UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 8-K/A
(Amendment No. 1)
-----------------------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 3, 1997
Commission File Number: 000-23222
FINISHMASTER, INC.
(Exact name of Registrant as specified in its charter)
Indiana 38-2252096
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
4259 40th Street SE
Kentwood, Michigan 49512
(Address of principal executive offices)
Registrant's telephone number, including area code: (616) 949-7604
<PAGE>
General. Pursuant to the terms and subject to the conditions of the Agreement
and Plan of Merger, dated October 14, 1997 (the "Merger Agreement"), by and
among FinishMaster, Inc., an Indiana corporation ("FinishMaster" or the
"Registrant"), FMST Acquisition Corporation, a Delaware corporation and wholly
owned subsidiary of FinishMaster ("FMST"), and Thompson PBE, Inc., a Delaware
corporation ("Thompson"), (i) FMST acquired 8,460,161 shares, or approximately
97.9%, of the outstanding shares of Common Stock, par value $.001 per share, of
Thompson, including the stock purchase rights associated therewith issued under
the Rights Agreement, dated as of May 6, 1997, pursuant to a cash tender offer
of $8.00 per share for all the outstanding stock of Thompson (the "Offer"); and
(ii) subsequent to the acceptance of the Shares tendered in the Offer, FMST was
merged with and into Thompson (the "Merger"), with Thompson surviving the
Merger. As a result of the Merger, the separate corporate existence of FMST
terminated, Thompson became a wholly owned subsidiary of FinishMaster and all of
the remaining outstanding Shares (other than any Shares held by FinishMaster or
any wholly owned subsidiary of FinishMaster or in the treasury of Thompson or by
any wholly owned subsidiary of Thompson) were converted into the right to
receive $8.00 net per share in cash.
Subsequent to consummation of the Merger, FinishMaster filed a Form 8-K with the
Securities and Exchange Commission within the 15-day time period prescribed by
that Form. Pursuant to the instructions to Form 8-K, the Registrant indicated
that certain financial information required by Item 7 of Form 8-K was not
available at that time, and that, in accordance with Item 7 of Form 8-K, such
financial information would be filed by an amendment to the Form 8-K within the
60-day time period provided in the instructions to Item 7. The sole purpose
of this Amendment No. 1 to Form 8-K dated December 3, 1997 is to file such
required financial information. Accordingly, Item 7 is hereby amended and
restated in its entirety to read as follows:
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Businesses Acquired.
The financial statements listed below are filed as part of this report. The
financial statements listed in Item 7(a) are included in this Report
as Exhibit 99(c) hereto which follows the signature page of this Report.
The consolidated financial statements of Thompson PBE, Inc.
Consolidated Balance Sheets at September 27, 1997 and September 30, 1996 7
Consolidated Statements of Operations for each of the three
years in the period ended September 27, 1997 8
Consolidated Statements of Stockholders' Equity for each of the three
years in the period ended September 27, 1997 9
Consolidated Statements of Cash Flows for each of the three
years in the period ended September 27, 1997 11
Notes to Consolidated Financial Statements 12
Independent Auditors' Report 25
(b) Pro forma financial information of the consolidated financial statements
of FinishMaster, Inc and Thompson PBE, Inc.
The pro forma financial statements listed below are filed as part
of this report. The pro forma financial statements listed in Item
7(b) are included in this Report as Exhibit 99(d) hereto which
follows Exhibit 99(c) attached hereto.
Pro Forma Consolidated Balance Sheet at September 30, 1997 27
Pro Forma Consolidated Statement of Operations for the twelve
months ended December 31, 1996 28
Pro Forma Consolidated Statement of Operations for the
nine months ended September 30, 1997 29
Notes to Pro Forma Consolidated Financial Statements 30
(c) Exhibits.
The following exhibits are filed as a part of this report:
2 The Agreement and Plan of Merger, dated as of October 14,
1997, by and among FinishMaster, Inc., FMST Acquisition
Corporation and Thompson PBE, Inc. is incorporated by
reference to Exhibit (c)(2) of Schedule 14D-1 filed by FMST
Acquisition Corporation on October 21, 1997. *
99(a) Credit Agreement, dated as of November 19, 1997, among
FinishMaster, Inc., the Institutions from Time to Time
Parties Thereto as Lenders and NBD Bank, N.A., as Agent. *
99(b) Subordinated Note Agreement, dated as of November 19, 1997,
by and between FinishMaster, Inc. and LDI, Ltd. *
99(c) Consolidated financial statements of Thompson PBE, Inc.
99(d) Pro forma financial information of the consolidated
financial statements of FinishMaster, Inc. and Thompson
PBE, Inc.
*Previously filed by the Registrant on Form 8-K filed December 3, 1997.
<PAGE>
FINISHMASTER INC.
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.
(Registrant)
Date: January 30, 1998 /s/ Roger A. Sorokin
-------------------------------------------
Roger A. Sorokin
Vice President - Finance
(Principal Financial and Accounting Officer)
THOMPSON PBE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets at September 30, 1996 and 1997............ F-2
Consolidated Statements of Operations for each of the three years
in the period ended September 30, 1997.............................. F-3
Consolidated Statements of Stockholders' Equity for each
of the three years in the period ended September 30, 1997.......... F-4
Consolidated Statements of Cash Flows for each of the three years
in the period ended September 30, 1997.............................. F-5
Notes to Consolidated Financial Statements ........................... F-6
Independent Auditors' Report .........................................F-19
F-1
<PAGE>
THOMPSON PBE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
September 30,
1996 1997
ASSETS
<S> <C> <C>
Cash ..................................................... $ 482 $ 1,246
Accounts receivable, net of allowance for doubtful
accounts of $1,018 (1996) and $1,436 (1997)................. 19,741 19,507
Inventory..................................................... 31,440 26,788
Prepaid expenses and other current assets..................... 4,505 3,646
Income tax refund receivable.................................. 1,435 1,287
Deferred income taxes......................................... 1,485 2,239
-------- --------
Total current assets..................................... 59,088 54,713
Property and equipment, net................................... 7,430 8,067
Intangible assets............................................. 57,403 60,318
Other assets.................................................. 263 344
Due from officers............................................. 196 -
--------- ---------
TOTAL ..................................................... $124,380 $123,442
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term obligations...................... $ 7,013 $ 8,385
Accounts payable.............................................. 13,280 26,563
Accrued expenses and other current liabilities................ 8,546 5,862
------- --------
Total current liabilities................................ 28,839 40,810
Long-term obligations......................................... 44,307 34,737
-------- --------
Total liabilities........................................ 73,146 75,547
-------- --------
Commitments and contingencies.................................
Stockholders' equity:
Preferred stock, par value $0.001 per share; 3,000,000 shares authorized;
none issued and outstanding.......
