<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934.
For the quarterly period ended: September 29, 2000
or
[_] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934.
For the Transition period from ________ to ________
Commission file number 0-28568
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-2920557
----------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
700 East Bonita Avenue, Pomona, CA 91767
(Address of principal executive offices) (Zip Code)
(909) 624-8041
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ______.
---
The number of shares outstanding of the registrant's Common Stock, no par value,
at September 29, 2000 was 14,399,345 shares.
This Form 10-Q contains 15 pages.
1
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KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
INDEX
-----
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page Number
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets September 29, 2000 (unaudited) and March 31, 2000 3
Condensed Consolidated Statements of Income Thirteen weeks (unaudited) and twenty-six
weeks ended September 29, 2000 (unaudited) Thirteen weeks (unaudited) and twenty-seven
weeks ended October 1, 1999 (unaudited) 4
Condensed Consolidated Statements of Cash Flows Twenty-six weeks ended
September 29, 2000 (unaudited) and Twenty-seven weeks ended October 1,
1999 (unaudited) 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosure About Market Risks 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
----------------------
Keystone Automotive Industries, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)
<TABLE>
<CAPTION>
September 29, 2000 March 31, 2000
(Unaudited) (Note)
--------------------- -----------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,589 $ 2,884
Accounts receivable, net of allowance of $1,232 at September 2000 and $1,145
at March 2000 26,393 27,644
Inventories, primarily finished goods 80,612 80,176
Other current assets 7,125 7,317
--------------------- -----------------
Total current assets 117,719 118,021
Plant, property and equipment, net 25,529 23,589
Goodwill, net of accumulated amortization of $3,957 at September 2000 and $3,274 at
March 2000 34,371 35,204
Other intangibles, net of accumulated amortization of $2,025 at September 2000 and
$3,123 at March 2000 1,354 1,647
Other assets 5,000 5,356
--------------------- -----------------
Total Assets $183,973 $183,817
===================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Credit facility $ 16,838 $ 12,500
Accounts payable 9,998 12,693
Accrued liabilities 6,304 6,559
Current portion of long-term debt 160 117
--------------------- -----------------
Total current liabilities 33,300 31,869
Long-term debt, less current portion 68 68
Other long-term liabilities 1,629 1,685
Shareholders' Equity:
Preferred stock, no par value:
Authorized shares--3,000,000
None issued and outstanding -- --
Common stock, no par value:
Authorized shares--50,000,000
Issued and outstanding shares 14,399,000 at September 2000 and 14,892,000
at March 2000 78,773 81,817
Warrant 236 236
Additional paid-in capital 1,260 1,260
Retained earnings 68,707 66,882
--------------------- -----------------
Total shareholders' equity 148,976 150,195
--------------------- -----------------
Total liabilities and shareholders' equity $183,973 $183,817
===================== =================
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
NOTE: The balance sheet at March 31, 2000 has been derived from the audited
consolidated financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
3
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Keystone Automotive Industries, Inc.
