-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F/8K2jyNzEm7pYBB+9JuFPJBUhTBzwOtbWbgJEYwuO3AogR6LD1ejza1oJlcSo4z M8mhW6A9M6N51YpJfqlRXQ== 0000908834-99-000306.txt : 19991117 0000908834-99-000306.hdr.sgml : 19991117 ACCESSION NUMBER: 0000908834-99-000306 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FINISHMASTER INC CENTRAL INDEX KEY: 0000917321 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MISCELLANEOUS NONDURABLE GOODS [5190] IRS NUMBER: 382252096 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23222 FILM NUMBER: 99751401 BUSINESS ADDRESS: STREET 1: 54 MONUMENT CIRCLE STREET 2: SUITE 600 CITY: INDIANAPOLIS STATE: IN ZIP: 46204 BUSINESS PHONE: 3172373678 MAIL ADDRESS: STREET 1: 54 MONUMRNY CIRCLE STREET 2: SUITE 600 CITY: INDIANAPOLIS STATE: IN ZIP: 46204 10-Q 1 FINISHMASTER, INC. FORM 10-Q ================================================================================ 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 Quarter Ended September 30, 1999 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) 54 Monument Circle, Suite 600, Indianapolis, IN 46204 (Address of principal executive offices) (Zip Code) Registrant's Telephone Number, including area code: (317) 237-3678 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 On November 12, 1999, there were 7,537,637 shares of the Registrant's common stock outstanding. FINISHMASTER, INC. FORM 10-Q For the Quarter Ended September 30, 1999 TABLE OF CONTENTS PAGE Part I. Financial Information 3 Item 1. Financial Statements Condensed Consolidated Balance Sheets (unaudited) 3 Condensed Consolidated Statements of Operations (unaudited) 4 Condensed Consolidated Statements of Cash Flows (unaudited) 5 Notes to Condensed Consolidated Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Part II. Other Information 14 Item 6. Exhibits and Reports on Form 8-K 14 Signatures 16 PART I. FINANCIAL STATEMENTS FINISHMASTER, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
September 30, December 31, 1999 1998 (1) -------- -------- ASSETS (unaudited) CURRENT ASSETS Cash $ 1,165 $ 1,009 Accounts receivable, net of allowance for doubtful accounts of $1,848 and $1,680 respectively 31,262 30,212 Inventory 50,588 57,744 Prepaid expenses and other current assets 6,171 8,922 -------- -------- TOTAL CURRENT ASSETS 89,186 97,887 PROPERTY AND EQUIPMENT, NET 9,901 11,259 OTHER ASSETS Intangible assets, net 109,238 114,526 Other 3,302 3,275 -------- -------- 112,540 117,801 $211,627 $226,947 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 22,526 $ 36,785 Accrued expenses and other current liabilities 10,867 8,821 Current maturities of long-term debt 14,522 9,985 -------- -------- TOTAL CURRENT LIABILITIES 47,915 55,591 LONG-TERM OBLIGATIONS 110,835 122,008 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Preferred stock, no par value, 1,000,000 shares authorized; no shares issued or outstanding Common stock, $1 stated value, 25,000,000 shares authorized; 7,535,856 shares issued and outstanding 7,536 7,536 Additional paid-in capital 27,351 27,351 Retained earnings 17,990 14,461 -------- -------- 52,877 49,348 -------- -------- $211,627 $226,947 ======== ========
The accompanying notes are an integral part of the condensed consolidated financial statements. (1) The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. FINISHMASTER, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)
Three~Months Ended Nine Months Ended September 30, September 30, ----------------------- ----------------------- 1999 1998 1999 1998 -------- -------- -------- -------- NET SALES $ 82,460 $ 80,338 $245,778 $233,120 COST OF SALES 52,582 52,032 157,503 150,842 -------- -------- -------- -------- GROSS PROFIT 29,878 28,306 88,275 82,278 -------- -------- -------- -------- EXPENSES Operating 12,285 11,899 35,524 35,142 Selling, general and administrative 10,260 9,815 29,678 27,993 Depreciation 828 1,054 2,705 2,554 Amortization of intangible assets 1,777 1,653 5,297 4,668 -------- -------- -------- -------- TOTAL 25,150 24,421 73,204 70,357 -------- -------- -------- -------- INCOME FROM OPERATIONS 4,728 3,885 15,071 11,921 Interest expense, net 2,652 2,934 8,060 8,634 -------- -------- -------- -------- INCOME BEFORE INCOME TAXES 2,076 951 7,011 3,287 Income tax expense 1,025 872 3,482 1,981 -------- -------- -------- -------- NET INCOME $ 1,051 $ 79 $ 3,529 $ 1,306 ======== ======== ======== ======== NET INCOME PER SHARE-BASIC 0.14 $ 0.01 $ 0.47 $ 0.20 ======== ======== ======== ======== NET INCOME PER SHARE DILUTED 0.14 $ 0.01 $ 0.47 $ 0.20 ======== ======== ======== ======== WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING--BASIC 7,536 7,535 7,536 6,518 ======== ======== ======== ======== WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING--DILUTED 7,543 7,535 7,541 6,518 ======== ======== ======== ========
