
======== ======= ========
</TABLE>
F-9
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 28, 1997
2. MERGER AND ACQUISITIONS (CONTINUED)
Changes in shareholders' equity for the year ended March 31, 1995 are due to
the issuance of 180,133 shares of common stock to officers for $3.35 a share
and the retirement of 62,755 shares of common stock. Changes in shareholders'
equity for the year ended March 28, 1997 are due to the proceeds from the
Company's initial public offering less offering expenses, underwriters
commissions and discounts.
In connection with the merger, $905,000 of merger costs and expenses were
incurred and have been charged to expense during the third and fourth quarter
of the year ended March 28, 1997. The merger costs and expenses consisted
primarily of legal, accounting, and investment banking fees.
During the year ended March 29, 1996, the Company purchased substantially
all of the assets, primarily inventory, furniture and fixtures, and equipment
of M.A.P. International, C.D. Wheel and United Bumper. The Company paid
approximately $1,192,000 in cash and a note for $150,000 due October 1998.
In January of 1996 the Company's wholly-owned subsidiary (North Star)
purchased substantially all of the assets of Carolina Bumper, Inc., Carolina
Auto and Paint Supply, Inc., Carolina Truck Specialties/Automotive Colors,
Inc. and Carolina Bumper/Automotive Colors, Inc., automotive and retail supply
businesses. As consideration for the assets purchased, North Star paid cash of
approximately $3,700,000, assumed certain liabilities and issued a one-year
promissory note in the amount of $647,000. The note is due in monthly
installments and bears interest at the rate of 8%. Promissory notes of
$200,000 (due in 12 equal monthly installments) and $500,000 (due in 60 equal
monthly installments), were issued in exchange for a five year covenant not to
compete. Each note bears interest at a rate of 8%.
The acquisitions for the year ended March 29, 1996 were accounted for using
the purchase method. The acquired assets and liabilities were recorded at
their estimated fair values. The results of operations have been included
since the respective dates of acquisition. These results were not significant
to the financial results of the Company.
During fiscal 1997, the Company purchased substantially all of the assets
primarily inventory, furniture and fixtures, and equipment of After Market
Parts & Supply ("AMPS"), Augusta Bumper, Glenn Automotive Paint & Body Supply,
Inc., and Stockton Plating Inc. The Company paid approximately $5,900,000 in
total for these acquisitions. The acquired assets and liabilities were
recorded at their estimated fair values. The acquisitions were accounted for
using the purchase method. The results of operations have been included since
the respective dates of acquisition. These results were not significant to the
consolidated financial results of the Company.
3. SHAREHOLDERS' EQUITY
In June 1996, the Company's Registration Statement of Form S-1 was declared
effective by the Securities and Exchange Commission, permitting the Company to
sell shares of its common stock to the public. The Company and selling
shareholders sold 1,500,000 and 1,605,000 shares, respectively, at the initial
offering price of $9.00 per share. The Company proceeds of $11,622,000 (net of
underwriter commissions and offering costs) were used to pay down bank debt
and for working capital.
F-10
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 28, 1997
4. LONG-TERM DEBT
Long-term debt consists of the following at March 29, 1996, and March 28,
1997 (in thousands):
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Note payable to bank, due in monthly installments of
$50,000, plus interest at the prime rate (8.25% at March
29, 1996), plus .5% due August 1, 1996..................... $ 250 $ --
Various covenants not-to-compete, payable with interest up
to 8%, through 2001........................................ 804 884
Notes payable to Bumper Exchange, monthly principal of
$6,790 and interest at 1% above the prime rate (8.25% at
March 29, 1996), payable through October 1997. Secured by
inventory, property and equipment.......................... 129 --
Note payable to PNC bank, monthly payments of $6,649 with a
variable interest rate (9.25% at March 29, 1996), payable
through April 30, 1999. Secured by property................ 674 --
Note payable to D. Fales, interest at 1% above the prime
rate, (8.25% at March 28, 1997), payable through October
1998....................................................... 150 150
Note payable to bank, secured by all inventories, equipment,
accounts receivable and fixed assets, payable in monthly
installments of $62,877, including 8.23% interest until
December 31, 2000.......................................... 3,883 --
Note payable, XRJ, Inc., secured by acquired assets, payable
in monthly installments of $56,438 until December 15, 1996. 544 --
Capital lease obligation, payable in monthly installments of
$5,678, including 6.73% interest through December 1, 1998.. 175 117
Other interest bearing notes, payable through 1999.......... 1,822 695
------ ------
8,431 1,846
Less amount due within one year............................. (2,527) (741)
------ ------
Amounts due after one year.................................. $5,904 $1,105
====== ======
</TABLE>
Long-term debt due after one year matures approximately as follows: 1998--
$741,000; 1999--$685,000; 2000--$225,000; 2001--$195,000; 2002 and
thereafter--$0.
5. FINANCING ARRANGEMENTS
On March 25, 1997 the Company entered into a revolving loan agreement with a
commercial lender that provides a $25,000,000 unsecured credit facility that
expires on March 24, 1998. Initial advances under the revolving line of credit
are made with interest at the prime rate (8.5% at March 28, 1997), however at
the Company's option, all advances may be converted to LIBOR plus 0.75%-
0.875%. The weighted average interest rate on the line of credit was 8.3% and
8.1% for the years ended March 29, 1996 and March 28, 1997, respectively. The
agreement also contains an unused line charge of 0.125%. At March 28, 1997 the
unused portion of the line of credit was $12,371,000.
The revolving loan agreement is subject to certain restrictive covenants and
requires that the company maintain certain financial ratios. The Company was
in compliance with all covenants as of March 28, 1997.