Condensed Consolidated Statements of Income
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Thirteen Twenty-six Twenty-seven
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
September 29, October 1, September 29, October 1,
2000 1999 2000 1999
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 82,834 $ 92,501 $ 169,445 $ 193,882
Cost of sales 48,312 53,218 97,986 109,693
----------------- --------------- ----------------- --------------
Gross profit 34,522 39,283 71,459 84,189
Operating expenses:
Selling and distribution expenses 26,594 26,848 53,530 55,422
General and administrative 7,457 7,566 15,115 15,223
----------------- --------------- ----------------- --------------
Operating income 471 4,869 2,814 13,544
Other income 535 633 973 1,319
Interest expense, net (396) (93) (692) (141)
----------------- --------------- ----------------- --------------
Income before income taxes 610 5,409 3,095 14,722
Income taxes 251 2,218 1,269 6,036
----------------- --------------- ----------------- --------------
Net income $ 359 $ 3,191 $ 1,826 $ 8,686
================= =============== ================= ==============
Earnings per share:
Basic $ 0.02 $ 0.20 $ 0.13 $ 0.53
================= =============== ================= ==============
Diluted $ 0.02 $ 0.20 $ 0.13 $ 0.53
================= =============== ================= ==============
Weighted average shares outstanding:
Basic 14,399,000 16,117,000 14,478,000 16,435,000
================= =============== ================= ==============
Diluted 14,408,000 16,219,000 14,486,000 16,520,000
================= =============== ================= ==============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
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Keystone Automotive Industries, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Twenty-six Weeks Twenty-seven
Ended September Weeks Ended
29, 2000 October 1, 1999
-----------------------------------------
<S> <C> <C>
Operating activities
Net income $ 1,826 $ 8,686
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 3,622 3,597
Provision for losses on uncollectible accounts 87 207
Provision for losses on inventory -- 339
(Gain) Loss on sale of assets (47) 24
Changes in operating assets and liabilities:
Accounts receivable 1,164 1,024
Inventories (436) (8,255)
Other assets 1,446 1,929
Accounts payable and accrued liabilities (3,005) 2,026
------------------ -------------------
Net cash provided by (used in) operating activities 4,657 9,577
Investing activities
Proceeds from sale of assets 87 48
Purchases of property, plant and equipment (5,375) (3,585)
Cash paid for acquisitions -- (7,748)
------------------ -------------------
Net cash (used in) investing activities (5,288) (11,285)
Financing activities
Borrowings on credit facility 4,338 8,000
Bankers acceptances and other short-term debt, net -- (2,961)
Borrowings on long-term debt 42 46
Repurchases of common stock (3,044) (14,899)
Net proceeds on option exercise -- 101
------------------ -------------------
Net cash provided by (used in) financing activities 1,336 (9,713)
------------------ -------------------
Net increase (decrease) in cash and cash equivalents 705 (11,421)
Cash and cash equivalents at beginning of period 2,884 17,784
Cash and cash equivalents at end of period $ 3,589 $ 6,363
================== ===================
Supplemental disclosures
Interest paid during the period $ 478 $ 137
Income taxes paid during the period $ 1,250 $ 6,938
================== ===================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
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Keystone Automotive Industries, Inc.
Notes to Condensed Consolidated Financial Statements
----------------------------------------------------
(Unaudited)
September 29, 2000
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions of Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments, consisting only of
normal recurring accruals, considered necessary for fair presentation, with
respect to the interim financial statements have been included. The results of
operations for the 26 week period ended September 29, 2000 are not necessarily
indicative of the results that may be expected for the full year ending March
30, 2001. For further information, refer to the financial statements and
footnotes thereto for the year ended March 31, 2000, included in the Keystone
Automotive Industries, Inc. Form 10-K filed with the Securities and Exchange
Commission on June 26, 2000.
2. Fiscal Year
The Company uses a 52/53 week fiscal year. The Company's fiscal year
ends on the last Friday of March. The six month periods ended September 29, 2000
and October 1, 1999, included twenty-six and twenty-seven week periods,
respectively.
3. Income Taxes
The income tax provision for interim periods is based on an estimated
effective annual income tax rate.
4. New Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133-- "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives in the statement of financial
position and measure those instruments at fair value. In 1999, the FASB issued
SFAS No. 137 - "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133-an amendment
of FASB Statement No. 133," for one year. The Company must implement SFAS No.
133 by the first quarter of 2001 and has not yet made a final determination of
its impact on the financial statements.
In June 2000, the Securities and Exchange Commission ("SEC") amended
Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements. The revised effective date of SAB 101 is the fourth fiscal quarter
of the fiscal year beginning after December 15, 1999. The Company has not yet
made a final determination of its impact on the financial statements.
5. Acquisitions
During the 27-week period ended October 1, 1999, Keystone acquired
three companies for approximately $7.7 million in cash. These acquisitions were
accounted for as purchases, and accordingly the assets and liabilities of the
acquired entities have been recorded at their estimated fair values at the dates
of acquisition. The excess of purchase price over the estimated fair values of
the assets acquired was approximately $1.4 million and has been recorded as
goodwill and is being amortized over 15 years. The unaudited pro forma results
for fiscal 2000, assuming these three acquisitions had been made at the
beginning of fiscal 2000, would not be materially different from the results
presented above. No acquisitions were completed during the six months ended
September 29, 2000.