The accompanying notes are an integral part of the condensed consolidated financial statements. FINISHMASTER, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands, unaudited)
Nine Months Ended September 30, ------------------------ OPERATING ACTIVITIES 1999 1998 -------- -------- Net income $ 3,529 $ 1,306 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,002 7,222 Amortization of financing costs 256 242 Changes in operating assets and liabilities: Accounts receivable (776) 882 Inventories 7,015 5,896 Prepaid expenses and other current assets 2,724 1,116 Accounts payable and accrued expenses (12,509) (4,357) -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 8,241 12,307 -------- -------- INVESTING ACTIVITIES Business acquisitions and payments under earn-out provisions of prior acquisition agreements (231) (405) Proceeds from disposal of assets 25 174 Purchases of property and equipment (840) (1,199) Cash acquired through merger of LDI AutoPaints -- 1,786 Other (113) (156) -------- -------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (1,159) 200 -------- -------- FINANCING ACTIVITIES Borrowings from long-term debt 79,483 70,500 Repayments of long-term debt (86,409) (83,006) -------- -------- NET CASH USED IN FINANCING ACTIVITIES (6,926) (12,506) -------- -------- INCREASE IN CASH 156 1 CASH AT THE BEGINNING OF PERIOD 1,009 364 -------- -------- CASH AT THE END OF PERIOD $ 1,165 $ 365 ======== ======== NON CASH ACTIVITIES Acquisition of LDI AutoPaints Assets acquired $ 17,667 Liabilities assumed (3,246) -------- Equity purchased 14,421 Less: Cash acquired (1,786) -------- Net assets acquired, excluding cash $ 12,635 ========
The accompanying notes are an integral part of the condensed consolidated financial statements. FINISHMASTER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION Basis of Presentation: The interim financial statements are unaudited but, in the opinion of management, reflect all adjustments necessary for a fair presentation of financial position, results of operations and cash flows for the periods presented. These adjustments consist of normal recurring items. The results of operations for any interim period are not necessarily indicative of results for the full year. The condensed consolidated financial statements and notes are presented as permitted by the requirements for Form 10-Q and do not contain certain information included in the Company's annual consolidated financial statements and notes. This Form 10-Q should be read in conjunction with the Company's consolidated financial statements and notes included in its 1998 Annual Report on Form 10-K. Nature of Business: FinishMaster, Inc. (the "Company" or "FinishMaster") is the leading national distributor of automotive paints, coatings, and paint-related accessories to the automotive collision repair industry. As of September 30, 1999, the Company operated 154 sales outlets and three major distribution centers in 22 states and is organized into three major geographic regions - the Southeastern, Western, and Central/Northeastern Divisions. The Company aggregates its three operating segments into a single reportable segment. The Company provides a comprehensive selection of brand name products to its customers and is highly dependent on four key suppliers, BASF, DuPont, 3M and PPG, which account for approximately 60% of the Company's purchases. Principles of Consolidation: The Company's condensed consolidated financial statements include the accounts of FinishMaster, Refinishers Warehouse, Inc. and Thompson PBE, Inc. ("Thompson"), as well as LDI