SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1997
Commission File Number 0-23222
FINISHMASTER, INC.
(Exact Name of Registrant as Specified in its Charter)
Indiana 38-2252096
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
4259 40th Street, SE
Kentwood, Michigan 49512
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (616) 949-7604
Indicate by check mark whether the registrant (1) has filed all annual,
quarterly and other reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding twelve months and (2) has
been subject to the filing requirements for at least the past 90 days.
X Yes No
Indicate the number of shares outstanding for each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 30, 1997
Common Stock 5,992,640 shares
<PAGE>
PART I. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
FINISHMASTER, INC.
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1997 1996
--------- ------------
CURRENT ASSETS
<S> <C> <C>
Cash $ 846 $ 300
Accounts receivable, net of allowance for doubtful
accounts of $630 and $700, respectively 12,909 12,752
Inventory 23,790 24,828
Prepaid expenses and other current assets 1,113 1,259
----------- -----------
TOTAL CURRENT ASSETS 38,658 39,139
PROPERTY AND EQUIPMENT, NET 6,446 6,571
OTHER ASSETS:
Intangibles assets, net 19,610 20,357
Other 411 410
----------- -----------
20,021 20,767
----------- -----------
$ 65,125 $ 66,477
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, bank $ 5,285 $ 1,841
Accounts payable 3,756 7,786
Accrued expenses and other current liabilities 2,618 2,554
Current maturities of long-term obligations 4,020 4,139
----------- -----------
TOTAL CURRENT LIABILITIES 15,679 16,320
LONG-TERM OBLIGATIONS, net of current maturities 16,764 17,831
STOCKHOLDERS' EQUITY:
Preferred Stock, no par value, 1,000,000 shares authorized; no shares
issued or outstanding Common stock, $1 stated value, 10,000,000
shares authorized, 6,000,140 and 6,000,140 shares issued and
5,992,640 and 6,000,140 outstanding, respectively 5,993 6,000
Additional paid-in capital 14,466 14,509
Retained earnings 12,223 11,817
----------- -----------
32,682 32,326
----------- -----------
$ 65,125 $ 66,477
=========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FINISHMASTER, INC.
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
------- -------
<S> <C> <C>
Net sales $29,239 $29,973
Cost of sales 18,610 19,660
------- -------
GROSS PROFIT 10,629 10,313
EXPENSES
Operating 4,667 4,982
Selling, general and administrative 3,801 4,235
Depreciation 277 219
Amortization of intangible assets 740 422
------- -------
TOTAL 9,485 9,858
------- -------
INCOME FROM OPERATIONS 1,144 455
Interest expense, net 488 318
------- -------
INCOME BEFORE INCOME TAXES 656 137
Income tax expense 250 135
------- -------
NET INCOME $ 406 $ 2
------- -------
NET INCOME PER SHARE $ .07 $ .00
======= =======
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING 5,996 6,000
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
FinishMaster, Inc
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
----------- ---------
OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 406 $ 2
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,017 641
Changes in operating assets and liabilities:
Accounts receivable (157) (1,372)
Inventories 1,038 389
Prepaid expenses and other 146 (436)
Accounts payable and other
current liabilities (3,966) 1,714
------- -------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (1,516) 938
INVESTING ACTIVITIES
Business acquisitions -- (2,181)
Purchases of property and equipment (144) --
Other (1) (240)
------- -------
NET CASH USED IN
INVESTING ACTIVITIES (145) (2,421)
FINANCING ACTIVITIES
Net borrowings (repayments) under note payable, bank 3,444 (4,690)
Proceeds from long term obligations -- 7,809
Repayment of long term obligations (1,186) (1,065)
Purchase of common stock (51) --
------- -------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 2,207 2,054
------- -------
INCREASE IN CASH 546 571
CASH AT BEGINNING OF PERIOD 300 538
------- -------
CASH AT END OF PERIOD $ 846 $ 1,109
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FinishMaster, Inc.
March 31, 1997
NOTE 1 - Basis of Presentation
The condensed consolidated financial statements include the accounts of
FinishMaster, Inc. and its wholly owned subsidiary Refinishers Warehouse, Inc.
All significant intercompany balances and transactions have been eliminated in
consolidation. These condensed consolidated financial statements are unaudited
and have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and notes 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 a fair
presentation of the results of the interim periods covered have been included.
For further information, refer to the consolidated financial statements and
notes thereto included in FinishMaster's annual report on Form 10-K for the nine
months ended December 31, 1996. The results of operations for the interim
periods presented are not necessarily indicative of the results for the full
year. Certain reclassifications have been made to the condensed consolidated
financial statements for the three months ended March 31, 1996 to conform to the
classifications used in the current year.
NOTE 2 - Income Taxes
The effective tax rate for the three months ended March 31, 1997
increased over that of the three months ended March 31, 1996 due to the impact
of tax bases of certain states.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FinishMaster, Inc.