F-11
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 28, 1997
6. RELATED PARTY TRANSACTIONS
The Company has entered into various property lease agreements with related
parties including certain of the Company's directors and officers and
agreements with a corporation which is owned by a family member of a Company
officer and director. The leases contain terms up to 10 years. The Company
believes that the terms and conditions of such leases with affiliated parties
are no less favorable than could have been obtained from unaffiliated parties
in arm's length transactions at the time such leases were entered into. Rent
expense paid to related parties, included in the total rent expense, amounted
to $724,000, $665,000 and $931,000 for 1995, 1996 and 1997, respectively,
exclusive of the Company's obligation for property taxes and insurance.
Notes payable to officers, shareholders, and other related parties are
unsecured, due October 1, 1998, and bear interest at the prime rate (8.25% at
March 28, 1997) plus 1%. Interest expense incurred in connection with these
obligations was $32,000 at March 31, 1995, $43,000 at March 29, 1996 and
$21,000 at March 28, 1997.
7. INCOME TAXES
The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
Significant components of the Company's deferred tax liabilities and assets
as of year end as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
----- ------
<S> <C> <C>
Deferred tax assets:
Book depreciation over tax.................................. $ 36 $ --
Uniform cost capitalization................................. 546 765
Inventory reserve........................................... 204 206
Accrued expenses not currently deductible for tax........... 413 696
Other, net.................................................. 108 313
----- ------
Total deferred tax assets..................................... 1,307 1,980
Deferred tax liabilities:
Prepaid expenses............................................ (381) (385)
Tax depreciation over book.................................. -- (182)
----- ------
Total deferred tax liabilities................................ (381) (567)
----- ------
Net deferred tax assets....................................... $ 926 $1,413
===== ======
</TABLE>
No valuation allowance was necessary for deferred tax assets in 1996 or
1997.
F-12
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 28, 1997
7. INCOME TAXES (CONTINUED)
Significant components of the provision for income taxes attributable to
operations under the liability method are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Current:
Federal............................................. $1,760 $2,064 $3,958
State............................................... 422 533 964
------ ------ ------
2,182 2,597 4,922
Deferred:
Federal............................................. (436) 203 (390)
State............................................... (203) 36 (97)
------ ------ ------
(639) 239 (487)
------ ------ ------
$1,543 $2,836 $4,435
====== ====== ======
</TABLE>
The reconciliation of income taxes at the U.S. federal statutory tax rate to
reported income tax expense is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Income taxes at statutory tax rate.................... $1,353 $2,438 $3,816
State income taxes, net of federal tax effect......... 210 381 565
Non-deductible expenses............................... 14 17 47
Other, net............................................ (34) -- 7
------ ------ ------
$1,543 $2,836 $4,435
====== ====== ======
</TABLE>
8. EMPLOYEE BENEFIT PLANS
The Company has an employee stock ownership plan which covers substantially
all of its employees. Under the terms of the Internal Revenue Code, each
year's tax deductible contribution is limited to a maximum of 15% of the
Company's qualified payroll. A carryover of unused allowable contributions is
allowed, subject to certain limits. Under the terms of the plan, the Company
makes the contribution to the Trustee, who is required to follow the
Administrative Committee's investment decisions. The Company's contributions
to the plan were $190,000, in 1995, and none in 1996 and 1997, respectively.
In March 1979, the Company adopted a defined benefit pension plan (the
"Plan") to provide pension benefits to all non-union employees. Plan benefits
are based on an employee's years of service and the compensation during the
five years of employment which would yield the highest average compensation.
The assets of the plan consist primarily of investments in mutual funds, time
certificates of deposit, and marketable debt securities. The Company's policy
is to fund pension cost accrued.
F-13
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 28, 1997
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
The net periodic pension cost for the Plan for the years ended March 31,
1995, March 29, 1996 and March 28, 1997, consisted of the following (in
thousands).
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Service costs-- benefits earned during the year......... $ 120 $ 132 $ 154
Interest cost on projected benefit obligation........... 188 213 232
Actual return on assets................................. (136) (153) (199)
Net amortization and deferral........................... 40 45 40
----- ----- -----
$ 212 $ 237 $ 227
===== ===== =====
</TABLE>
The following is a summary of the status of the funding of the Plan (in
thousands):
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligations.............................. $(2,414) $(2,783)
Non-vested benefit obligations.......................... (65) (81)
------- -------
Accumulated benefit obligations........................... $(2,479) $(2,864)
======= =======
Projected benefit obligations............................. $(2,902) $(3,380)
Assets of the plan at market.............................. 2,442 2,989
------- -------
Projected benefit obligation greater than assets of the
plan..................................................... (460) (391)
Unrecognized net obligation not yet recognized in periodic
pension cost............................................. 1,148 1,195
Unrecognized net transition obligation at March 28, 1987,
being recognized over 25 years........................... 128 120
Adjustment required to recognize minimum liability:
Accrued but not expensed................................ (1) --
Unfunded liability...................................... 36 --
------- -------
Prepaid pension included in other assets and prepaid
expenses................................................ $ 851 $ 924
======= =======
</TABLE>
In determining the actuarial present value of projected benefit obligations
at March 29, 1996 and March 28, 1997, a discount rate of 8% was used. Future
compensation levels are assumed to increase at an annual rate of 5%. The
expected long-term annual rate of return on assets was 8% for the years ended
March 31, 1995, March 29, 1996, and March 28, 1997. In April 1997 the Board of
Directors approved the freezing of the defined benefit pension plan.
Management estimates, after consulting with the Company's actuary, that the
curtailment of the plan is not material to the Company's results of
operations. However, this estimate depends on the plan's asset values at the
date of curtailment.
North Star, a wholly-owned subsidiary, adopted a 401(k) plan in fiscal 1996
that covers substantially all of its employees. Employees who have completed
more than one year of service are eligible and may contribute from 1% to 15%
of their base pay. The Company matches 50% of the first 4% of employee
contributions. Employee contributions vest immediately, while employer
contributions vest based on years of service. Contributions to the plan were
$43,000 and $173,000, as of March 29, 1996 and March 28, 1997, respectively.