6. Shareholders Equity
In September 1998, the Company initiated a stock repurchase program.
Repurchased shares are retired and treated as authorized but unissued shares.
Through September 29, 2000, the Company had repurchased approximately 3.5
million shares of its common stock at an average cost of $13.11 per share.
Approximately 493,000 shares at an average cost of $6.13 were repurchased during
the six months ended September 29, 2000.
In August 2000, the Board of Dirctors of the Company granted officers,
employees and outside directors stock options to purchase an aggregate of
714,000 shares of Common Stock at an exercise price of $5.53 per share.
Substantially all of these options vest in equal installments over four
years.
6
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KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for the historical information contained herein, certain matters
addressed in this Item 2 constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such forward-looking
statements are subject to a variety of risks and uncertainties that could cause
actual results to differ materially from those anticipated by the Company's
management. The Private Securities Litigation Reform Act of 1995 (the "Act")
provides certain "safe harbor" provisions for forward-looking statements. All
forward-looking statements made in this Quarterly Report on Form 10-Q are made
pursuant to the Act and are subject to the cautionary statement set forth herein
and in the Company's Form 10-K for the year ended March 31, 2000, on file with
the Securities and Exchange Commission.
General
-------
The results of operations for the six months ended September 29, 2000
(the "2000 Six Months") reflect a 26-week period whereas the comparable six
months in the prior fiscal year (the "1999 Six Months") reflects a 27-week
period. Consequently, comparisons of these results may not be meaningful.
In addition, the results of operations for the 2000 Six Months include
the results with respect to the four acquisitions completed during fiscal 2000
accounted for as "purchases." The 1999 Six Months does not include any results
of operations for two of the four acquired entities and includes results of
operations from the other two acquisitions for only a portion of the period.
Such acquisitions include the acquisition of (i) the assets of Quality Bumpers,
LLC completed on May 3, 1999, (ii) the assets and stock of the Nordan Products
group of companies completed on May 10, 1999, (iii) certain assets of Supreme
Bumpers, Inc. completed on October 1, 1999 and (iv) certain assets of Auto Body
Supply Co., Inc. completed on November 1, 1999.
As a result of the verdict in the State Farm class action in October
1999 and the fact that numerous other class actions are pending, State Farm and
certain other insurance companies temporarily suspended specifying the use of
many aftermarket collision replacement parts in connection with the repair of
vehicles which they insure. However, recently two of these insurance companies
have indicated that they intend to once again include certain aftermarket
collision parts on repair estimates, subject to stringent quality control
standards. See Item 5 below. These suspensions had a material, adverse effect on
the Company's revenues and earnings during the 2000 Six Months.
7
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KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
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>
Thirteen Thirteen Twenty-six Twenty-seven
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
September 29, October 1, September 29, October 1,
2000 1999 2000 1999
----------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 58.3 57.5 57.8 56.6
---- ---- ---- ----
Gross profit 41.7 42.5 42.2 43.4
Selling and distributio expenses 32.1 29.0 31.7 28.5
General and administrative expenses 9.0 8.2 8.9 7.9
Other income 0.6 0.7 0.6 0.7
Interest expense, net 0.5 0.1 0.4 0.1
--- --- --- ---
Income before income taxes 0.7 5.9 1.8 7.6
Income taxes 0.3 2.4 0.7 3.1
--- --- --- ---
Net income 0.4% 3.5% 1.1% 4.5%
==== ==== ==== ====
</TABLE>
Thirteen weeks ended September 29, 2000 compared to thirteen weeks ended
------------------------------------------------------------------------
October 1, 1999
---------------
Net sales were $82.8 million for the quarter ended September 29, 2000
(the "2000 Quarter") compared to $92.5 million for the quarter ended October 1,
1999 (the "1999 Quarter"), a decrease of $9.7 million or 10.5%. This decrease
was due primarily to decreases in sales of automotive body parts and bumpers.
