================================================================================
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 June 30, 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.
Yes X 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 August 1, 1997
Common Stock 5,992,640 shares
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<PAGE>
PART I. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
FINISHMASTER, INC.
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1997 1996
------- -------
CURRENT ASSETS
<S> <C> <C>
Cash $ 396 $ 300
Accounts receivable, net of allowance for doubtful
accounts of $710 and $700, respectively 13,420 12,752
Inventory 20,707 24,828
Prepaid expenses and other current assets 830 1,259
------- -------
TOTAL CURRENT ASSETS 35,353 39,139
PROPERTY AND EQUIPMENT, NET 6,422 6,571
OTHER ASSETS:
Intangibles assets, net 19,167 20,357
Other 419 410
------- -------
19,586 20,767
------- -------
$61,361 $66,477
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, bank $ 528 $ 1,841
Accounts payable 4,089 7,786
Accrued expenses and other current liabilities 3,276 2,554
Current maturities of long-term obligations 4,021 4,139
------- -------
TOTAL CURRENT LIABILITIES 11,914 16,320
LONG-TERM OBLIGATIONS, net of current maturities 15,761 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 14,465 14,509
Retained earnings 13,228 11,817
------- -------
33,686 32,326
------- -------
$61,361 $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 June 30,
1997 1996
------- -------
<S> <C> <C>
NET SALES $31,034 $33,149
COST OF SALES 19,462 21,222
------- -------
GROSS PROFIT 11,572 11,927
EXPENSES
Operating 4,593 5,062
Selling, general and administrative 3,942 4,425
Depreciation 284 254
Amortization of intangible assets 742 451
------- -------
TOTAL 9,561 10,192
------- -------
INCOME FROM OPERATIONS 2,011 1,735
Interest expense, net 411 449
------- -------
INCOME BEFORE INCOME TAXES 1,600 1,286
Income tax expense 595 587
------- -------
NET INCOME $ 1,005 $ 699
======= =======
NET INCOME PER COMMON SHARE $ .17 $ . 12
======= =======
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING 5,993 6,000
======= =======
</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>
Six Months Ended June 30,
1997 1996
------- -------
<S> <C> <C>
NET SALES $60,273 $63,122
COST OF SALES 38,072 40,882
------- -------
GROSS PROFIT 22,201 22,240
EXPENSES
Operating 9,258 10,044
Selling, general and administrative 7,744 8,660
Depreciation 562 473
Amortization of intangible assets 1,482 873
------- -------
TOTAL 19,046 20,050
------- -------
INCOME FROM OPERATIONS 3,155 2,190
Interest expense, net 899 767
------- -------
INCOME BEFORE INCOME TAXES 2,256 1,423
Income tax expense 845 722
------- -------
NET INCOME $ 1,411 $ 701
======= =======
NET INCOME PER COMMON SHARE $. 24 $. 12
======= =======
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING 5,994 6,000
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
FinishMaster, Inc
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
------- ---------
OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 1,411 $ 701
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,044 1,346
Changes in operating assets and liabilities:
Accounts receivable (501) (318)
Inventories 4,341 1,026
Prepaid expenses and other 420 (623)
Accounts payable and other current liabilities (3,309) (3,574)
------- -------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 4,406 (1,442)
INVESTING ACTIVITIES
Business acquisitions (368) (3,832)
Purchases of property and equipment (390) (821)
------- -------
NET CASH USED IN
INVESTING ACTIVITIES (758) (4,653)
FINANCING ACTIVITIES
Net borrowings (repayments) under note payable, bank (1,313) 354
Proceeds from long term obligations -- 7,809
Repayment of long term obligations (2,188) (1,226)
Purchase of common stock (51) --
------- -------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (3,552) 6,937
------- -------
INCREASE IN CASH 96 842
CASH AT BEGINNING OF PERIOD 300 538
------- -------
CASH AT END OF PERIOD $ 396 $ 1,380
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FinishMaster, Inc.
June 30, 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 six months ended June 30, 1996 to
conform to the classifications used in the current year.
NOTE 2 - Income Taxes
The effective tax rate for the six months ended June 30, 1996 is higher
than that of the six months ended June 30, 1997 due to the impact on income
tax expense of tax bases of certain states.
NOTE 3 - Change in Fiscal Year
As previously reported, during the year ended December 31, 1996 the Company
changed its fiscal year-end from March 31, to a calendar year-end.
Consequently, unaudited financial statements for the six months ended June
30, 1996 have not been previously reported.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FinishMaster, Inc.