On April 1, 1997 the plan was amended to include substantially all of the
Company's employees and to increase the matching contribution to 6% of
employee contribution.
F-14
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 28, 1997
9. STOCK COMPENSATION PLANS
In 1996, the Board of Directors of the Company adopted a Stock Incentive
Plan (the "Plan"). There were 730,000 shares of Common Stock reserved for
issuance under the 1996 Plan. The 1996 Plan provides for granting of stock
options that may be either "incentive stock options" within the meaning of
Section 422A of the Internal Revenue Code of 1986 (the "Code") or "non-
qualified stock options," which do not satisfy the provisions of Section 422A
of the Code. Options are required to be granted at an option price per share
equal to the fair market value of Common Stock on the date of grant. Stock
options may not be granted longer that 10 years from the date of the 1996
Plan. All options granted have ten-year terms and vest at the rate of 25% per
year, commencing one year from the date of grant.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
STOCK OPTION PLAN SHARES PRICE
----------------- ------- --------
<S> <C> <C>
Outstanding at March 29, 1996 -- --
Granted................................................... 432,000 $11.90
Exercised................................................. -- --
Expired................................................... -- --
Outstanding at March 28, 1997............................... 432,000 $11.90
</TABLE>
The following tabulation summarizes certain information concerning
outstanding and exercisable options at March 28, 1997:
<TABLE>
<CAPTION>
PRICE RANGE
---------------
$12.25
TO
$9.00 $15.50
------- -------
<S> <C> <C>
Outstanding options:
Number outstanding......................................... 220,000 212,000
Weighted average exercise price............................ $ 9.00 $ 14.90
Weighted average remaining contractual life in years....... 9.2 9.3
Exercisable options:
Number exercisable......................................... 20,000 45,000
Weighted average exercise price............................ $ 9.00 $ 12.69
</TABLE>
There were no exercisable options outstanding in fiscal years 1996 and 1995.
If the Company had elected to recognize compensation cost based on the fair
value of the options granted at the grant date as prescribed by Statement of
Financial Accounting Standards No. 123, net income and earnings per share
would have been reduced to the pro forma amounts shown below:
<TABLE>
<CAPTION>
1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ------
<S> <C>
Pro forma:
Net income.......................................................... $6,667
Earnings per share:
Primary............................................................ $ 0.71
Fully diluted...................................................... $ 0.71
</TABLE>
F-15
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 28, 1997
9. STOCK COMPENSATION PLANS (CONTINUED)
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option pricing model using the following weighted average
assumptions:
<TABLE>
<CAPTION>
1997
----
<S> <C>
Risk free interest rate................................................ 6.52%
Expected life in years................................................. 4
Expected volatility.................................................... 26.8%
Expected dividend yield................................................ 0.00%
</TABLE>
In fiscal 1995 the Company had 180,133 shares exercised at a weighted
average price of $3.35. This resulted in compensation expense of $1,200,000.
The plan under which these option were granted was terminated in 1995.
10. COMMITMENTS
The Company leases substantially all of its property and a portion of its
plant and equipment. Certain of the leases contain renewal options from two to
five years.
Future minimum lease payments, under noncancelable operating leases with
initial terms of one year or more, are approximately as follows at March 28,
1997 (in thousands):
<TABLE>
<CAPTION>
RELATED TOTAL
PARTY OPERATING
LEASES OTHER LEASES
------- ------- ---------
<S> <C> <C> <C>
1998............................................... $1,002 $ 3,987 $ 4,989
1999............................................... 946 3,200 4,146
2000............................................... 1,078 2,699 3,777
2001............................................... 1,005 1,749 2,754
2002............................................... 977 774 1,751
Thereafter......................................... 2,881 234 3,115
------ ------- -------
Total minimum rental payments...................... $7,889 $12,643 $20,532
====== ======= =======
</TABLE>
Total rent expense amounted to $2,707,000, $4,044,000 and $4,985,000 for
1995, 1996 and 1997, respectively, exclusive of the Company's obligation for
property taxes and insurance. Certain leases contain provisions for rent
escalation that is being amortized on a straight-line basis over the lives of
the leases.
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the
years ended March 29, 1996 and March 28, 1997.
<TABLE>
<CAPTION>
JUNE 30 SEPT. 29 DEC. 29 MAR. 29
------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
--------------------------------
<S> <C> <C> <C> <C>
1996:
Net Sales.................................. $34,667 $35,420 $38,763 $48,171
Gross Profit............................... 13,810 13,773 15,479 18,828
Net Income................................. 760 824 1,199 1,553
Earnings Per Share......................... 0.09 0.10 0.15 0.19
</TABLE>
F-16
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 28, 1997
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
JUNE 28 SEPT. 27 DEC. 27 MAR. 28
------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
--------------------------------
<S> <C> <C> <C> <C>
1997:
Net Sales.................................. $45,561 $43,894 $49,905 $54,961
Gross Profit............................... 18,296 17,712 20,566 22,695
Net Income................................. 1,519 1,636 1,857 1,777
Earnings Per Share......................... 0.18 0.17 0.19 0.18
</TABLE>
12. SUBSEQUENT EVENTS
Effective on May 23, 1997, the Company's Chairman and Chief Executive
Officer resigned his positions to pursue other interests. Under the terms of
the employment agreement, the Company is obligated to pay the balance of his
contract and to provide for certain employee benefits. The Company will record
a pre tax charge of approximately $700,000 in the first quarter of fiscal year
1998 in connection with the settlement of all outstanding obligations.
The Company is planning to file a Form S-1 Registration Statement with the
SEC in connection with a secondary offering of its common stock. The filing is
expected to be effective June 1997. Management has indicated the proceeds from
the offering will be used to paydown the Company's indebtedness under its
revolving lines of credit.