During the 2000 Quarter, sales of automotive body parts (including fenders,
hoods, headlights, radiators, grilles and other crash parts), decreased by $5.0
million, sales of new and recycled bumpers decreased by $5.2 million and sales
of paint and related materials increased by $1.1 million, which changes
represent decreases of approximately 12.5% and 17.6% and an increase of 7.5%,
respectively, over the 1999 Quarter. In addition, the Company sold approximately
$5.5 million of remanufactured alloy wheels in the 2000 Quarter compared to $5.3
million in the prior year period, an increase of 3.9%. The decreases were
attributable primarily to the impact of the State Farm case. See "Item 5" below.
Gross profit decreased in the 2000 Quarter to $34.5 million (41.7% of
net sales) from $39.3 million (42.5% of net sales) in the 1999 Quarter, a
decrease of $4.8 million or 12.1%, primarily as a result of the decrease in net
sales. The Company's decrease in gross profit as a percentage of net sales in
the 2000 Quarter reflects the continued fluctuation in cost of sales, primarily
because of factors such as product mix and competition. 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, competition
and currency exchange rates.
Selling and distribution expenses decreased to $26.6 million (32.1% of
net sales) in the 2000 Quarter from $26.8 million (29.0% of net sales) in the
1999 Quarter, a decrease of 1.0%. The increase in these expenses as a percentage
of net sales was generally the result of moving and consolidation costs and
higher fuel costs as well as reduced sales.
General and administrative expenses decreased to $7.5 million (9.0% of
net sales) in the 2000 Quarter compared to $7.6 million (8.2% of net sales) in
the 1999 Quarter, a decrease of 1.4%. The increase in these expenses as a
percentage of net sales was generally the result of reduced sales and the fixed
nature of certain of these costs.
Net income decreased to $359,000 (0.4% of net sales) in the 2000
Quarter from $3.2 million (3.5% of net sales) in the 1999 Quarter. The decrease
is primarily attributable to the decrease in net sales, which resulted in lower
gross profits and higher operating expenses as a percentage of net sales.
8
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Twenty-six weeks ended September 29, 2000 compared to twenty-seven weeks ended
------------------------------------------------------------------------------
October 1, 1999
---------------
Net sales were $169.4 million for the twenty-six weeks ended September
29, 2000 (the 2000 Six Months") compared to $193.9 million for the twenty-seven
weeks ended October 1, 1999 (the "1999 Six Months"), a decrease of $24.4 million
or 12.6%. In addition to a one week shorter period, this decrease was made up of
decreases of $13.3 million in sales of automotive body parts (including fenders,
hood, headlights, radiators, grilles, and other crash parts) and $11.7 million
in sales of new and recycled bumpers and an increase of $1.4 million in sales of
paint and related materials, which changes represent decreases of approximately
15.8% and 18.8% and an increase of 4.8%, respectively, over the comparable
period in the prior fiscal year. In addition, the Company sold approximately
$11.7 million of remanufactured alloy wheels in the 2000 Six Months compared to
$11.0 million in the 1999 Six Months, an increase of 5.9%. The decreases were
primarily as a result of the impact of the State Farm case.
Gross profit decreased in the 2000 Six Months to $71.5 million (42.2%
of net sales) from $84.2 million (43.4% of net sales) in the 1999 Six Months, a
decrease of $12.7 million or 15.1%, primarily as a result of the decrease in net
sales. While the Company's gross profit margin improved during the 1999 Six
Months, compared to the comparable period of the prior fiscal year, due in part
to the increased purchasing leverage (a direct result of acquisitions), internal
growth and the strengthening of the U.S. dollar relative to the Taiwanese
dollar, gross margins declined during the 2000 Six Months primarily as a result
of a change in product mix and competition. 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, competition and currency exchange
rates.
Selling and distribution expenses decreased to $53.5 million (31.7% of
net sales) in the 2000 Six Months from $55.4 million (28.6% of sales) in the
1999 Six Months, a decrease of 3.4%. The increase in these expenses as a
percentage of net sales was generally the result of moving and consolidation
expenses and higher fuel costs, as well as reduced net sales.
General and administrative expenses decreased to $15.1 million (8.9% of
net sales) in the 2000 Six Months from $15.2 million (7.9% of net sales) in the
1999 Six Months, a decrease of 0.7%. The increase in these expenses as a
percentage of net sales was primarily the result of reduced net sales and the
fixed nature of certain of these costs.