March 31, 1997
RESULTS OF OPERATIONS
The following table sets forth for the three months ended March 31, 1997 and
1996, respectively, certain items from the Company's Statement of Operations as
a percentage of net sales.
Three months ended March 31,
1997 1996
----- -----
Net sales 100.0% 100.0%
Cost of sales 63.6 65.6
----- -----
Gross profit 36.4 34.4
Operating expenses 16.0 16.7
Selling, general and administrative 13.0 14.1
Depreciation and amortization 3.4 2.1
----- -----
32.4 32.9
Income from operations 4.0 1.5
Interest expense 1.7 1.0
Provision for Income Taxes 0.9 .5
----- -----
Net income 1.4% 0.0%
----- -----
Net sales. Net sales decreased from $30.0 million for the three months ended
March 31, 1996 to $29.2 million for the three months ended March 31, 1997. The
sales decrease is a result of lower same-outlet sales.
Gross profit. Gross profit increased from $10.3 million to $10.6 million and as
a percentage of net sales from 34.4% to 36.4% for the three months ended March
31, 1997 compared to the same period of the prior year. The gross profit
percentage increased due to the Company's ability to maximize volume incentives
and other purchasing programs while maintaining margins on sales to customers.
Operating expenses. Operating expenses decreased from $5.0 million to $4.7
million, and as a percentage of net sales, from 16.7% to 16.0% for the three
months ended March 31, 1997 compared to the same period of the prior year. The
operating expense reduction is more dramatic than presented because the Company
incurred expenses associated with six additional sales outlets which were
acquired by the Company in May of 1996 that were not included in the prior year
amounts. This decrease in operating expenses and as a percentage of net sales is
the result of the Company's cost improvement measures, including, but not
limited to, a decrease in rolling stock, staffing reductions, and streamlining
of operating activities. Operating expenses consist of wages, benefits,
building, and vehicle costs for the outlets and the distribution center.
Selling, general and administrative. Selling, general and administrative
expenses decreased from $4.2 million to $3.8 million and as a percentage of net
sales from 14.1% to 13.0% for the three months ended March 31, 1997 compared to
the same period of the prior year. The selling, general and administrative
reduction is more dramatic than presented because the Company incurred expenses
associated with six additional sales outlets which were acquired by the Company
in May of 1996 that were not included in the prior year amounts. This decrease
in selling, general and administrative expenses and as a percentage of net sales
is the result of the Company's cost improvement measures, including, but not
limited to, a reduction in professional programs, personnel reductions, and
productivity improvements. Selling expenses include sales commissions, wages,
and expenses supporting customer sales activity. General and administrative
expenses consist of corporate support staff and expenses for marketing, data
processing, accounting, credit, purchasing and human resources.
<PAGE>
Depreciation and amortization. Amortization increased from $0.6 million to $1.0
million and as a percentage of net sales from 2.1% to 3.4% for the three months
ended March 31, 1997 compared to the same period of the prior year. The increase
is attributable to additional acquired intangibles and revisions to the
estimated lives of certain intangibles.
Operating income. As a result of the foregoing, income from operations increased
from $0.5 million to $1.1 million and as a percent of net sales from 1.5% to
4.0% for the three months ended March 31, 1997 compared to the same period of
the prior year.
Interest expense. Interest expense increased from $0.3 million to $0.5 million
for three months ended March 31, 1997 compared to the same period of the prior
year. The increase is a result of acquisition financing since the prior
reporting period and borrowings used to take advantage of favorable supplier
payment discounts.
Provision for income tax. The Company's effective tax rate is approximately 40%.
The provision is comprised of approximately 34% for federal income tax and 6%
for state income tax. The effective tax rate for the three months ended March
31, 1996 increased over that of the Company's current effective tax rate of 40%
primarily due to the tax base of various state income taxes.
Net income. As a result of the foregoing, net income was $0.4 million or $0.07
per share for the three months ended March 31, 1997 compared to break-even in
the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and capital resources are significantly affected by its
acquisition activity. Acquisitions typically are financed by a combination of
internally generated cash flow, seller financing, and borrowings under the
Company's loan facilities. The Company had working capital of $23.0 million at
March 31, 1997. In addition, the Company has a credit agreement which provides
for borrowings in the aggregate of $20.0 million, of which $7.6 million was
available at March 31, 1997.
The Company's operating activities used $1.5 million of cash during the three
months ended March 31, 1997; and in contrast generated $0.9 million in the same
period of the prior year. The decrease in cash generated from operating
activities is primarily attributable to a decrease in accounts payable of
approximately $4.0 million. This decrease is the result of the timing of large
purchases prior to year-end in anticipation of price increases with favorable
cash discount terms payable after year-end. This decrease in cash was partially
offset by the increase in earnings and the decrease in inventory.
The Company's investing activities used cash totaling $0.1 million for purchases
of property and equipment during the three months ended March 31, 1997 compared
to $2.4 million in the same period of the prior year. In the three months ended
March 31, 1996 the Company used $2.2 million for business acquisitions.