The Company is currently negotiating acquisitions for substantially all the
assets and specific liabilities of a bumper distributor located in the
Southeast and a wheel remanufacturer located in the Midwest for approximately
$4,100,000 in cash. The acquisitions are expected to be completed in June of
1997.
F-17
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
North Star Plating Company
We have audited the accompanying balance sheets of North Star Plating
Company as of September 30, 1996 and 1995, and the related statements of
income and shareholders' equity and cash flows for each of the three years in
the period ended September 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of North Star Plating Company
at September 30, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 1996, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Minneapolis, Minnesota
November 11, 1996
F-18
<PAGE>
NORTH STAR PLATING COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1995 1996
------------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........................... $ 80,234 $ 360,844
Accounts receivable, less allowance for doubtful
accounts and reserve for sales returns and
discounts of $245,000 in 1996 and $75,000 in 1995.. 3,442,079 4,909,622
Other receivables................................... 16,599 114,514
Inventories, less obsolescence reserve of $340,000
in 1996 and $195,000 in 1995....................... 5,633,439 9,849,535
Prepaid expenses.................................... 429,215 317,089
Deferred income taxes............................... 394,000 640,613
----------- -----------
Total current assets................................. 9,995,566 16,192,217
Property and equipment
Leasehold improvements.............................. 413,604 601,355
Shop machinery and equipment........................ 1,187,113 1,722,650
Office furniture and equipment...................... 1,501,016 2,399,607
Vehicles............................................ 1,947,227 2,530,113
----------- -----------
5,048,960 7,253,725
Accumulated depreciation............................ (2,694,208) (3,352,143)
----------- -----------
2,354,752 3,901,582
Other assets
Intangible assets, net of accumulated amortization
of $205,993 in 1996 and $54,417 in 1995............ 130,591 1,973,848
Other............................................... 74,642 36,108
----------- -----------
205,233 2,009,956
----------- -----------
Total assets......................................... $12,555,551 $22,103,755
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable....................................... $ 1,000,000 $ 1,000,000
Accounts payable.................................... 1,972,050 5,159,894
Accrued liabilities................................. 464,222 537,455
Accrued wages....................................... 246,028 444,986
Current maturities of long-term debt................ 661,651 1,678,947
----------- -----------
Total current liabilities............................ 4,343,951 8,821,282
Long-term debt, less current maturities.............. 1,112,008 4,323,405
Deferred income taxes................................ 269,080 335,227
Shareholders' equity
Common Stock, $.01 par value:
Authorized shares--100,000.........................
Issued and outstanding--6,762...................... 68 68
Additional paid-in capital.......................... 117,250 117,250
Retained earnings................................... 6,713,194 8,506,523
----------- -----------
Total shareholders' equity........................... 6,830,512 8,623,841
----------- -----------
Total liabilities and shareholders' equity........... $12,555,551 $22,103,755
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE>
NORTH STAR PLATING COMPANY
STATEMENT OF INCOME AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales.................................. $29,611,965 $34,838,287 $52,152,195
Cost of sales.............................. 17,446,572 20,780,903 31,284,394
----------- ----------- -----------
Gross margin............................... 12,165,393 14,057,384 20,867,801
=========== =========== ===========
Other expenses
General and administrative................ 1,206,881 1,700,668 2,240,722
Selling................................... 9,512,088 10,364,118 15,121,049
----------- ----------- -----------
10,718,969 12,064,786 17,361,771
----------- ----------- -----------
Operating income........................... 1,446,424 1,992,598 3,506,030
Interest expense........................... 182,826 220,658 535,121
Other expense (income)..................... 3,225 (28,697) 27,466
----------- ----------- -----------
Net income before taxes.................... 1,260,373 1,800,637 2,943,443
----------- ----------- -----------
Income tax expense......................... 496,260 728,007 1,150,114
----------- ----------- -----------
Net income................................. 764,113 1,072,630 1,793,329
=========== =========== ===========
Beginning retained earnings................ 4,876,451 5,640,564 6,713,194
----------- ----------- -----------
Ending retained earnings................... $ 5,640,564 $ 6,713,194 $ 8,506,523
=========== =========== ===========
Net income per share....................... $ 113 $ 159 $ 265
=========== =========== ===========
Weighted average shares outstanding........ 6,737 6,762 6,762
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE>
NORTH STAR PLATING COMPANY
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................. $ 764,113 $ 1,072,630 $ 1,793,329
Adjustments to reconcile net income to
net cash provided by (used in)
operations:
Depreciation and amortization........ 527,989 638,016 946,000
Loss on disposal of equipment........ 8,753 63,778 33,032
Deferred income taxes................ (63,510) (64,210) (180,466)
Cash surrender value of officers'
life insurance, net of loans........ (48,090) -- --
Changes in operating assets and
liabilities:
Accounts receivable.................. (306,351) (605,135) (1,104,985)
Inventories.......................... (1,313,602) (743,915) (2,550,815)
Prepaids and other assets............ (269,547) 254,014 150,660
Accounts payable, taxes and other
liabilities......................... 465,367 292,161 3,379,129
----------- ----------- -----------
Net cash (used in) provided by
operating activities.................. (234,878) 907,339 2,465,884
INVESTING ACTIVITIES
Purchase of plant and equipment........ (1,311,206) (580,002) (1,132,424)
Purchase of business................... -- -- (132,914)
Proceeds from sale of property, plant
and equipment......................... 9,910 27,572 71,099
----------- ----------- -----------
Net cash used in investing activities.. (1,301,296) (552,430) (1,194,239)
FINANCING ACTIVITIES
Proceeds from revolving line of credit
and long-term borrowings.............. 1,678,086 635,222 720,189
Principal payments on revolving line of
credit and long-term debt............. (938,525) (1,008,823) (1,711,224)
Issuance of common stock............... 83,646 -- --
----------- ----------- -----------
Net cash provided by (used in)
financing activities.................. 823,207 (373,601) (991,035)
----------- ----------- -----------
Increase (decrease) in cash............ (712,967) (18,692) 280,610
Cash and cash equivalents at beginning
of year............................... 811,893 98,926 80,234
----------- ----------- -----------
Cash and cash equivalents at end of
year.................................. $ 98,926 $ 80,234 $ 360,844
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE>
NORTH STAR PLATING COMPANY
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
North Star Plating Company, in existence since April 1, 1968, is a
manufacturer and wholesale distributor of automotive aftermarket parts and a
wholesale distributor of paint and body supplies.