Net income decreased to $1.8 million (1.1% of net sales) in the 2000
Six Months from $8.7 million (4.5% of net sales) in the 1999 Six Months. The
decrease in net income as a percentage of net sales was primarily the result of
the decrease in net sales.
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 primarily
to the seasonal nature of the Company'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 from December to April. The
impact of seasonality may be reduced somewhat in the future as the Company
continues to become 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.
Liquidity and Capital Resources
Historically, the Company's primary need for funds has been to finance the
growth of inventory and accounts receivable, the stock buyback program, capital
expenditures and acquisitions. At September 29, 2000, working capital was $84.4
million compared to $86.2 million at March 31, 2000. The Company has financed
its working capital requirements from its cash flow from operations, proceeds
from public offerings of its Common Stock and advances drawn under lines of
credit.
The Company has in place a revolving line of credit with its commercial
lender that provides for a $30 million unsecured credit facility that expires in
October 2001. Advances under the revolving line of credit bear interest at LIBOR
plus 1.0%. At September 29, 2000, $16.8 million had been drawn down under the
line of credit. The line of credit is subject to certain restrictive covenants
set forth in a loan agreement, which requires that the Company maintain certain
financial ratios. The Company was in compliance with all covenants as of
September 29, 2000, and as of the date of the filing of this Quarterly Report.
9
<PAGE>
During fiscal 1999, the Company initiated a stock repurchase program.
Through September 29, 2000, an aggregate of 3.5 million shares had been
repurchased at an average per share price of $13.11. During the 2000 Six Months,
the Company repurchased approximately 493,000 shares of its common stock at an
average price of $6.13.
During the 2000 Six Months, the Company's cash and cash equivalents
increased by $705,000. This increase is the result of an increase in (i) cash
provided by operating activities of $4.7 million from a variety of sources,
primarily net income after adding back depreciation and amortization, and (ii)
cash provided by financing activities of $1.3 million, primarily as a result of
borrowings under the Company's credit facility offset by the repurchase of
shares of the Company's Common Stock. These increases were partially offset by a
decrease in cash used in investing activities of $5.3 million, primarily related
to the purchase of property, plant and equipment.
The Company believes that its existing working capital, estimated cash flow
from operations and funds available under its line of credit will enable it to
finance its operations and stock repurchases for at least the next 12 months.
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 June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133-- "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives in the statement of financial
position and measure those instruments at fair value. In 1999, the FASB issued
SFAS No. 137 - "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133-an amendment
of FASB Statement No. 133," for one year. The Company must implement SFAS No.
133 by the first quarter of 2001 and has not yet made a final determination of
its impact on the financial statements.
In June 2000, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements. The revised effective date of SAB 101 is the fourth fiscal quarter
of the fiscal year beginning after December 15, 1999. The Company has not yet
made a final determination of its impact on the financial statements.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's results of operations are exposed to changes in interest
rates primarily with respect to borrowings under its credit facility, where
interest rates are tied to the prime rate or LIBOR. Under its current policies,
the Company does not use interest rate derivative instruments to manage exposure
to interest rate changes. Based on the current levels of debt, the exposure to
interest rate fluctuations is not considered to be material. The Company is also
exposed to currency fluctuations, primarily with respect to its product
purchases in Taiwan. While all transactions with Taiwan based suppliers are
conducted in U.S. Dollars, changes in the relationship between the U.S. dollar
and the New Taiwan dollar might impact the price of products purchased in
Taiwan. The Company might not be able to pass on any price increases to
customers. Under its present policies, the Company does not attempt to hedge its
currency exchange rate exposure.