June 30, 1997
RESULTS OF OPERATIONS
Net sales. Net sales decreased $2.1 million, or 6.3%, from $33.1 million for the
three months ended June 30, 1996 to $31.0 million for the three months ended
June 30, 1997. Net sales decreased $2.8 million, or 4.5%, from $63.1 million for
the six months ended June 30, 1996 to $60.3 million for the six months ended
June 30, 1997. The sales decrease is a result of soft market conditions and the
loss of certain low-margin business.
Gross profit. Gross profit decreased from $11.9 million to $11.6 million but
increased as a percentage of net sales from 36.3% to 37.3% for the three month
period ending June 30, 1997 compared to the three month period ending June 30,
1996. For the six month period ending June 30, 1997, gross profit remained
constant at $22.2 million and increased as a percentage of net sales from 35.2%
to 36.8% for the six months ended June 30, 1997. The gross profit percentage
increased due to maximizing volume purchasing incentives, cash payment discounts
and other purchasing programs.
Operating expenses. Operating expenses decreased from $5.1 million to $4.6
million, and as a percentage of net sales, from 15.3% to 14.8% for the three
month period ending June 30, 1997 compared to the three month period ending June
30, 1996. For the six month period ending June 30, 1997, operating expenses
decreased from $10.0 million to $9.3 million, and as a percentage of net sales,
from 15.9% to 15.4% compared to the six month period ending June 30, 1996. This
decrease in operating expenses and as a percentage of net sales is the result of
the Company's cost improvement activities, including, but not limited to, a
decrease in delivery vehicles, staffing reductions, and streamlining of
operating activities. The Company also closed a distribution center in Texas in
the first quarter that contributed to the decrease in operating expenses.
Operating expenses consist of wages, benefits, building, and vehicle costs for
the sales outlets and the distribution center.
Selling, general and administrative. Selling, general and administrative
expenses decreased from $4.4 million to $3.9 million, and as a percentage of net
sales, from 13.3% to 12.7% for the three month period ending June 30, 1997
compared to the three month period ending June 30, 1996. For the six month
period ending June 30, 1997, selling, general and administrative expenses
decreased from $8.7 million to $7.7 million, and as a percentage of net sales,
from 13.7% to 12.8% compared to the six month period ending June 30, 1996. This
decrease in selling, general and administrative expenses and as a percentage of
net sales is the result of the Company's cost improvement activities, including,
but not limited to, a reduction in professional programs, personnel reductions,
and productivity improvements. General and administrative expenses consist of
corporate support staff and expenses for marketing, data processing, accounting,
credit, purchasing and human resources. Selling expenses include sales
commissions, wages, and expenses supporting customer sales activity.
Depreciation and amortization of intangible assets. Depreciation expense
remained constant at $0.3 million, and increased as a percentage of net sales,
from 0.8% to 0.9% for the three month period ended June 30, 1997 compared to the
three month period ended June 30, 1996. For the six month period ending June 30,
1997 depreciation expense increased from $0.5 million to $0.6 million, and as a
percentage of net sales, from 0.7% to 0.9% compared to the six month period
ending June 30, 1996. The increase is attributable to additional acquired
depreciable assets to increase efficiencies in operations as well as depreciable
assets acquired with sales outlet acquisitions. Amortization expense increased
from $0.5 million to $0.7 million and as a percentage of net sales from 1.4% to
2.4% for the three month period ending June 30, 1997 compared to the three month
period ending June 30, 1996. For the six month period ending June 30, 1997
amortization expense increased from $0.9 million to $1.5 million, and as a
percentage of net sales, from 1.4% to 2.5% compared to the six month period
ending June 30, 1996. The increase is attributable to additional acquired
intangibles and revisions to the estimated lives of certain intangibles.
Interest expense. Interest expense remained constant at $0.4 million for the
three month period ending June 30, 1997 compared to the three month period
ending June 30, 1996. For the six month period ending June 30, 1997, interest
expense increased from $0.8 million to $0.9 million compared to the six month
period ending June 30, 1996. The increase is a result of acquisition financing
and borrowings used to take advantage of favorable supplier payment discounts.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and capital resources can be 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 $23.4 million at
June 30, 1997 compared to $23.7 million at June 30, 1996. In addition, the
Company has a credit agreement which provides for borrowings in the aggregate of
$20.0 million. The Company had available $12.0 million and $7.6 million for
working capital and acquisitions under this credit facility at June 30, 1997 and
June 30, 1996, respectively.