As stated in Note 2, in January 1996, the Company purchased substantially
all of the assets of Carolina Bumper, Inc., Carolina Auto Body and Paint
Supply, Inc., Carolina Truck Specialties/Automotive Colors, Inc. and Carolina
Bumper/Automotive Colors, Inc., automotive wholesale and retail supply
businesses.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
REVENUE RECOGNITION
The Company recognizes revenue from product sales at the time of delivery or
shipment. The Company provides its customers the right to return products that
are damaged or defective. The effect of these programs is estimated and
current period sales and cost of sales are reduced accordingly.
INVENTORIES
The Company's inventories consist primarily of automotive crash parts,
bumpers and automotive paint. Inventories are stated at the lower of cost
(first-in, first-out method) or market.
INTANGIBLES
Goodwill is amortized over a fifteen-year period using the straight-line
method. The non-compete agreements are amortized using the straight-line
method over the terms of the agreements.
RECLASSIFICATIONS
Certain amounts in the 1995 and 1994 financial statements have been
reclassified to conform with the 1996 presentation.
INCOME TAXES
Income taxes are accounted for under the liability method. Deferred income
taxes are provided for temporary differences between the financial reporting
and tax basis or assets and liabilities.
NEW ACCOUNTING STANDARDS
In October 1995, the FASB issued Statement No. 123, "Accounting for Stock-
Based Compensation," which establishes financial accounting and report
standards for stock-based compensation plans. The Company will comply with
this standard in 1997.
F-22
<PAGE>
NORTH STAR PLATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying value. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The effect of the adoption by the
Company in 1996 was not material.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from the estimates.
DEPRECIATION
The Company uses the straight-line method for depreciation of property,
plant and equipment over the following estimated useful lives:
<TABLE>
<S> <C>
Shop machinery and equipment...................................... 5-12 years
Office furniture and equipment.................................... 5-10 years
Vehicles.......................................................... 3-5 years
Leasehold improvements and capital leases......................... 5-20 years
</TABLE>
CONCENTRATION OF CREDIT RISK
Accounts receivable subject the Company to a potential concentration of
credit risk. Substantially all of the Company's customers are in the auto body
repair business, five representing more than 1% of sales. The Company performs
periodic credit evaluations of its customers' financial condition and
generally does not require collateral. Receivables are due within 30 days.
Credit losses have consistently been within management's expectations.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation plans in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees and Related Interpretations."
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 requires disclosure of
fair value information about financial instruments for which it is practicable
to estimate that value. The Company records its financial instruments at
market value.
F-23
<PAGE>
NORTH STAR PLATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
2. ACQUISITION
On January 1, 1996, the Company purchased substantially all of the assets of
Carolina Bumper Inc., Carolina Auto Body and Paint Supply, Inc., Carolina
Truck Specialties/Automotive Colors, Inc. and Carolina Bumper/Automotive
Colors, Inc., automotive wholesale and retail supply businesses. As
consideration for the assets purchased, the Company paid cash of approximately
$3,700,000, assumed certain liabilities and issued a one-year promissory note
in the original amount of $646,818. The note is due in monthly installments
and bears interest at the rate of 8%.
The Company also issued promissory notes of $200,000 and $500,000 in
exchange for a five-year covenant not to compete on the part of the sole
shareholder and an executive. The first promissory note is due in 12 equal
monthly installments and bears interest at the rate of 8%. The second
promissory note is due in 60 equal monthly installments and bears interest at
the rate of 8%. The related intangible assets are being amortized over the
life of the agreements.
The acquisition was accounted for using the purchase method and,
accordingly, the acquired assets and liabilities were recorded at their
estimated fair values. The results of operations have been included since the
date of acquisition.
The following unaudited supplemental pro forma information has been prepared
assuming the acquisition had occurred at the beginning of the period
presented. Pro forma results are not necessarily indicative of the results
that would have occurred had the acquisition actually taken place at the
beginning of the periods shown, or the expected results of future operations.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------
1995 1996
----------- -----------
<S> <C> <C>
Net Sales............................................ $42,948,000 $54,067,000
Net Income........................................... 780,000 1,743,000
Net Income per share................................. 115 258
</TABLE>
3. INVENTORIES
The major classes of inventories are as follows as of September 30:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Raw materials........................................ $ 726,733 $ 915,984
Work-in-process...................................... 39,600 83,712
Finished goods....................................... 5,062,106 9,189,839
Less reserve for obsolescence........................ (195,000) (340,000)
---------- ----------
$5,633,439 $9,849,535
========== ==========
</TABLE>
4. NOTES PAYABLE
Under terms of its outstanding credit agreements, the Company can borrow up
to $1,000,000 based on certain percentages of eligible collateral, primarily
inventory and receivables. Borrowings under the agreements are at the lender's
sole discretion, are due on demand, bear interest at .5% over the base rate
and are secured by substantially all of the Company's assets. The outstanding
balance of the credit facility at September 30, 1996 and 1995 was $1,000,000.
The Company is prohibited from selling or disposing of its property,
consolidating or merging or declaring or paying dividends except for amounts
required to pay shareholder taxes due on earnings. The Company must also
maintain certain specified financial ratios.
