<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: June 30, 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 June 30, 2000 was 14,399,345 shares.
This Form 10-Q contains 13 pages.
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
INDEX
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page Number
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
June 30, 2000 (unaudited) and March 31, 2000
Condensed Consolidated Statements of Income 4
Thirteen weeks ended June 30, 2000 (unaudited) and fourteen weeks
ended July 2, 1999 (unaudited)
Condensed Consolidated Statements of Cash Flows 5
Thirteen weeks ended June 30, 2000 (unaudited) and fourteen
weeks ended July 2, 1999 (unaudited)
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 and use of proceeds 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 12
Signatures 13
</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>
June 30, 2000 March 31, 2000
(Unaudited) (Note)
------------- --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,642 $ 2,884
Acounts receivable, net of allowance of $1,200 at June 2000 and $1,145
at March 2000 26,377 27,644
Inventories, primarily finished goods 80,289 80,176
Other current assets 6,995 7,317
----------- ----------
Total current assets 117,303 118,021
Plant, property and equipment, net 24,133 23,589
Goodwill, net of accumulated amortization of $3,549 at June 2000 and $3,274
at March 2000 34,785 35,204
Other intangibles, net of accumulated amortization of $2,759 at June 2000
and $3,123 at March 2000 1,498 1,647
Other assets 5,017 5,356
----------- ----------
Total Assets $ 182,736 $ 183,817
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Credit facility $ 16,078 $ 12,500
Accounts payable 11,078 12,693
Accrued liabilities 5,050 6,559
Current portion of long-term debt 129 117
----------- ----------
Total current liabilities 32,335 31,869
Long-term debt, less current portion 79 68
Other long-term liabilities 1,705 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 June 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 68,348 66,882
----------- ----------
Total shareholders' equity 148,617 150,195
----------- ----------
Total liabilities and shareholders' equity $ 182,736 $ 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
<PAGE>
Keystone Automotive Industries, Inc.
Condensed Consolidated Statements of Income
(In thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Fourteen
Weeks Ended Weeks Ended
June 30, 2000 July 2, 1999
------------- --------------
<S> <C> <C>
Net sales $ 86,612 $ 101,381
Cost of sales 49,674 56,475
------------- --------------
Gross profit 36,938 44,906
Operating expenses:
Selling and distribution expenses 26,937 28,574
General and administrative 7,658 7,657
------------ --------------
Operating income 2,343 8,675
Other income 438 686
Interest expense (296) (48)
------------ --------------
Income before income taxes 2,485 9,313
Income taxes 1,019 3,818
------------ --------------
Net income $ 1,466 $ 5,495
============ ==============
Earnings per share:
Basic $0.10 $ 0.33
============ ==============
Diluted $0.10 $ 0.33
============ ==============
Weighted average shares outstanding:
Basic 14,557,000 16,728,000
============ ==============
Diluted 14,557,000 16,818,000
============ ==============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
Keystone Automotive Industries, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Fourteen
Weeks Ended Weeks Ended
June 30, 2000 July 2, 1999
--------------------------------------
Operating activities:
<S> <S> <C>
Net income $ 1,466 $ 5,495
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,724 1,831
Provision for losses on uncollectible accounts 55 33
Provision for losses on inventory -- 90
Loss/(gain) on sale of assets (26) 20
Changes in operating assets and liabilities:
Accounts receivable 1,211 809
Inventories (113) (2,909)
Other assets 675 1,459
Accounts payable (1,614) (597)
Accrued liabilities (1,488) (1,003)
--------- ----------
Net cash provided by operating activities 1,890 5,228
Investing activities:
Proceeds from sale of assets 48 24
Purchases of property, plant and equipment (1,737) (2,007)
Cash paid for acquisitions -- (5,660)
--------- ----------
Net cash used in investing activities (1,689) (7,643)
Financing activities:
Bankers acceptances other short-term debt, net -- (2,961)
Other debt, net 23 (50)
Borrowings on credit facility 3,578 --
Repurchases of common stock (3,044) (5,543)
Net proceeds on option exercise -- 74
--------- ----------
Net cash provided (used in) by financing activities 557 (8,480)
--------- ----------
Net increase (decrease) in cash and cash equivalents 758 (10,895)
Cash and cash equivalents at beginning of period 2,884 17,784
--------- ----------
Cash and cash equivalents at end of period $ 3,642 $ 6,889
========= ==========
Supplemental disclosures
Interest paid during the period $ 264 $ 47
Income taxes paid during the period $ 67 $ 369
========= ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
Keystone Automotive Industries, Inc.
Notes to Condensed Consolidated Financial Statements
----------------------------------------------------
(Unaudited)
June 30, 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 13 week period ended June 30, 2000 are not necessarily
indicative of the results that may be expected for the full year ending March
31, 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 quarters ended June 30, 2000 and July 2, 1999
included thirteen and fourteen 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 14-week period ended July 2, 1999, Keystone acquired two
companies for approximately $5.7 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 $942,000 and has been recorded as goodwill
and is being amortized over 15 years. The unaudited pro forma results for
fiscal 2000, assuming these two 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 quarter ended June 30, 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 June 30, 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 $6.17 were repurchased during
the June quarter.