The Company's operating activities generated $4.4 million of cash during the six
months ended June 30, 1997; and used $1.4 million in the same period of the
prior year. The increase in cash generated from operating activities is
primarily attributable to an increase in earnings before depreciation and
amortization of approximately $1.4 million and a decrease in inventory of
approximately $3.3 million. The decrease in inventory is the result of the
normal sell down of major inventory purchases made prior to December 31, 1996 in
anticipation of vendor price increases as well as Company wide efforts to reduce
inventory. Accounts payable used cash as the Company continued to take advantage
of favorable cash discount terms and vendor price protection programs which
support the Company's margin enhancement efforts.
The Company continues to seek selective acquisitions in strategic locations that
will complement its focus on earnings growth and continuous improvement. In the
six months ended June 30, 1997 the Company used $0.4 million for business
acquisitions compared to $3.8 million used in the same period of the prior year.
The Company's financing activities used cash totaling $3.6 million during the
six months ended June 30, 1997 to repay working capital loans, previously
borrowed to fund major inventory purchases, and to repay long term loans. In the
six months ended June 30, 1996 financing activities generated $6.9 million.
These financing activities were comprised of approximately $7.6 million of term
debt from the Company's loan facilities and payments of approximately $1.2 on
long term obligations.
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
(a) The annual meeting of shareholders was held on April 30, 1997.
(b) The following directors were elected at the meeting:
For Withheld
Margot L. Eccles 5,181,566 200
William J. Fennessy 5,181,566 200
Peter L. Frechette 5,181,566 200
Andre B. Lacy 5,181,566 200
Michael J. Siereveld 5,181,566 200
Walter S. Wiseman 5,181,566 200
Thomas U. Young 5,181,566 200
(c) Ratification of Auditors
For Against Abstain
5,181,764 0 2
(d) No other matters voted upon at the meeting.
Item 5. Other Information and Events
None
<PAGE>
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 August 12, 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
<TABLE>
<CAPTION>
Three Months Ended
June 30,
(unaudited)
- ----------------------------------------------------------- --------------------------
NET INCOME FOR COMPUTATION
OF PER SHARE AMOUNTS 1997 1996
- ----------------------------------------------------------- ---------- ----------
<S> <C> <C>
Net Income attributable to common stock-- primary
and fully diluted $1,005,000 $ 699,000
========== ==========
PRIMARY
- -----------------------------------------------------------
Average shares outstanding 5,992,640 6,000,028
Net effect of dilutive stock options--based on the
Treasury Stock Method using average market price 0 11,000
---------- ----------
TOTAL 5,992,640 6,011,028
PER SHARE AMOUNT(1) $ 0.17 $ 0.12
========== ==========
FULLY DILUTED
- -----------------------------------------------------------
Average shares outstanding 5,992,640 6,000,028
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 11,000
--------- ---------
TOTAL 5,992,640 6,011,028
PER SHARE AMOUNT(1) $ 0.17 $ 0.12
========= =========
</TABLE>
(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.
<PAGE>
FINISHMASTER INC.
EXHIBIT 11.1-STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (continued)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
(unaudited)
- ----------------------------------------------------------- ---------------------------
NET INCOME FOR COMPUTATION
OF PER SHARE AMOUNTS 1997 1996
- ---------------------------------------------------------- ---------- ----------
<S> <C> <C>
Net Income attributable to common stock-- primary
and fully diluted $1,411,000 $ 701,000
========== ==========
PRIMARY
- ----------------------------------------------------------
Average shares outstanding 5,994,173 6,000,014
Net effect of dilutive stock options--based on the
Treasury Stock Method using average market price 0 12,834
---------- ----------
TOTAL 5,994,173 6,012,848
PER SHARE AMOUNT(1) $ 0.24 $ 0.12
========== ==========
FULLY DILUTED
- ----------------------------------------------------------
Average shares outstanding 5,994,173 6,000,014
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 12,834
---------- ----------
TOTAL 5,994,173 6,012,848
PER SHARE AMOUNT(1) $ 0.24 $ 0.12
========== ==========
</TABLE>
(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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1.000
<CASH> 396
<SECURITIES> 0
<RECEIVABLES> 14,130
<ALLOWANCES> 710
<INVENTORY> 20,707
<CURRENT-ASSETS> 35,353
<PP&E> 9,789
<DEPRECIATION> 3,367
<TOTAL-ASSETS> 61,361
<CURRENT-LIABILITIES> 11,914
<BONDS> 0
<COMMON> 5,993
0
0
<OTHER-SE> 27,693
<TOTAL-LIABILITY-AND-EQUITY> 61,361
<SALES> 60,273
<TOTAL-REVENUES> 60,273
<CGS> 38,072
<TOTAL-COSTS> 19,046
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 273
<INTEREST-EXPENSE> 899
<INCOME-PRETAX> 2,256
<INCOME-TAX> 845
<INCOME-CONTINUING> 1,411
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,411
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
</TABLE>