Common stock, par value $0.001 per share; 25,000,000
shares authorized; 8,692,438 (1996) and 8,645,084
(1997) shares issued and outstanding................. 9 9
Additional paid-in capital............................... 61,479 61,129
Accumulated deficit...................................... (10,254) (13,243)
--------- ---------
Total stockholders' equity .......................... 51,234 47,895
--------- ---------
TOTAL ..................................................... $124,380 $123,442
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
THOMPSON PBE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Year ended September 30,
1995 1996 1997
<S> <C> <C> <C>
Net sales..................................................... $131,827 $178,139 $201,159
Cost of sales................................................. 82,562 113,210 132,099
------- ------- --------
Gross profit.................................................. 49,265 64,929 69,060
------- ------- --------
Selling, general and administrative expenses.................. 36,996 55,831 60,733
Depreciation.................................................. 1,387 1,848 2,283
Amortization of intangible assets............................ 1,679 2,267 2,904
Interest expense.............................................. 2,918 2,600 4,131
Charge in connection with sale, closure or
consolidation of certain sites.............................. 3,616
------- ------- --------
Total................................................... 42,980 62,546 73,667
------- ------- --------
Income (loss) before provision for income
taxes and extraordinary item................................ 6,285 2,383 (4,607)
Provision (benefit) for income taxes.......................... 805 1,310 (1,618)
------- ------- --------
Income (loss) before extraordinary item....................... 5,480 1,073 (2,989)
Extraordinary item - early extinguishment of debt............. (445)
------- ------- --------
Net income (loss) ............................................ $ 5,035 $ 1,073 $ (2,989)
======= ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
THOMPSON PBE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Second Junior Third Junior Common
Preferred Stock Preferred Stock Stock
--------------------------------------- ----------------------------------- ------------
Additional Additional
Par Paid-in Par Paid-in
Shares value Capital Shares Value Capital Shares
Balance,
<S> <C> <C> <C> <C> <C> <C> <C>
September 30, 1994 ............... 150,000 $ 2 $263 133,000 $ 1 $ 331 2,908,060
Issuance of common stock
in initial public offering ..... 2,450,000
Class A Common Stock
redemption premium .............
Exercise of Heller Warrant ....... 365,609
Recapitalization and
conversion of preferred
stock into common stock ........ (150,000) (2) (263) (133,000) (1) (331) 622,600
Reclassification of deferred
option compensation and capital
charge arising
from combination ...............
Exercise of stock options, net of
retirement of
outstanding stock .............. 45,677
Issuance of warrants in connection
with an acquisition ............
Tax effect of exercise
of options ....................
Net income .......................
------- ------- ---- ------- ------- ----------- ---------
Balance,
September 30, 1995 ............... -- -- -- -- -- -- 6,391,946
Issuance of common
stock in secondary
public offering ................. 2,271,475
Exercise of stock options ........ 29,017
Tax effect of exercise
of options ....................
Net income .......................
------- ------- ---- ------- ------- ----------- ---------
Balance,
September 30, 1996 ............... -- -- -- -- -- -- 8,692,438
Repurchase of common
stock ........................... (63,700)
Exercise of stock options ........ 16,346
Tax effect of exercise
of options ....................
Net income (loss) ................
------- ------- ---- ------- ------- ----------- ---------
Balance,
September 30, 1997 ............... -- $- $ -- -- $- $- 8,645,084
======= ======= ==== ======= ======= =========== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Common Stock
----------------------- Capital
Additional Deferred Charge
Par Paid-In Option from Accumulated
Value Capital Compensation Combination Deficit Total
Balance,
<S> <C> <C> <C> <C> <C> <C>
September 30, 1994 ............... $ 29 $ 953 $ 1,472 $ (614) $ (16,362) $ (13,925)
Issuance of common stock
in initial public offering ..... 2 22,713 22,715
Class A Common Stock
redemption premium ............. (1,000) (1,000)
Exercise of Heller Warrant ....... 3,740 3,740
Recapitalization and
conversion of preferred
stock into common stock ........ (25) 622
Reclassification of deferred
option compensation and capital
charge arising
from combination ............... 858 (1,472) 614
Exercise of stock options, net of
retirement of
outstanding stock ..............
Issuance of warrants in connection
with an acquisition ............ 100 100
Tax effect of exercise
of options .................... 291 291
Net income ....................... 5,035 5,035
----------- -------- ----------- ----------- ----------- -----------
Balance,
September 30, 1995 ............... 6 28,277 -- -- (11,327) 16,956
Issuance of common
stock in secondary
public offering ................. 3 32,953 32,953
Exercise of stock options ........ 200 200
Tax effect of exercise
of options .................... 49 49
Net income ....................... 1,073 1,073
----------- -------- ----------- ----------- ----------- -----------
Balance,
September 30, 1996 ............... 9 61,479 -- -- (10,254) 51,234
Repurchase of common
stock ........................... (426) (426)
Exercise of stock options ........ 68 68
Tax effect of exercise
of options .................... 8 8
Net income (loss) ................ (2,989) (2,989)
----------- -------- ----------- ----------- ----------- -----------
Balance,
September 30, 1997 ............... $ 9 $ 61,129 $- $- $ (13,243) $ 47,895
=========== ======== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
THOMPSON PBE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year ended September 30,
1995 1996 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss)........................................... $ 5,035 $ 1,073 $(2,989)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization............................. 3,066 4,115 5,187
Deferred income taxes..................................... (1,629) 144 (754)
Charge in connection with the sale, closure or
consolidation of certain sites.......................... 3,616
Extraordinary item - early extinguishment of debt......... 445
Changes in operating assets and liabilities, net of
effect of business acquisitions (Note 12)............... (4,194) (6,749) 14,810
------- -------- --------
Net cash provided by (used by) operating activities....... 2,723 (1,417) 19,870
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used in business acquisitions ..................... (23,241) (22,086) (4,443)
Purchases of property and equipment........................ (1,681) (1,866) (2,456)
Increases in other assets................................... (22) (34) (81)
------- -------- --------
Net cash used in investing activities..................... (24,944) (23,986) (6,980)
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving line
of credit................................................. (4,782) 5,476 (6,273)
Net proceeds from sale of common stock...................... 23,708 33,153 76
Repayment of senior debt from offering proceeds............. (33,385)
Issuance of long-term obligations .......................... 27,985 24,475 1,423
Repayment of long-term obligations.......................... (13,131) (4,202) (6,765)
Redemption of redeemable stock.............................. (10,704)
Repurchase of common stock.................................. (426)
Financing fees.............................................. (754) (297) (357)
Decrease in notes receivable from shareholders ............. 196
------- -------- --------
Net cash provided by (used for) financing activities..... 22,322 25,220 (12,126)
------- -------- --------
Net increase (decrease) in cash............................... 101 (183) 764
Cash, beginning of year....................................... 564 665 482
------- -------- --------
Cash, end of year............................................. $ 665 $ 482 $ 1,246
======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
THOMPSON PBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Acquisition by FinishMaster
The Company is an aftermarket distributor of automotive paint and related
supplies to the automotive collision repair industry. At September 30, 1997, the
Company operated a total of 89 distribution sites and two warehouses located in
eleven states. The Company is highly dependent on a small number of key
suppliers. For its most recent fiscal year, the Company regularly served
approximately 12,000 customers, none of which accounted for more than 1% of the
Company's sales. The Company grants credit to substantially all of its
customers.