10
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None
-----------------
Item 2. Changes in Securities and Use of Proceeds. None
------------------------------------------
Item 3. Defaults Upon Senior Securities. None
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
On August 23. 2000, the Company held it's annual meeting of
shareholders. All of the nominees for election as directors were elected,
without opposition. Following is a tabulation of the votes cast for each
nominee:
Votes Cast
----------
Nominee For Withheld
------- --- --------
Ronald G. Brown 11,998,542 1,126,524
Charles J. Hogarty 11,955,690 1,169,376
Al A. Ronco 11,834,770 1,290,296
Timothy C. McQuay 12,008,550 1,116,516
George E. Seebert 12,009,400 1,115,666
Keith M. Thompson 11,938,232 1,186,834
A. Jayson Adair 12,004,520 1,120,546
Ronald G. Foster 12,006,620 1,186,834
Shareholders approved an amendment to the 1996 Employee Stock Incentive
Plan to increase from 1,100,000 to 2,200,000 the number of shares issuable under
the Plan, with 6,247,258 shares voted for, 1,688,776 against, 232,775 shares
abstained and there were 4,956,457 broker non-votes.
In addition, the shareholders ratified the appointment of Ernst & Young
LLP as independent accountants for the Company for the 2001 fiscal year with
13,174,438 shares voted for ratification, 14,760 voted against and 208,848
abstained.
Item 5. Other Information.
-----------------
State Farm Decision and Pending Actions. In July 1997, certain
individuals initiated a class action lawsuit against State Farm in the Illinois
Circuit Court in Williamson County (Marion, Illinois), asserting claims for
breach of contract, consumer fraud and equitable relief relating to State Farm's
then practice of sometimes specifying the use of parts manufactured by sources
other than the original equipment manufacturer ("non-OEM crash parts") when
adjusting claims for the damage to insured vehicles. The Williamson County Court
certified a near-nationwide class. It was alleged that this practice breached
State Farm's insurance agreements with its policyholders and was a violation of
the Illinois Consumer Fraud and Deceptive Business Practices Act because non-OEM
crash parts are inherently inferior to OEM crash parts and, consequently,
vehicles are not restored to their "pre-loss condition" as specified in their
policy. In October 1999, after a lengthy trial, the jury awarded the class
damages in the amount of approximately $460 million and the judge assessed
punitive damages against State Farm of over $700 million. State Farm has
appealed the verdict.
Shortly after the verdict in the Williamson County case, State Farm
suspended specifying most non-OEM crash parts used in connection with repairing
cars covered by their insurance. Effective November 8, 1999, Nationwide
Insurance and Farmers Insurance also temporarily suspended specifying many non-
OEM crash parts. The action of these insurance companies has had a material
adverse impact on the Company's sales and net income. While certain other
insurers have also restricted the use of a limited number of aftermarket parts
such as bumpers and hoods, the Company has been informed that both Nationwide
Insurance and Farmers Insurance intend to once again permit the specification of
certain of the crash parts suspended in November 1999, subject to stringent
quality control standards. The exact timing and extent of the reintroduction of
suspended aftermarket crash parts is uncertain and there can be no assurance
that such action will have a material impact on the Company's sales and net
income.
See "Management Discussion and Analysis of Financial Condition and Result of
Operations-General" above.
At the present time, lawsuits are pending in a number of states against
several insurance companies alleging violation of contractual provisions and
various laws and statutes relating to the specification of non-OEM crash parts
in connection with the repair of damaged vehicles. These cases have been brought
as class actions and generally involve two different legal
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theories. One line of cases is similar to State Farm contending that non-OEM
crash parts do not restore a vehicle to their "pre-loss condition" as provided
for in the insurance policy. The other theory is that of "diminished value,"
with the contention being that in addition to repairing the vehicle, the owner
should be compensated for the difference between the pre-loss value and the
value after the vehicle is repaired. In at least one pending action, the Company
believes that the Certified Aftermarket Parts Association (CAPA) has been joined
as a defendant in connection with their certification of non-OEM crash parts.
While the Company was, and is, not a party to the State Farm lawsuit or
any of the pending lawsuits, a substantial portion of the Company's business
consists of the distribution of non-OEM crash parts to collision repair shops
for the use in repairing automobiles, the vast majority of which are covered by
insurance policies. The Company has been informed that several of the class
action lawsuits have been dismissed and that to date no court has accepted the
diminished value theory. However, in the event that the State Farm verdict is
repeated in other similar cases or there is a substantial verdict upholding the
diminished value theory, and such cases are not overturned on appeal with the
result that non-OEM crash parts are no longer specified by insurance companies
to repair insured vehicles, the aggregate cost to consumers will be substantial
and the impact on Keystone would be material and adverse. In such event, OEM's
would likely have monopoly pricing power with respect to many of the products
required to repair damaged vehicles.