F-24
<PAGE>
NORTH STAR PLATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
5. LONG-TERM DEBT
Long-term debt at September 30 consists of the following:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Installment loans, each loan secured by a vehicle,
maturing at various times through March 25, 1999,
payable in monthly installments of $41,739,
including interest from 7.00% to 9.75%............. $ 487,163 $ 568,114
Note payable to bank, secured by all inventories,
equipment and accounts receivable, payable in
monthly installments of $5,385, including interest
at .50% over the bank's base rate through
December 15, 1997.................................. 140,362 86,131
Note payable, C. Fagerhaugh, due in monthly
installments of $3,965 and $1,322, including 10%
interest, maturing November 1, 1995. Guaranteed by
an officer and former shareholder of the Company... 5,242 --
Note payable, Trombley, Nozel & Howard, unsecured,
due in monthly installments of $4,978, including
9.00% interest until July 15, 1998................. 149,082 100,808
Note payable to bank, secured by all inventories,
equipment, accounts receivable and fixed assets,
payable in monthly installments of $62,877
including 8.23% interest until December 31, 2000... -- 3,663,984
Note payable, XRJ, Inc., secured by acquired assets,
payable in monthly installments of $56,438 until
December 15, 1996.................................. -- 222,040
Demand loan payable, R. Wood, interest 8%,
unsecured.......................................... 42,000 42,000
Loan payable, W. Farmer, unsecured, payable in
monthly installments of $7,124, including variable
interest of .50% over First Chicago's base rate,
through January 15, 1998........................... 173,526 100,706
Note payable, Automotive Enterprises Company,
payable in monthly installments of $15,638,
including 7% interest, until April 15, 1999,
secured by certain vehicles, equipment, inventory,
accounts receivable and goodwill................... 593,194 442,285
Covenants-not-to-compete, payable in monthly
installments of $5,385, no interest, through July
15, 1998........................................... 183,090 118,470
Covenants-not-to-compete, original issue of
$200,000, payable in monthly installments of
$17,451, including interest of 8%, until January
15, 1997........................................... -- 68,656
Covenant-not-to-compete with Melvin Smith, original
issue of $500,000, payable in monthly installments
of $10,138, including interest of 8%, until January
15, 2001........................................... -- 442,400
Capital lease obligation, payable in monthly
installments of $5,678, including 6.73% interest,
through December 1, 1998........................... -- 146,758
---------- ----------
1,773,659 6,002,352
Less current maturities............................. 661,651 1,678,947
---------- ----------
$1,112,008 $4,323,405
========== ==========
</TABLE>
F-25
<PAGE>
NORTH STAR PLATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
5. LONG-TERM DEBT (CONTINUED)
Maturities of long-term debt at September 30, 1996 are as follows:
<TABLE>
<S> <C>
1997.............................................................. $1,678,947
1998.............................................................. 1,220,874
1999.............................................................. 826,210
2000.............................................................. 715,669
2001.............................................................. 1,560,652
----------
$6,002,352
==========
</TABLE>
6. OPERATING LEASES
The Company leases operating facilities and equipment. The terms of the
leases vary. Future lease commitments at September 30, 1996 for noncancelable
operating leases are approximately as follows:
<TABLE>
<S> <C>
1997.............................................................. $1,334,539
1998.............................................................. 1,243,008
1999.............................................................. 1,148,785
2000.............................................................. 1,156,225
2001.............................................................. 1,127,442
Thereafter........................................................ 2,957,006
----------
$8,967,005
==========
</TABLE>
Total rent expense was $1,362,855, $1,030,903 and $943,794 for the years
ended September 30, 1996, 1995 and 1994, respectively. Rent expense to related
parties, included in the total rent expense, during those same years was
$580,371, $527,815 and $495,415, respectively. Certain leases contain
provisions for rent escalation which are being amortized on a straight-line
basis over the lives of the leases.
7. INCOME TAXES
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- ----------
<S> <C> <C> <C>
Current
Federal..................................... $456,084 $600,368 $1,084,671
State....................................... 103,686 191,848 245,909
-------- -------- ----------
Total current................................ 559,770 792,216 1,330,580
Deferred benefit............................. (63,510) (64,210) (180,466)
-------- -------- ----------
$496,260 $728,006 $1,150,114
======== ======== ==========
</TABLE>
F-26
<PAGE>
NORTH STAR PLATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
7. INCOME TAXES (CONTINUED)
The effective tax rate for the years ended September 30, 1996, 1995 and 1994
differs from the federal statutory rate primarily as a result of the provision
for state income taxes and permanent differences. The reconciliation of income
taxes computed at the U.S. federal statutory tax rates to income tax expense
is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------------------ ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Pre-tax book income..... $1,260,373 100.0% $1,800,637 100.0% $2,943,443 100.0%
========== ===== ========== ===== ========== =====
Federal tax at 34%...... $ 428,527 34.0% $ 612,217 34.0% $1,000,771 34.0%
State tax net of federal
benefit................ 60,498 4.8 86,968 4.8 137,627 4.7
Other................... 7,235 0.6 28,822 1.6 11,716 0.4
---------- ----- ---------- ----- ---------- -----
$ 496,260 39.4% $ 728,007 40.4% $1,150,114 39.1%
========== ===== ========== ===== ========== =====
</TABLE>
Deferred income taxes are recorded to reflect temporary differences between
financial and tax reporting. The significant components of the net deferred
tax assets and deferred tax liabilities at September 30, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
1995 1996
------------------ ------------------
NON- NON-
CURRENT CURRENT CURRENT CURRENT
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Deferred tax assets
Accrued vacation.................... $ 34,000 $ -- $ 45,800 $ --
Bad debt reserve.................... 20,000 -- 30,000 --
Allowance for sales returns......... -- -- 40,250 --
Allowance for sales discounts....... -- -- 27,603 --
Inventory obsolescence.............. 78,000 -- 136,960 --
UNICAP.............................. 262,000 -- 360,000 --
Non-compete covenant................ -- 13,320 -- 47,413
-------- --------- -------- ---------
394,000 13,320 640,613 47,413
Deferred tax liabilities
Depreciation........................ -- 282,400 -- 382,640
-------- --------- -------- ---------
Net deferred asset (liability)....... $394,000 $(269,080) $640,613 $(335,227)
======== ========= ======== =========
</TABLE>
8. EMPLOYEE BENEFITS PLAN
The Company adopted a 401(k) plan in fiscal 1996 that covers substantially
all of its employees. Employees who have completed more than one year of
service are eligible and may contribute from 1% to 15% of their base pay. The
Company matches 50% of the first 4% of employee contributions. Employee
contributions vest immediately, while employer contributions vest based on
years of service. The Company's contribution to the plan was $124,665 during
1996.