Contemporaneous with the closing of Thompson PBE, Inc.'s initial public
offering on November 16, 1994, Thompson Capital Corporation reincorporated in
the State of Delaware by merging with and into Thompson PBE, Inc. with Thompson
PBE, Inc. as the surviving company (the "Reincorporation Merger"). Prior to the
Reincorporation Merger, Thompson PBE, Inc. had no operations. References to
Thompson PBE, Inc. ("Thompson") include the operations of the predecessor,
Thompson Capital Corporation, unless the context indicates otherwise.
Thompson raised approximately $25.1 million in gross proceeds (after payment
of underwriting discounts) in its initial public offering which closed in
November 1994. In that offering, Thompson issued and sold 2,450,000 shares of
common stock (including the full 330,000 shares covered by the underwriters'
overallotment option), and a selling stockholder sold 80,000 shares. The net
proceeds from the offering received by Thompson were used to repay debt and
retire its various classes of redeemable capital stock. The early extinguishment
of debt arising from use of the offering proceeds resulted in a non-cash
extraordinary charge in the amount of $445,000 related to the write-off of
certain deferred financing fees. As a result of the reincorporation and
recapitalization, only one class of common stock is authorized and outstanding.
In October 1995, Thompson raised approximately $34.3 million in gross
proceeds (after payment of underwriting discounts) in a secondary public
offering. In that offering, Thompson issued and sold 2,271,475 shares of common
stock (including the full 271,475 shares covered by the underwriters'
overallotment option), and selling stockholders sold 1,178,525 shares. The net
proceeds from the offering received by Thompson were used to repay senior debt.
Acquisition of the Company by FinishMaster
On October 14, 1997, Thompson entered into an Agreement and Plan of Merger
(the "Merger") with FinishMaster, Inc., an Indiana corporation ("FinishMaster")
and FMST Acquisition Corporation, a Delaware corporation, a wholly-owned
subsidiary of FinishMaster. In accordance with the terms of the Merger, FMST
Acquisition Corporation commenced a tender offer to acquire all outstanding
shares of Thompson common stock for $8.00 in cash per share. The Merger became
effective on November 21, 1997 subsequent to the tender of the majority of
outstanding Thompson common stock. Immediately subsequent to the effective date
of the Merger, FMST Acquisition Corporation was merged into Thompson, which
continued as the surviving corporation.
Each share of Thompson common stock issued and outstanding immediately prior
to the effective time, by virtue of the Merger and without any action on the
part of the holder thereof, was converted into the right to receive cash of
$8.00 per share. Immediately prior to the effective time, each holder of a
then-outstanding stock option issued pursuant to the Company's Stock Option
Plans, whether or not then presently vested and exercisable, and which had an
exercise price of less than $8.00 per share, received a cash payment equal to
the difference between the exercise price per share and the tender offer amount
of $8.00 per share. At the effective time of the Merger, all other options
issued under the Company's stock option plans were cancelled, and ceased to
exist.
On November 21, 1997, Thompson filed with the Securities and Exchange
Commission Form 15, Certification and Notice of Termination of Registration
under Section 12(g) of the Securities Exchange Act of 1934. Concurrently,
trading of Thompson PBE, Inc. under the stock symbol "THOM" on the Nasdaq
National Market was terminated.
Concurrent with the the acquisition of the Company by FinishMaster, all
amounts then outstanding under the 1995 Credit Agreement with Heller Financial,
Inc. as agent and lender were repaid, and the agreement terminated. Financing of
the Company and its operations subsequent to November 21, 1997 was through
FinishMaster's Credit Agreement with NBD Bank, N.A., in its capcacity as
contractual representative for itself and other lenders.
F-6
<PAGE>
THOMPSON PBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of Thompson PBE, Inc. and its wholly owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Change of Fiscal Year - The Company changed its fiscal year end from
September 30 of each year to a 52/53 week fiscal year that ends on the Saturday
closest to September 30 of each year. The change became effective for the 1997
fiscal year which began on October 1, 1996 and which ended on September 27,
1997. For simplicity of presentation, the Company has described the period ended
September 27, 1997 as the fiscal year ended September 30, 1997.
Inventory - Inventory is stated at the lower of weighted average cost or
market. Inventory consists of the direct costs of goods purchased for resale.
Intangible Assets - Intangible assets are recorded at cost and are amortized
using the straight-line method over their estimated useful lives of 2.5 years
for covenants not to compete and prepaid consulting fees and 15-30 years for
goodwill. The recoverability of goodwill attributable to the Company's
acquisitions is analyzed annually based on actual and projected levels of
profitability of the locations acquired on an undiscounted basis. Debt issuance
costs are amortized using the straight-line method over the term of the related
debt.
Property and Equipment - Property and equipment are stated at cost and are
depreciated using the straight-line method over the estimated useful lives of
the related assets. Useful lives range from three to seven years for vehicles,
furniture, fixtures and equipment. Leasehold improvements are amortized over the
lesser of the useful life of the asset or the remaining lease term.
Revenue Recognition - The Company recognizes revenues from product sales at
the time of delivery.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions. Such estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. The ultimate resolution of
such estimates and assumptions may vary from the estimates and assumptions used
in the preparation of financial statements.
Concentration of Credit Risk - The Company's financial instruments that are
exposed to credit risk consist primarily of accounts receivable. Concentration
of credit risk with respect to accounts receivable is generally diversified due
to the large number of entities composing the Company's customer base and their
geographic dispersion. The Company grants credit to substantially all of its
customers, performs ongoing credit evaluations of its customers' financial
condition and maintains an allowance for potential credit losses.
Fair Value of Financial Instruments - The Company's financial instruments
consist primarily of accounts receivable and payable, and debt instruments. The
carrying values of all financial instruments, other than debt instruments, are
representative of their fair values due to their short term maturities. The
carrying values of the Company's debt instruments are considered to approximate
their fair values because the interest rates of the majority of these
instruments are based on variable reference rates.
F-7
<PAGE>
THOMPSON PBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (Continued)
Recent Accounting Pronouncements - In October 1995, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 123, Accounting for Stock Based
Compensation. This statement requires the determination of compensation expense
equal to the fair value of the option grant to be estimated, using accepted
option pricing formulas, when the option is granted. The computed fair value of
option grants to non-employees must be amortized over the vesting period of the
option. The effects of amortizing the computed fair value of option grants to
employees may either be charged to the statement of operations or set forth as
pro forma information in the footnotes to the financial statements, depending on
the method elected by the Company upon adoption of the standard. As described in
Note 1, Acquisition by FinishMaster, all stock options oustanding at November
21, 1997 ceased to exist. See Note 10, "Stock Option Plans." The pro forma
effect of adopting the disclosure requirements of the pronouncement would not
have a material effect on the financial statements in fiscal years 1996 or 1997.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and Long- Lived Assets To Be Disposed Of" which requires
that long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If the sum of the expected undiscounted future cash flows from the
use of the asset is less than the carrying amount of the asset, an impairment
loss is recognized. The impairment loss is measured based on the fair value of
the assets. The Company adopted SFAS No. 121 in the first quarter of its fiscal
year ending September 27, 1997. The effect of adoption did not have a material
effect on the consolidated financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, Reporting for Comprehensive Income and No. 131, Disclosures about
Segments of an Enterprise and Related Information. This statement is effective
for financial statements issued for periods ending after December 15, 1997. The
Company has not yet analyzed the impact of adopting these statements.