6
<PAGE>
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 quarter ended June 30, 2000 (the "2000
Quarter") reflect a 13 week period whereas the comparable quarter in the prior
fiscal year (the "1999 Quarter") reflects a 14 week period. Consequently,
comparisons of these results may not be meaningful.
In addition, the results of operations for the 2000 Quarter include the
results with respect to the four acquisitions completed during fiscal 2000
accounted for as "purchases." The 1999 Quarter 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 quarter.
Such acquisitions include the acquisition of (i) the assets of Quality Bumpers,
LLC completed on May 3, 1999, (ii) 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) 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,
Nationwide Insurance and Farmers Insurance have temporarily suspended specifying
the use of many aftermarket collision replacement parts in connection with the
repair of vehicles which they insure. See Item 5 below. These suspensions had
a material, adverse effect on the Company's revenues and earnings during the
2000 Quarter.
7
<PAGE>
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 Fourteen
Weeks Ended Weeks Ended
June 30, 2000 July 2, 1999
------------------------------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 57.4 55.7
----- -----
Gross profit 42.6 44.3
Selling and distribution expenses 31.1 28.2
General and administrative expenses 8.8 7.6
Other income 0.5 0.7
Interest (expense) (0.3) (0.0)
----- -----
Income before income taxes 2.9 9.2
Income taxes 1.2 3.8
----- -----
Net income 1.7% 5.4%
===== =====
</TABLE>
Thirteen weeks ended June 30, 2000 compared to fourteen weeks ended July 2, 1999
--------------------------------------------------------------------------------
Net sales were $86.6 million for the quarter ended June 30, 2000 (the "2000
Quarter") compared to $101.4 million for the quarter ended July 2, 1999 (the
"1999 Quarter"), a decrease of $14.8 million or 14.6%. This decrease was due in
part to the 13 week period in the 2000 Quarter as compared to 14 weeks in the
1999 Quarter, as well as decreases in sales of 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 $8.6
million, sales of new and recycled bumpers decreased by $6.1 million and sales
of paint and related materials increased by $331,000, which changes represent
decreases of approximately 19% and 19%, and an increase of 2%, respectively,
over the 1999 Quarter. The decreases were attributable primarily to the shorter
quarter in fiscal 2001 and the impact of the State Farm case. See "Item 5"
below. In addition, the Company sold approximately $6.1 million of
remanufactured alloy wheels in the 2000 Quarter compared to $5.7 million in the
prior year period, an increase of 6.9%.
Gross profit decreased in the 2000 Quarter to $36.9 million (42.6% of net
sales) from $44.9 million (44.3% of net sales) in the 1999 Quarter, a decrease
of 17.8%, primarily as a result of the decrease in net sales. The Company's
decrease in gross profits as a percentage of net sales in the 2000 Quarter
reflects the continued fluctuation in cost of sales, generally because of
factors such as lower sales, product mix and competition.
Selling and distribution expenses decreased to $26.9 million (31.1% of net
sales) in the 2000 Quarter from $28.6 million (28.2% of net sales) in the 1999
Quarter, a decrease of 5.7%. The increase in these expenses as a percentage of
net sales was generally the result of certain fixed costs being spread over
reduced sales and the fixed nature of certain of these costs.
General and administrative expenses remained at $7.7 million (8.8% of net
sales) in the 2000 Quarter compared to $7.7 million (7.6% of net sales) in the
1999 Quarter. 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.
8
<PAGE>
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 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
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 June 30, 2000, working capital was $85.0
million compared to $86.2 million at March 31, 2000. Historically, 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
September 2000. Advances under the revolving line of credit bear interest at
LIBOR plus 0.75%-0.875%. At August 1, 2000, $20.1 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 June 30, 2000, and as of the date of the filing of this
Quarterly Report. The Company believes that it will be able to renew the
credit facility on substantially similar terms.
During fiscal 1999, the Company initiated a stock repurchase program. Through
June 30, 2000, an aggregate of 3.5 million shares had been repurchased at an
average per share price of $13.11. During the quarter, the Company repurchased
approximately 493,000 shares of its common stock at an average price of $6.17.
During the 2000 Quarter, the Company's cash and cash equivalents increased by
$758,000. This increase is the result of an increase in (i) cash provided by
operating activities of $1.9 million from a variety of sources, primarily net
income and (ii) cash provided by financing activities of $557,000, 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 decreases in cash used in investing activities of $1.7
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.
9
<PAGE>
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 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. None
---------------------------------------------------
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 and if other insurance
companies follow suit and the State Farm decision is not overruled, the
magnitude of the negative impact on the Company would likely increase. 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 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, or is, not a party to the State Farm lawsuit or
the other 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. 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. Once again, 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
three 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
during 2000 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.
11
<PAGE>
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. This action is currently having a material adverse impact on
the Company's sales in Florida. Action in the other two states is in an early
stage and the Company cannot predict the outcome.
In addition, 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 report is anticipated by this fall.
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 $7.5 million on software implementation relating to
the installation of the new enterprise software package and estimates that it
will spend an additional $2.5 million over the next 12 to 18 months. 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 or the sale of assets 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 costs of the projects described above are based
on management's best estimates, which were derived utilizing numerous
assumptions of future events, including the continued availability of certain
resources and other factors. However, there can be no 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.
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.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
a. Exhibits
Exhibit 27 - Financial Data Schedule
b. Reports on form 8-K - None
12
<PAGE>
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: August 14, 2000
13