The Company's financing activities provided cash totaling $2.2 million for
during the three months ended March 31, 1997 compared to $2.1 million in the
same period of the prior year. Financing activities generated $3.4 million of
cash from bank borrowings primarily to fund large inventory purchases which was
partially offset by $1.2 million repayment of long term obligations in the three
months ended March 31, 1997. In the three months ended March 31, 1996 financing
activities generated $7.8 million from long term obligations to fund
acquisitions of approximately $2.2 million, repay bank borrowings of
approximately $4.7 million and repay long term obligations of approximately $1.1
million.
The Company believes its cash and other liquid resources, cash flow generated
from operating activities, and the available lines of credit will be sufficient
to support operations and general capital requirements for the next twelve
months.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 6. Exhibits and Reports on Form 8-K
The following exhibits, unless otherwise indicated, have been filed as exhibits
to Form S-1 Registration Statement, No. 33-73804, effective date of February 22,
1994, or as exhibits filed by the Registrant, and are hereby incorporated by
reference.
Exhibit
No. Description of Document
2.1 Agreement and Plan of Merger by and between
FinishMaster, Inc., a Michigan corporation, and
FinishMaster, Inc., an Indiana corporation, dated
November 12, 1996
3.1 Articles of Incorporation of FinishMaster, Inc., an
Indiana corporation
3.2 Bylaws of FinishMaster, Inc., an Indiana corporation
10.1 Deferred Compensation Agreement dated April 1, 1977
by and between the Company and James F. White
10.11 Amendment to Deferred Compensation Agreement dated
December 15, 1995 by and between the Company and
James F. White(incorporated by reference to Form
10-Q dated December 31, 1995)
10.12 Loan Agreement dated June 7, 1990 between the
Company and FB Annuity Company relating to the
purchase of the Company's Kentwood, Michigan central
distribution facility
10.13 FinishMaster Inc. Stock Option Plan
10.14 Stock Transfer Agreement dated November 30, 1993
between the Company and Maxco, Inc.
10.15 Intercompany Agreement dated December 31, 1993
between the Company and Maxco, Inc.
10.16 Credit Agreement dated August 24, 1995 between the
Company and National Bank of Detroit to fund
acquisitions and working capital
requirements(incorporated by reference to Form 10-Q
dated September 30, 1995)
10.17 Amendment to Credit Agreement dated July 1, 1996
10.18 Amendment to Credit Agreement dated February 18,
1997
11.1* Statement regarding computation of per share
earnings
21.1 Subsidiary of the Registrant
27.1* Financial Data Schedule
* Filed herewith
No reports on Form 8-K were filed during the quarter
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FINISHMASTER, INC.
Date May 7, 1997 \s\ THOMAS U. YOUNG
Thomas U. Young, President
(Chief Operating Officer)
\s\ROGER A. SOROKIN
Roger A. Sorokin,
Vice President-Finance
(Chief Financial and
Accounting Officer)
FINISHMASTER INC.
EXHIBIT 11.1-STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Three Months Ended
March 31,
(unaudited)
NET INCOME FOR COMPUTATION
OF PER SHARE AMOUNTS
1997 1996
---------- -----------
Net Income attributable to common stock-- primary
and fully diluted $ 406,000 $ 2,000
========== ==========
PRIMARY
Average shares outstanding 5,995,723 6,000,000
Net effect of dilutive stock options--based
on the Treasury Stock Method
using average market price 0 26,583
---------- ----------
TOTAL 5,995,723 6,026,583
PER SHARE AMOUNT(1) $ 0.07 $ 0.00
========== ==========
FULLY DILUTED
Average shares outstanding 5,995,723 6,000,000
Net effect of dilutive stock options--based
on the Treasury Stock Method
using the quarter-end market price if higher
than average market price 0 26,583
---------- ----------
TOTAL 5,995,723 6,026,583
PER SHARE AMOUNT(1) $ 0.07 $ 0.00
========== ==========
(1) Aggregate dilution from stock options is less than three
percent of earnings per common share outstanding and
therefore need not be reported for either primary or fully
diluted earnings per share.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
</LEGEND>
<CIK> 0000917321
<NAME> FinishMaster, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 846
<SECURITIES> 0
<RECEIVABLES> 13,539
<ALLOWANCES> 630
<INVENTORY> 23,790
<CURRENT-ASSETS> 38,658
<PP&E> 9,312
<DEPRECIATION> 2,866
<TOTAL-ASSETS> 65,125
<CURRENT-LIABILITIES> 15,679
<BONDS> 0
<COMMON> 5,993
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 32,682
<SALES> 29,239
<TOTAL-REVENUES> 29,239
<CGS> 18,610
<TOTAL-COSTS> 9,485
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 104
<INTEREST-EXPENSE> 488
<INCOME-PRETAX> 656
<INCOME-TAX> 250
<INCOME-CONTINUING> 406
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 406
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