3. Business Acquisitions
The Company's acquisition strategy is to continue to make add-on
acquisitions to augment its Southeast Division (comprised of its operations in
Alabama, Florida, and Georgia), Southern California Division, Northern
California Division, Rocky Mountain Division (comprised of its Arizona and
Colorado operations), Mid-Atlantic Division (comprised of its North Carolina,
South Carolina and Virginia operations) and Northeast Division (comprised of its
operations in Massachusetts and Connecticut) and to capitalize on opportunities
to enter new geographic markets. Since its inception in May 1989, the Company
has made a total of 54 acquisitions, including 4 acquisitions during the fiscal
year ended September 30, 1997. These acquisitions were accounted for in
accordance with the purchase method, and accordingly, the purchase consideration
has been allocated first to the fair value of identifiable assets acquired and
liabilities assumed, and the remaining amounts allocated to goodwill. The
following table summarizes the acquisition transactions of the Company in each
of the periods presented (in thousands):
F-8
<PAGE>
THOMPSON PBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Business Acquisitions (continued)
<TABLE>
<CAPTION>
Year Ended September 30,
1995 1996 1997
<S> <C> <C> <C>
Net assets acquired.......................................... $11,313 $10,512 $1,862
Goodwill and covenants not to compete........................ 22,529 24,080 4,620
------- ------- ------
33,842 34,592 6,482
Less liabilities assumed..................................... 4,322 4,735 870
------- ------- ------
Purchase price............................................... 29,520 29,857 5,612
Seller acquisition debt...................................... 6,279 7,771 1,169
------- ------- ------
Purchase price net of acquisition debt....................... $23,241 $22,086 $4,443
======= ======= ======
Number of acquisitions....................................... 16 14 4
</TABLE>
In connection with certain of the Company's fiscal year 1996 acquisitions,
the Company agreed to pay a total of approximately $3,700,000 of contingent
consideration to the former owners of the businesses acquired. The amount of
consideration will be dependent upon the acquired companies retention of sales,
as defined, for specified periods subsequent to the closing of the acquisitions
and achievement of other specified objectives.
The following table sets forth the unaudited pro forma results of operations
for each period in which acquisitions occurred as if the acquisitions were
consummated at the beginning of the preceding period. The unaudited pro forma
results of operations data gives effect to the Company's acquisitions during the
fiscal years ended September 30, 1997 and 1996, and also gives effect to certain
acquisitions during the fiscal year ended September 30, 1995, including the
acquisition of the stock of Arnold Paint Company and its subsidiary, the
acquisition of substantially all of the assets of SEV Corporation, and to other
asset acquisitions, consisting of D & S Auto Color, Inc., Border Paint & Supply,
Inc., Auto Paint Specialties, Inc., Refinishers Supply and Equipment, Inc. and
F.A. Heckendorf. Additional acquisitions made by the Company since October 1,
1994 are either already reflected in the historical statement of operations of
the Company or were not significant. The unaudited pro forma results of
operations data consists of the historical results of the Company as adjusted to
give effect to (i) a decrease in selling, general and administrative expenses
for amounts of compensation paid to former owners or employees of acquired
businesses who are no longer employed by the Company; (ii) amortization of the
excess of purchase price over net assets acquired; and (iii) the interest
expense attributable to debt incurred to finance the acquisitions net of the
reduction of interest expense attributable to debt and other liabilities that
were not assumed by the Company. The unaudited pro forma results of operations
do not purport to represent what the Company's actual results of operations
would have been had such transactions in fact occurred on such dates.
<TABLE>
<CAPTION>
Year Ended September 30,
1995 1996 1997
Pro Forma Results of
Operations Data (Unaudited):
<S> <C> <C> <C>
Net sales.................................................... $193,738 $202,888 $203,157
Income (loss) before extraordinary item...................... 6,390 2,795 (4,400)
Net income (loss)............................................ 5,945 1,314 (2,709)
</TABLE>
F-9
<PAGE>
THOMPSON PBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Intangible Assets
Intangible assets consist of the following (in thousands):
September 30,
1996 1997
Covenants not to compete........................ $ 201 $ 201
Goodwill........................................ 61,176 66,526
Debt issuance costs and other................... 1,160 1,519
------- -------
Total ........................................ 62,537 68,246
Less accumulated amortization................... 5,134 7,928
------- -------
Intangible assets - net......................... $57,403 $60,318
======= =======
Intangible assets and the related accumulated amortization are removed from the
accounts when fully amortized.
5. Property and Equipment
Property and equipment consist of the following (in thousands):
September 30,
1996 1997
Vehicles............................................... $3,667 $ 4,001
Furniture, fixtures and equipment...................... 3,216 3,450
Leasehold improvements................................. 2,044 2,158
Computer equipment..................................... 4,952 6,802
------ ------
Total ............................................... 13,879 16,411
Less accumulated depreciation and amortization......... 6,449 8,344
------ -------
Property and equipment - net........................... $7,430 $8,067
====== ======
6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following (in
thousands):
September 30,
1996 1997
---- ----
Salaries and wages.....................................$1,984 $2,354
Other ............................................... 6,562 3,508
------ ------
Total ...............................................$8,546 $5,862
====== ======
F-10
<PAGE>
THOMPSON PBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Long-Term Obligations
Long-term obligations consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30,
1996 1997
<S> <C> <C>
1995 Credit Agreement with Heller Financial, Inc. as
agent and lender, bearing interest at an effective annual rate
of 7.08% and 8.18% at September 30, 1996 and
1997, respectively......................................... $36,855 $32,506
Obligations under various covenant not to compete
agreements, payable through 1999, net of
unamortized discounts based on imputed interest rates
ranging from 8.5% to 12%................................... 340 194
Notes payable to sellers and capital lease obligations, bearing
interest ranging from 5% to 12%, payable through 2005...... 14,125 10,422
------- -------
Total ..................................................... 51,320 43,122
Less current portion of long-term obligations................ 7,013 8,385
------- -------
Total long-term obligations, less current portion............ $44,307 $34,737
======= =======
</TABLE>
On January 6, 1995, the Company entered into a new credit agreement with
Heller Financial, Inc. as agent and lender (the "1995 Credit Agreement"), which
expires January 2002. The 1995 Credit Agreement, as amended, provides for
borrowings in an aggregate amount not to exceed $75 million, consisting of (i) a
revolving credit facility of $18.0 million, limited to a borrowing base, (ii) a
term loan of $30.0 million, and (iii) an acquisition loan facility of $27.0
million. Advances under the 1995 Credit Agreement bear interest based upon
either a "base rate" or LIBOR at the election of the Company, plus a spread
which is determined based on the Company's ratio of senior debt to operating
cash flow for the prior twelve months.