9. SUPPLEMENTAL CASH FLOW DISCLOSURES
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1994 1995 1996
-------- -------- ----------
<S> <C> <C> <C>
Interest paid during the year.................. $185,326 $220,212 $ 530,267
Income taxes paid during the year.............. 696,365 778,830 1,238,375
Purchase of business........................... -- -- 5,219,547
</TABLE>
F-27
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDER OR ANY OF THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION PRESENTED HEREIN OR IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE AS OF WHICH SUCH INFORMATION IS GIVEN. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT RELATES, OR ANY
SUCH SHARES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary ....................................................... 3
Risk Factors ............................................................. 7
Use of Proceeds .......................................................... 12
Dividend Policy .......................................................... 12
Price Range of Common Stock .............................................. 12
Capitalization ........................................................... 13
Selected Consolidated Financial Data ..................................... 14
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 16
Business ................................................................. 20
Management ............................................................... 30
Principal and Selling Shareholders........................................ 41
Description of Capital Stock ............................................. 42
Underwriting ............................................................. 45
Legal Matters ............................................................ 46
Experts .................................................................. 46
Additional Information ................................................... 46
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,800,000 SHARES
[LOGO OF KEYSTONE AUTOMOTIVE INDUSTRIES, INC.]
KEYSTONE AUTOMOTIVE
INDUSTRIES, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
MORGAN KEEGAN &
COMPANY, INC.
A.G. EDWARDS & SONS, INC.
CROWELL, WEEDON & CO.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Pomona,
State of California, on June 20, 1997.
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
/s/ Charles J. Hogarty
By:____________________________
Charles J. Hogarty,
President
Pursuant to the Securities Act of 1933, this amendment to Registration
Statement has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Charles J. Hogarty
- ------------------------------------ June 20, 1997
<S> <C> <C>
Charles J. Hogarty President, Chief Executive
Officer and Director
<CAPTION>
/s/ Al A. Ronco
- ------------------------------------ June 20, 1997
<S> <C> <C>
Al A. Ronco Executive Vice President,
and Director
<CAPTION>
/s/ John M. Palumbo
- ------------------------------------ June 20, 1997
<S> <C> <C>
John M. Palumbo Vice President and Treasurer
(Principal Financial and
Accounting Officer)
<CAPTION>
- ------------------------------------
<S> <C> <C>
Ronald G. Brown Director
<CAPTION>
/s/ Timothy C. McQuay
- ------------------------------------ June 20, 1997
<S> <C> <C>
Timothy C. McQuay Director
<CAPTION>
- ------------------------------------
<S> <C> <C>
George E. Seebart Director
</TABLE>
II-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1+++++ Form of Underwriting Agreement. [1.1]*
3.1+++ Amended and Restated Bylaws of the Registrant. [3.4]*
3.1.1 Amendment to Amended and Restated Bylaws of the Registrant.
3.2+++ Restated Articles of Incorporation of the Registrant. [3.5]*
4.1+++ Form of stock certificate.
5.1+++++ Opinion of Manatt, Phelps & Phillips, LLP. [5.1]*
10.1+ Employment Agreement dated June 20, 1996, between the Registrant and
Virgil K. Benton II. [10.1]*
10.2+ Employment Agreement dated June 20, 1996, between the Registrant and
Charles J. Hogarty. [10.2]*
10.3+ Employment Agreement dated June 20, 1996, between the Registrant and
Al A. Ronco. [10.3]*
10.4+ Employment Agreement dated June 20, 1996, between the Registrant and
Robert L. Blanton. [10.4]*
10.5++++ Employment Agreement between North Star and Ronald G. Brown. [10.5]*
10.6++++ Employment Agreement between North Star and Kim D. Wood. [10.6]*
10.7+ Indemnification Agreement dated June 20, 1996 between the Registrant
and Virgil K. Benton II. [10.5]*
10.8+ Indemnification Agreement dated June 20, 1996 between the Registrant
and Charles J. Hogarty. [10.6]*
10.9+ Indemnification Agreement dated June 20, 1996 between the Registrant
and Al A. Ronco. [10.7]*
10.10+ Indemnification Agreement dated June 20, 1996, between the
Registrant and Robert L. Blanton. [10.8]*
10.11+ Indemnification Agreement dated June 20, 1996, between the
Registrant and John M. Palumbo. [10.9]*
10.12++++ Indemnification Agreement between the Registrant and Ronald G.
Brown. [10.12]*
10.13++++ Indemnification Agreement between the Registrant and Kim D. Wood.
[10.13]*
10.14+ Keystone Automotive Industries, Inc. 1996 Stock Incentive Plan,
together with forms of incentive stock option, non-qualified stock
option and restricted stock agreements. [10.10]*
10.15+ The Registrant's Employee Defined Benefit Pension Plan, as amended.