The Company believes that substantially all of the non-OEM crash parts
which it distributes are of similar quality to OEM crash parts and when
installed in a competent manner by collision repair shops, vehicles are restored
to their "pre-loss condition." In addition, the Company provides a warranty with
respect to the parts it distributes for as long as the owner at the time repairs
are made continues to own the vehicle.
Federal and State Action. During the past two years, legislation was
introduced or considered in over 25 states seeking to prohibit or limit the use
of aftermarket parts in collision repair work and/or require special disclosure
before using aftermarket parts. To date legislation has been passed in only four
states and it has not had a material impact on the Company's business. The
Company anticipates the introduction of similar legislation in many states over
the next year and beyond and if a number of states were to adopt legislation
prohibiting or restricting the use of non-OEM crash parts, it could have a
material adverse impact on the Company.
In addition, recently, persons with a business interest in restricting
the use of non-OEM parts have also sought help from insurance regulators in at
least three states to attempt to do administratively what to date has not be
accomplished legislatively. In Florida, the Commissioner of the Department of
Agriculture & Consumer Services, has taken action designed to eliminate the use
of non-OEM crash parts in connection with insured repairs. The Commissioner has
also brought a legal action against an insurance company for specifying the use
of non-OEM parts. Action in the other two states is in an early stage and the
Company cannot predict the outcome.
Further, a U.S. Congressman has requested that the General
Accounting Office ("GAO") review the role of the National Highway and
Transportation Safety Administration in regulating the safety and quality of
replacement automotive parts. A GAO study is underway and a report is
anticipated by the end of the year.
Continued Acceptance of Aftermarket Collision Replacement 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
aftermarket collision replacement parts by the insurance industry and the
governmental agencies that regulate insurance companies and the ability of
insurers to recommend the use of such parts for collision repair jobs, as
opposed to OEM parts. As described above, the use of many of the products
distributed by the Company is being disputed in various forums.
Management Information Systems. In October 1998, the Company entered into
an agreement with a vendor for the purchase of a software package to be
installed on an enterprise-wide basis. To date, the Company has expended an
aggregate of approximately $8.0 million on hardware and software implementation
relating to the installation of the new enterprise software package. Management
estimates that it will spend between $5.2 million and $6.7 million over the next
18 to 24 months to complete the installation. As the Company is still in the
implementation phase and such an implementation involves uncertainty, there can
be no assurance that the actual costs will not exceed the estimate. To date, the
costs have been paid using funds generated from operating cash flow and funds
drawn under the Company's line of credit and it is anticipated that future costs
will be paid from existing working capital, cash flow from operations or
borrowings under the Company's line of credit.
At the present time, the Company estimates that the new enterprise
software system, which will consolidate the Company's various systems and
address a number of management concerns, will be installed and operating
company-wide in 18 to 24 months. The estimated cost of the project described
above is based on management's best estimates, which were derived utilizing
numerous assumptions of future events. However, there can be no
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guarantee that these time or cost estimates will be achieved, and actual results
could differ materially from those anticipated. Specific factors that might
cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, and the inherent
difficulty in integrating new computer systems into the Company's existing
operations.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
a. Exhibits
10.27 Amendment No. 6 to Credit Agreement between the
Registrant and Mellon Bank, N.A.
10.28 Amendment No. 7 to Credit Agreement between the
Registrant and Mellon Bank, N.A.
27 Financial Data Schedule
b. Reports on Form 8-K - On July 21, 2000, the Company filed a
Current Report on Form 8-K with the Securities and Exchange
Commission under Item 5. Other Events. The Report reflected
amendments to the Company's Amended and Restated Bylaws and the
adoption of an Audit Committee Charter, which were filed as
Exhibits to the Report.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
By: /S/ John M. Palumbo
--------------------
John M. Palumbo
Chief Financial Officer
(Duly Authorized Officer and Principal Financial and
Accounting Officer)
Date: November 13, 2000
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