As of September 30, 1997, borrowings under the 1995 Credit Agreement bore
interest at an effective interest rate of 8.18% per annum. Borrowings under the
1995 Credit Agreement are secured by substantially all of the Company's assets,
and such agreement contains significant restrictive covenants which, among other
things, require the Company to maintain certain financial ratios and which limit
capital expenditures, the incurrence of indebtedness and the payment of cash
dividends. Certain of the financial covenant ratios and certain other provisions
of the 1995 Credit Agreement were amended effective September 30, 1996 (the
"Third Amendment"). Effective January 1, 1997, the Company and the banks
participating in the 1995 Credit Agreement entered into a Waiver and Fourth
Amendment to Credit Agreement (the "Fourth Amendment") which, among other
things, waived compliance with certain provisions of the 1995 Credit Agreement
and further amended certain of the financial covenants contained therein. At
June 28, 1997, the Company was not in compliance with certain financial
covenants contained within the 1995 Credit Agreement, as amended. The Company
and the banks participating in the 1995 Credit Agreement entered into an
agreement dated as of August 11, 1997 (the "Waiver and Fifth Amendment to Credit
Agreement") which waived compliance with certain financial covenants through and
including September 27, 1997.
As described in Note 1 regarding the acquisition by FinishMaster, all
amounts oustanding under the 1995 Credit Agreement as of November 21, 1997 were
paid at that time, and the Agreement was terminated. At September 30, 1997, the
Company had approximately $1,092,000 in deferred fees and other origination
costs, net of related accumulated amortization, related to the 1995 Credit
Agreement. The unamortized fees and costs were charged to expense in the period
in which the merger occurred.
F-11
<PAGE>
THOMPSON PBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Long-Term Obligations (Continued)
After giving effect to the above repayment of all amounts outstanding under
the 1995 Credit Agreement in November 1997, scheduled payments of other
long-term obligations at September 30, 1997 are as follows (in thousands):
1998................................................... $ 5,216
1999................................................... 3,326
2000................................................... 1,226
2001................................................... 579
2002................................................... 91
Thereafter............................................. 178
-------
Total................................................. $10,616
=======
8. Income Taxes
The components of the Company's provision (benefit) for income taxes consist
of the following (in thousands):
<TABLE>
<CAPTION>
Year ended September 30,
1995 1996 1997
Current:
<S> <C> <C> <C>
Federal...................................................... $1,901 $ 914 $ (967)
State........................................................ 533 252 103
------ ------ -------
Total current............................................. 2,434 1,166 (864)
Deferred................................................. 835 144 (754)
Change in valuation allowance.................................. (2,464) - -
------ ------ -------
Total..................................................... $ 805 $1,310 $(1,618)
====== ====== =======
</TABLE>
The Company's effective income tax rate differs from the federal statutory
income tax rate applied to income before provision for income taxes due to the
following:
<TABLE>
<CAPTION>
Year ended September 30,
1995 1996 1997
<S> <C> <C> <C>
Federal statutory income tax rate.............................. 35.0% 35.0% (35.0)%
Increases (reductions) in taxes resulting from:
State taxes, net of federal benefit......................... 6.0 7.2 (2.9)
Amortization of non-deductible intangible assets............ 2.7 11.7 9.5
Changes in valuation allowance.............................. (39.2)
Other....................................................... 8.3 1.1 (6.7)
------ ------- ------
Effective tax rate............................................. 12.8% 55.0% (35.1)%
====== ======= ======
</TABLE>
F-12
<PAGE>
THOMPSON PBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Income Taxes (Continued)
The tax effects of temporary differences giving rise to deferred tax assets
are as follows (in thousands):
September 30,
1996 1997
------- -------
Deferred tax assets:
Accounts receivable ............ $ 902 $ 977
Intangible assets .............. 87 (245)
Accrued expenses ............... 190 501
Inventory ...................... 349 1,044
Other .......................... (43) (38)
------- -------
Net deferred tax assets........... $ 1,485 $ 2,239
======= =======
In the year ended September 30, 1995 the Company reduced the valuation
allowance to the extent that deferred tax assets were anticipated to be
realizable.
Tax benefits arising from the exercise of stock options provide the Company
a tax deduction equal to the difference between the exercise price and the fair
market value of the stock on the date of exercise. The tax effect of the
deduction is excluded from the provision (benefit) for income taxes and credited
directly to additional paid in capital. For the year ended September 30, 1996
and 1997, tax benefits credited directly to stockholders' equity totaled $49,000
and $8,000, respectively.
9. Commitments and Contingencies
The Company leases substantially all of its operating and office facilities
under various operating and capital leases expiring through 2002. Most of these
leases provide for increases in rents based on the Consumer Price Index and
include renewal options ranging from two to ten years. Future minimum lease
payments under such leases as of September 30, 1997 are as follows (in
thousands):
Capital Operating
Leases Leases
1998.......................................... $ 503 $4,321
1999.......................................... 291 3,557
2000.......................................... 21 2,238
2001.......................................... - 611
2002.......................................... - 62
--------- ---------
Total.................................... 815 $10,789
=======
Less amount representing interest............. 35
------
Present value of minimum lease payments....... 780
Less current portion of obligations under
capital lease obligations................... 480
-----
Long-term portion............................. $ 300
=====
Total rental expense included in the accompanying statements of operations
was $2,544,000, $4,026,000 and $4,472,000 for the years ended September 30,
1995, 1996 and 1997, respectively.
F-13
<PAGE>
THOMPSON PBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Commitments and Contingencies (Continued)
In the ordinary course of business, the Company is subject to examination of
its sales tax returns. At September 30, 1996 a liability to the Florida
Department of Revenue for sales and use taxes was recorded to reflect the
results of an audit of the sales and operations of a predecessor company for the
period September 1989 through August 1994. The Florida Department of Revenue is
currently claiming amounts due of approximately $1.0 million. The Company is
contesting the audit methodology and the alleged deficiency calculated and
assessed. The Company recorded a charge to earnings during the year ended
September 30, 1996 to establish a reserve sufficient for the assessed amount,
although the ultimate amount to be paid can not yet be predicted pending the
outcome of the Company's efforts to appeal this matter. Management presently
believes that all other existing claims will ultimately be resolved without a
material effect on the Company's financial position.
The Company is dependent on four main suppliers for the purchases of the
paint and related supplies that it distributes. A loss of one of the suppliers
or a disruption in the supply of the products provided could have a material
adverse impact on the Company's operating results. The suppliers also provide
purchase discounts, extended payment terms and other incentive programs. To the
extent these programs are changed or terminated, there could be a material
adverse impact to the Company.
The Company has three agreements with warehouse suppliers for the purchase
of certain of its paint and non-paint supplies in specified geographic
locations. The agreements provide for aggregate specified minimum purchases of
$8,100,000 in fiscal year 1998, $7,800,000 in each of the fiscal years 1999 and
2000, and $2,800,000 in each of the fiscal years 2001 through 2003. The
agreements expire in 1999, 2000 and 2003.