[10.11]*
10.16+ The Registrant's Employee Stock Ownership Plan, as amended. [10.12]*
10.17+ The Registrant's 1989 Restricted Stock Option Plan. [10.13]*
10.18+ Lease Agreement, dated January 5, 1995, between V-JAC Properties,
Ltd. and the Registrant. [10.14]*
10.19+ Lease Agreement, dated January 5, 1995, between B-J Properties, Ltd.
and the Registrant. [10.15]*
10.20+ Lease and Option Agreement, dated April 1, 1995, between Benton Real
Properties, Inc. and the Registrant. [10.16]*
10.21+ Lease and Option Agreement, dated January 1, 1991, between Benton
Real Properties, Inc. and the Registrant. [10.17]*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.22+ Lease Agreement, dated January 5, 1995, between V-JAC Properties,
Ltd. and the Registrant. [10.18]*
10.23+ Loan and Security Agreement, dated December 17, 1990, between Union
Bank and the Registrant, as amended. [10.19]*
10.24++ Letter dated May 24, 1996 from Union Bank to the Registrant.
[10.19.1]*
10.25+ Term Loan Rider, dated December 17, 1990, between Union Bank and
the Registrant. [10.20]*
10.26+ Inventory Rider Agreement, dated December 17, 1990, between Union
Bank and the Registrant, as amended. [10.21]*
10.27+ Term Promissory Note, dated December 17, 1990, by the Registrant in
favor of Union Bank. [10.22]*
10.28+ Letter of Credit/Bankers Acceptance Rider, dated December 17, 1990,
between Union Bank and the Registrant, as amended. [10.23]*
10.29+ ERISA Rider, dated December 17, 1990, between Union Bank and the
Registrant. [10.24]*
10.30+ Equipment Rider, dated December 17, 1990, between Union Bank and
the Registrant, as amended. [10.25]*
10.31+ Waiver Letter, dated April 15, 1994, between Union Bank and the
Registrant. [10.26]*
10.32+ Promissory Note, dated September 28, 1992, from the Registrant to
the order of Bumper Exchange, Inc. [10.27]*
10.33++++ Underwriting Agreement dated June 20, 1996, among the Registrant,
certain selling shareholders and Morgan Keegan & Company, Inc. and
Crowell, Weedon & Co., as representatives of the several
underwriters. [10.33]*
10.34++++ Letter Agreement dated January 15, 1996, between Registrant and
Crowell, Weedon & Co. [10.34]*
10.35++++ Affiliate Agreement dated December 6, 1996, among the Registrant,
North Star Plating Company, Ronald G. Brown and Kim D. Wood.
[10.35]*
10.36++++ Form of Registration Rights Agreement among the Registrant, North
Star Plating Company, Ronald G. Brown and Kim D. Wood [10.36]*
10.37++++ Voting Agreement dated December 6, 1996, among the Registrant,
North Star Plating Company, Virgil K. Benton, II, Charles J.
Hogarty, Al A. Ronco, Robert L. Blanton and John M. Palumbo.
[10.37]*
10.38+++++ Credit Agreement dated March 25, 1997 between the Registrant and
Mellon Bank, N.A. [10.38]*
10.39++++ Agreement and Plan of Merger among the Registrant, North Star
Merger, Inc., North Star Plating Company, Ronald G. Brown and
Kim D. Wood dated December 6, 1996. [2.1]*
10.40+++++ Resignation Agreement and General Release effective dated May 1997
between the Registrant and Virgil K. Benton II. [10.40]*
10.41+++++ Lease Agreement, dated January 1, 1995, between North Star and the
spouses of Ronald G. Brown and Kim D. Wood. [10.41]*
10.42+++++ Lease Agreement, dated January 1, 1995, between North Star and the
spouse of Ronald G. Brown and a third party. [10.42]*
10.43+++++ Lease Agreement, dated January 1, 1995, between North Star and a
partnership owned by Kim D. Wood and an employee of North Star.
[10.43]*
10.44+++++ Lease Agreement, dated May 20, 1996, between North Star and a
partnership owned by the spouses of Ronald G. Brown and Kim Wood
and the Brown Family Limited Partnership. [10.44]*
11.1+++++ Computation of per share earnings. [11.1]*
21.1+++++ Subsidiaries. [21.1]*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
23.1 Consent of Ernst & Young LLP, independent auditors of Registrant.
23.2 Consent of Ernst & Young LLP, independent auditors of North Star
Plating Company.
23.3+++++ Consent of Manatt, Phelps & Phillips, LLP (see Exhibit 5.1). [23.3]*
24.1+++++ Power of Attorney (see signature page). [24.1]*
27.1** Financial Data Schedule.
</TABLE>
- --------
* Indicates the exhibit number of the document in the original filing.
** Not applicable--no updated interim or annual financial statements.
+ Filed as an exhibit to the Registration Statement on Form S-1 filed with
the Securities and Exchange Commission on April 18, 1996 (File No.
333-3994).
++ Filed as an exhibit to Amendment No. 1 to the Registration Statement on
Form S-1 filed with the Securities and Exchange Commission on May 30,
1996.
+++ Filed as an exhibit to Amendment No. 2 to the Registration Statement on
Form S-1 filed with the Securities and Exchange Commission on June 17,
1996.
++++ Filed as an exhibit to the Registration Statement on Form S-4 filed with
the Securities and Exchange Commission on December 23, 1996 (File No.
333-18663).
+++++ Filed as an exhibit to the Registration Statement on Form S-1 filed with
the Securities and Exchange Commission on June 6, 1997 (File No.
333-28709).
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions, "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated May
23, 1997 with respect to the financial statements and schedule, included in
the Registration Statement (Form S-1 No. 333-3994) and related Prospectus of
Keystone Automotive Industries, Inc. for the registration of 4,370,000 shares
of its common stock.
/s/ ERNST & YOUNG LLP
Los Angeles, California
June 25, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions, "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated
November 11, 1996, with respect to the financial statements of North Star
Plating Company included in the Registration Statement (Form S-1 No. 333-3994)
and related Prospectus of Keystone Automotive Industries, Inc. for the
registration of 4,370,000 shares of its common stock.
/s/ ERNST & YOUNG LLP
Minneapolis, Minnesota
June 25, 1997