In the ordinary course of business, the Company is subject to claims and
lawsuits which are incidental to its business. In the opinion of management, the
resolution of these matters will not have a material effect on the Company's
consolidated financial statements.
10. Stock Option Plans
The Company had two stock option plans in effect at September 30, 1997: the
1994 Stock Option Plan, as amended (the "1994 Plan"), and the Outside Director
Stock Option Plan (the "1995 Director Plan"). As described in Note 1,
Acquisition by FinishMaster, vesting of all oustanding stock options was
accelerated in accordance with the terms of the Merger. Immediately prior to the
effective time, each holder of a then-outstanding stock option issued pursuant
to the Company's Stock Option Plans, which had a exercise price of less than
$8.00 per share, received a cash payment equal to the difference between the
exercise price per share and the tender offer amount of $8.00 per share. At the
effective time of the Merger, all other options issued under the Company's stock
option plans were cancelled, and ceased to exist.
1994 Plan
The Company has reserved 965,000 shares of Common Stock for issuance under
the 1994 Plan. Options may be granted under the 1994 Plan at an exercise price
not less than the fair market value of the shares on the date of grant. Options
granted under the 1994 Plan generally have terms of five to ten years, and
become exercisable in three equal annual installments from the date of grant.
F-14
<PAGE>
THOMPSON PBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following summarizes activity in the 1994 plan through September 30,
1997:
Aggregate
Number of Range of Exercise
Options Option Price Price
(in thousands)
Outstanding,
September 30, 1994........ 300,300 $ 5.91 - $ 6.50 $1,829
Granted................. 419,966 $11.00 - $17.25 5,772
Exercised............... (35,964) $5.91 (213)
Canceled................ (5,301) $5.91 - $11.00 (47)
--------- -------
Outstanding,
September 30, 1995...... 679,001 $ 5.91 - $17.25 $7,341
Granted................. 94,000 $9.50 - $14.00 1,193
Exercised............... (29,017) $5.91 - $11.00 (200)
Canceled................ (78,868) $5.91 - $16.75 (948)
--------- -------
Outstanding,
September 30, 1996...... 665,116 $ 5.91 - $17.25 $7,386
Granted................. 172,000 $5.25 - $ 7.00 1,183
Exercised............... (16,346) $5.91 (97)
Canceled................ (168,427) $5.91 - $17.00 (2,097)
-------- -------
Outstanding,
September 30, 1997...... 652,343 $ 5.91 - $17.00 $6,375
======== ======
At September 30, 1997, options to purchase 319,938 shares,
respectively, were exercisable under the 1994 Plan. In connection with the
Acquisition by FinishMaster, as described above, cash payments, totaling
$520,474, equal to the difference between the exercise price and the amount of
$8.00 per share on 338,577 options, with an aggregate exercise price of
$2,188,000, were distributed on November 21, 1997. At the effective date of the
Merger, options to purchase 313,766 shares, with exercise prices greater than
$8.00 per share, were cancelled.
Outside Director Stock Option Plan
In August 1995, the Board of Directors authorized the establishment of
a stock option plan for outside directors (the "1995 Director Plan") pursuant to
which options to acquire up to 100,000 shares may be granted, which plan was
approved by stockholders in February 1996. The 1995 Director Plan provides for
specified grants of stock options to outside directors upon their initial
election to the board of Directors, and provides for annual grants on a formula
basis upon their reelection. The exercise price of all such options will be the
last reported sales price of the Common Stock on the Nasdaq Stock Market on the
date immediately prior to the date of grant. Options granted under the 1995
Director Plan will be for terms of ten years, and will vest one third at the end
of the first, second and third anniversaries of the date of grant. As of
September 30, 1997, the Company had granted options to acquire 55,000 shares of
Common Stock under the 1995 Directors Plan at exercise prices ranging from $5.25
to $17.00.
In connection with the acceleration and cancellation of options in
connection with the acquisition of the Company by FinishMaster, as described
above, cash payments totaling $37,500, equal to the difference between the
exercise price and the amount of $8.00 per share on 15,000 options, were
distributed on November 21, 1997. At the effective date of the Merger, options
to purchase 40,000 shares, with exercise prices greater than $8.00 per share,
were cancelled.
F-15
<PAGE>
THOMPSON PBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Stock Option Plans (Continued)
Other Stock Options
In June 1994, certain institutional shareholders granted to the Company's
officer/shareholders options to purchase a total of 96,280 shares of common
stock owned by the institutional shareholders at $0.91 per share, subject to
antidilution provisions. The options were exercised in connection with the
acquisition by FinishMaster in November 1997.
11. Stockholder Rights Plan
On May 6, 1997 the Board of Directors declared a dividend distribution of one
Preferred Share Purchase Right (the "Rights") on each outstanding share of
common stock of the Company. If and when the Rights become exercisable, each
Right will entitle stockholders to buy one one-hundredth of a share of newly
created Series A Junior Participating Preferred Stock of the Company at an
initial exercise price of $25.00 per Right. The Rights will, subject to certain
exceptions, be exercisable if a person or group acquires 20% or more of the
Company's common stock or announces a tender offer for 20% or more of the common
stock. The Company's Board of Directors will be entitled to redeem the Rights at
$.01 per Right, payable in cash or stock.
If a person acquires 20% or more of the outstanding common stock of the Company
(other than certain exempt persons), each Right will entitle its holder to
purchase, at the Right's then-current exercise price, a number of shares of
Company common stock having a market value at that time of twice the Right's
exercise price. Rights held by the 20% holder will become void and will not be
exercisable to purchase shares at the bargain purchase price. If the Company is
acquired in a merger or other business combination transaction which has not
been approved by the Board of Directors, each Right will entitle its holder to
purchase, at the Right's then-current exercise price, a number of the acquiring
company's common shares having a market value at that time of twice the Right's
exercise price. The exercisability of the Rights will not be triggered by any
person who beneficially owned more than 20% of the Company's common stock at the
close of business on May 6, 1997, provided such exempt person acquires no more
than an additional 0.25% of the outstanding common stock (presently, slightly
more than 21,000 shares) after such date.
The dividend distribution was paid to stockholders of record on May 29, 1997.
The declaration of the Rights dividend did not result in any charge to the
Company's results of operations. In connection with the Acquisition by
FinishMaster, the Rights ceased to exist at the effective date of the merger of
November 21, 1997.
F-16
<PAGE>
THOMPSON PBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Statement of Cash Flows
Increases (decreases) in operating cash flows arising from changes in operating
assets and liabilities, net of the effects of business acquisitions, consist of
the following (in thousands):
<TABLE>
<CAPTION>
September 30,
---------------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Accounts receivable............................. $(1,561) $(2,126) $1,240
Inventory....................................... (219) (4,551) 4,978
Prepaid expenses and other current assets....... (2,663) (925) 944
Accounts payable................................ (1,071) 1,812 12,568
Income taxes receivable......................... (2,063) 148
Accrued expenses and other current liabilities.. 1,320 1,104 (5,068)
------- ------- -------
$(4,194) $(6,749) $14,810
======= ======= =======
</TABLE>
Cash paid (refunded) for interest and income taxes is as follows (in
thousands):
Fiscal year ended September 30,
1995 1996 1997
Interest.............. $2,851 $2,465 $4,276
Income taxes.......... $1,782 $2,591 $(668)
Financing and investing activities of the Company in the fiscal year ended
September 30, 1995 and 1996 which affect recognized assets or liabilities but
that do not result in cash receipts or cash payments are as follows (in
thousands):
Capital leases acquired in connection with the
acquisition of certain businesses and property... $710 $1,230 -
Non-cash financing and investing activities during the fiscal year ended
September 30, 1997 were not significant.
13. Subsequent Event
As described in Note 1, Acquisition by FinishMaster, on October 14, 1997,
Thompson entered into an Agreement and Plan of Merger (the "Merger") with
Finishmaster, an Indiana corporation (FinishMaster) and FMST Acquisition
Corporation, a Delaware corporation, a wholly-owned subsidiary of FinishMaster.
F-17
<PAGE>
THOMPSON PBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Results of Operations - Quarterly Financial Information (Unaudited)
The following table sets forth unaudited consolidated statement of
operations data for each of the eight quarters ended September 30, 1997. The
unaudited quarterly information has been prepared on the same basis as the
annual financial information and, in management's opinion, includes all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the information for the quarters presented. The operating results
for any quarter are not necessarily indicative of results for any future period.
(Amounts in thousands, except per share data.)
<TABLE>
<CAPTION>
1996 Quarters Ended
Dec. 31 March 31 June 30 Sept. 30
------- -------- ------- --------
<S> <C> <C> <C> <C>
Net sales................................................ $37,145 $41,981 $48,958 $50,055
Cost of sales............................................ 23,199 26,479 30,627 32,905
------- ------- ------- -------
Gross profit............................................. 13,946 15,502 18,331 17,150
Selling, general and administrative expenses............. 11,218 12,231 13,684 18,698
Depreciation expense..................................... 419 436 490 503
Amortization of goodwill and other intangible assets..... 483 525 590 669
Interest expense, net.................................... 344 542 756 958
-------- -------- -------- --------
Income (loss) before provision for income taxes.......... 1,482 1,768 2,811 (3,678)
Provision (benefit) for income taxes..................... 615 734 1,166 (1,205)
------- --------- -------- ----------
Net income (loss)........................................ $ 867 $ 1,034 $ 1,645 $( 2,473)
===== ======= ======= =========
</TABLE>
<TABLE>
<CAPTION>
1997 Quarters Ended
Dec. 31 March 31 June 30 Sept. 30
------- -------- ------- --------
<S> <C> <C> <C> <C>
Net sales................................................ $47,768 $51,441 $52,296 $49,654
Cost of sales............................................ 30,573 33,727 33,659 34,140
------- ------- ------- -------
Gross profit............................................. 17,195 17,714 18,637 15,514
Selling, general and administrative expenses............. 14,568 14,806 14,693 16,667
Charge in connection with sale, consolidation or closure
of certain sites...................................... 3,616
Depreciation expense..................................... 487 545 614 637
Amortization of goodwill and other intangible assets..... 707 735 764 697
Interest expense, net.................................... 1,047 1,055 1,044 985
--------- -------- --------- -------
Income (loss) before provision for income taxes.......... 386 573 (2,094) (3,472)
Provision (benefit) for income taxes..................... 164 252 190 (2,224)
------- -------- -------- ----------
Net income (loss)........................................ $ 222 $ 321 $ (2,284) $ (1,248)
===== ===== ======== =========
</TABLE>
During the fourth quarter of fiscal year 1996, the Company recorded charges
to its statement of operations totaling approximately $3.5 million relating to
reserves for a sales and use tax audit of a certain predecessor company,
disputed reimbursements from vendors and writedowns of inventory carrying value.
During the three months ended June 30, 1997, the Company recorded an
aggregate charge of $3,616,000 related to the sale or closure of four sites in
Alabama and one site in Colorado, as well as the consolidation of five sites
into other existing sites. These sales and closures reflected the Company's
decision to exit certain markets that were not contributing to the Company's
results of operations and its continuing efforts to increase the average
revenues per site. The charge consists primarily of unamortized goodwill related
to the Alabama and Colorado stores and future lease costs associated with the
closed sites.
During the fourth quarter of fiscal year 1997, the Company recorded charges
to its statement of operations totaling approximately $3.2 million relating to
additional reserves for receivables, inventory and for amounts due from vendors
in connection with support the Company has provided for certain customers to
assume additional product lines.
F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Thompson PBE, Inc.:
We have audited the accompanying consolidated balance sheets of Thompson PBE,
Inc. and its subsidiaries (the "Company") as of September 30, 1996 and 1997, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended September 30, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
September 30, 1996 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 1997, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
January 10, 1998
F-19
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements give
effect to the purchase by FinishMaster, Inc. ("FinishMaster") of Thompson PBE,
Inc. and its subsidiaries (collectively, "Thompson"). Pro forma adjustments
related to the pro forma consolidated balance sheet are computed assuming the
combination was consummated at September 30, 1997. The pro forma consolidated
balance sheet combines FinishMaster's unaudited balance sheet as of September
30, 1997 with Thompson's balance sheet as of September 27, 1997. The pro forma
consolidated statement of operations assumes that the combination occurred on
January 1, 1996. The pro forma consolidated statement of operations for the
twelve months ended December 31, 1996 combines FinishMaster's unaudited results
of operations for the twelve months ended December 31, 1996 with Thompson's
results of operations for the fiscal year ended September 30, 1996.
FinishMaster's results of operations for the twelve months ended December 31,
1996 have not been previously reported due to a change in year end. The pro
forma consolidated statement of operations for the nine months ended September
30, 1997 combines the unaudited results of operations of both FinishMaster and
Thompson.
The pro forma consolidated statements of operations are not necessarily
indicative of operating results that would have been achieved had the
combination been consummated as of the beginning of the periods presented and
should not be construed as representative of future operations. Further, interim
results are not necessarily indicative of results to be realized for a full year
due to the effects of, among other things, seasonality.
These pro forma consolidated financial statements should be read in
conjunction with the historical consolidated financial statements and the
related notes thereto of FinishMaster, which are included in FinishMaster's
Annual Report on Form 10-K, and the historical financial statements and the
related notes thereto of Thompson included herein.
<PAGE>
FINISHMASTER, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(in thousands)
(unaudited)
ASSETS
<TABLE>
<CAPTION>
Pro Forma
FinishMaster Thompson Adjustments Combined
Current assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 301 $ 1,246 $ 1,547
Accounts receivable 14,158 19,507 33,665
Inventory 20,343 23,216 43,559
Prepaid expenses and other current assets 956 7,172 8,128
------- -------- --------
Total current assets 35,758 51,141 86,899
Property and equipment, net 6,291 11,639 (3,426) 14,504
Intangible assets, net 18,532 60,318 34,363 113,213
Other assets 424 344 768
------- -------- --------
$61,005 $123,442 $215,384
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations $ 4,155 $ 8,385 (3,169) $ 9,371
Accounts payable 4,360 26,563 30,923
Accrued expenses and other current liabilities 3,022 5,862 2,635 11,519
------- -------- --------
Total current liabilities 11,537 40,810 51,813
Subordinated debt payable to stockholder 30,000 30,000
Long-term obligations, net of current maturities 15,070 34,737 49,366 99,173
------ ------- --------
Total liabilities 26,607 75,547 180,986
Commitments and contingencies
Stockholders' equity:
Common stock 5,993 9 (9) 5,993
Additional paid-in capital 14,465 61,129 (61,129) 14,465
Retained earnings (accumulated deficit) 13,940 (13,243) 13,243 13,940
------- -------- --------
Total stockholders' equity 34,398 47,895 34,398
------- -------- --------
$61,005 $123,442 $215,384
======= ======== ========
</TABLE>
See accompanying notes to consolidated condensed pro forma financial statements.
<PAGE>
FINISHMASTER, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
DECEMBER 31, 1996
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Pro Forma
FinishMaster Thompson Adjustments Combined
<S> <C> <C> <C> <C>
Net sales $125,795 $178,139 $303,934
Cost of sales 81,591 113,210 194,801
------- -------- --------
Gross profit 44,204 64,929 109,133
-------- -------- -------
Selling, general and administrative expenses 37,722 55,831 $(2,491) 91,062
Depreciation 974 1,848 (405) 2,417
Amortization of intangible assets 2,487 2,267 889 5,643
Interest expense, net 1,614 2,600 7,248 11,462
------- -------- ------- --------
Total 42,797 62,546 5,241 110,584
------- ------- ----- -------
Income (loss) from operations before
provision for income taxes 1,407 2,383 (5,241) (1,451)
Provision for income taxes 745 1,310 (1,910) 145
------- -------- ------ ---------
Net income (loss) $ 662 $ 1,073 $(3,331) $(1,596)
====== ======= ======= =======
Earnings Per Share Data:
Basic net loss per share $(0.27)
Diluted net loss per share $(0.27)
Weighted average common and common equivalent
shares used in computing per share amounts 6,000
=====
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
<PAGE>
FINISHMASTER, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (in thousands,
except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Pro Forma
FinishMaster Thompson Adjustments Combined
<S> <C> <C> <C> <C>
Net sales $90,968 $153,391 $244,359
Cost of sales 57,610 101,526 159,136
------- -------- --------
Gross profit 33,358 51,865 85,223
------- -------- --------
Selling, general and administrative expenses 25,645 46,166 $(1,868) 69,943
Depreciation 873 1,796 (304) 2,365
Amortization of intangible assets 2,227 2,196 667 5,090
Interest expense, net 1,209 3,084 4,733 9,026
Charge in connection with the sale,
consolidation or closure of certain sites 3,616 3,616
------- -------- ------- --------
Total 29,954 56,858 3,228 90,040
------- -------- ------- --------
Income (loss) from continuing operations 3,404 (4,993) (3,228) (4,817)
Provision (benefit) for income taxes 1,281 (1,782) (807) (1,308)
------- -------- ------- --------
Net income (loss) $ 2,123 $( 3,211) $(2,421) $(3,509)
======= ======== ======= =======
Earnings Per Share Data:
Basic net loss per share $(0.59)
Diluted net loss per share $(0.59)
Weighted average common and common equivalent
shares used in computing per share amounts 5,993
=====
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
<PAGE>
FINISHMASTER, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. General
The pro forma consolidated balance sheet reflects the purchase by
FinishMaster Inc. ("FinishMaster") on November 21, 1997 of all outstanding stock
of Thompson PBE, Inc. and its subsidiaries (collectively, "Thompson") for cash
of $8.00 per share aggregating approximately $69.2 million, and the payment of
all amounts outstanding under Thompson's 1995 Credit Agreement with Heller
Financial Inc., which aggregated approximately $34.4 million. The total purchase
price for the transaction was $75.7 million including $6.5 million of direct
acquisition costs.
2. Computation of Earnings Per Share
Net income per share information is computed using the weighted average
number of shares of common stock outstanding and dilutive common equivalent
shares. Basic earnings per share is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted earnings per share is computed as if options and
warrants were exercised at the beginning of the period (or at time of issuance,
if later) and as if the funds obtained thereby were used to purchase common
stock at the average fair value per common share during the period.
3. Financial Presentation
Certain reclassifications have been reflected in the financial statements
of Thompson to conform with the presentation of corresponding amounts in the
FinishMaster financial statements.
4. Pro Forma Combined Financial Data Compared to Historical Data
Pro forma adjustments related to the pro forma consolidated balance sheet
are computed assuming the combination was consummated at September 30, 1997. The
cost of Thompson PBE, Inc. was allocated to the fair market value of
identifiable assets acquired less liabilities assumed, and the excess was
recorded as goodwill. Pro forma adjustments to the balance sheet reflect the
related increase in goodwill and the issuance of debt by FinishMaster in
connection with the purchase of Thompson.
Pro forma adjustments related to the pro forma combined statements of
operations are computed assuming the combination was consummated at the
beginning of the periods presented. The pro forma combined results of operations
vary from the combined historical results of FinishMaster and Thompson due to
the following. Amortization expense reflects the increase in amortization of
goodwill which would have occurred if the combination had occurred at the
beginning of the periods presented. Goodwill recorded in connection with the
acquisition of Thompson is assumed to be amortized over a period of thirty
years. Interest expense reflects the net increase in interest expense which
would have occurred if debt incurred in connection with the acquisition of
Thompson had been outstanding for the entire period presented, less the interest
expense related to debt outstanding under the 1995 Credit Agreement between
Thompson and Heller Financial, Inc. Pro forma selling, general and
administrative expenses reflect planned actions subsequent to the acquisition
date, including the closure or consolidation of distribution sites of the
combined Company, a consolidation of administrative and accounting support, a
reorganization of the combined companies organizations and the related reduction
in personnel employed arising from such actions. As a result, the pro forma
balance sheet reflects an adjustment to accrued expenses for the related
severance costs and facility exit costs. The pro forma adjustment to property
and equipment and depreciation is a result of the revaluation of property and
equipment to fair market value. The provision for income taxes has been adjusted
to reflect the impact of pro forma adjustments.
FinishMaster expects non-recurring charges of approximately $450,000 in
connection with the disposal of duplicate management information systems and
approximately $300,000 in severance costs associated with consolidation of
administrative and accounting support. These non-recurring charges have been
excluded from the pro forma consolidated statements of operations for the
periods presented.
The difference between the statutory tax rate and the effective tax rate of
the pro forma combined statements of operations is due to the non-deductible
nature of the goodwill on the stock transaction.