AutoPaints, Inc. ("AutoPaints"), from the date of its acquisition. All significant intercompany accounts and transactions are eliminated. References to the Company or FinishMaster throughout this report relate to the consolidated entity. Majority Shareholder: Lacy Distribution, Inc. ("Distribution"), an Indiana corporation, which is an indirect wholly-owned subsidiary of LDI, Ltd. ("LDI"), an Indiana limited partnership, is the majority shareholder of the Company with 5,587,516 shares of common stock, representing 74.1% of the outstanding shares at September 30, 1999. Throughout the remainder of this report, LDI and Distribution are collectively referred to as "LDI." Recent Accounting Pronouncement: In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Company is not routinely involved in derivative and hedging activities and adoption of this Statement is not expected to have a material impact on financial condition or results of operations. In June 1999, the FASB issued SFAS No. 137, which delayed the effective date of this Statement to January 1, 2001. 2. ACQUISITIONS On June 30, 1998, the Company completed the acquisition by merger of AutoPaints pursuant to which the Company merged with AutoPaints and issued to LDI an additional 1,542,416 shares of common stock. Since this was a transaction within a controlled group, the acquisition of AutoPaints was accounted for using its historical cost basis. Equity securities issued to LDI in exchange for the net assets of AutoPaints were recorded at the historical cost basis of the net assets acquired as of the effective date of the transaction. The Company completed four acquisitions during the first nine months of 1999 that are not material to its historical or pro forma results of operations. 3. NET INCOME PER SHARE The following table sets forth the computation of basic and diluted net income per share:
(in thousands, except per share data) Three Months Ended September 30, Nine Months Ended September 30, ------------------------------------- ------------------------------------- 1999 1998 1999 1998 ----------------- ---------------- ---------------- ---------------- Numerator: Net income $ 1,051 $ 79 $ 3,529 $ 1,306 ================= ================ ================ ================ Denominator: Basic-weighted average shares 7,536 7535 7,536 6,518 Effect of dilutive stock options 7 --- 5 --- ----------------- ---------------- ---------------- ---------------- Diluted-weighted average shares 7,543 7,535 7,541 6,518 ================= ================ ================ ================ Basic net income per share $ 0.14 $ 0.01 $ 0.47 $ 0.20 ================= ================ ================ ================ Diluted net income per share $ 0.14 $ 0.01 $ 0.47 $ 0.20 ================= ================ ================ ================
4. COMMITMENTS AND CONTINGENCIES In January 1999, the Company was named in an unfair business practices lawsuit by an automotive paint distributor located in the State of California. The plaintiff in such suit alleged that the Company offered, in a manner that injured the plaintiff, secret rebates and cash bonuses to businesses in the Southern California area if those businesses would buy exclusively from the Company and use the Company's products. The plaintiff claimed damages in the amount of $3.8 million, trebled to $11.4 million. The Company believes that the claims are without merit and is aggressively defending itself against all allegations. Accordingly, it has not recorded any loss provision relative to damages sought by the plaintiff in this lawsuit. The Company is subject to various claims and contingencies arising out of the normal course of business, including those relating to commercial transactions, product liability, automobile, taxes, discrimination, employment and other matters. Management believes that the ultimate liability, if any, in excess of amounts already provided or covered by insurance, is not likely to have a material adverse effect on the Company's financial condition, results of operations or cash flows. ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The historical financial statements of the Company include the results of operations of AutoPaints since its acquisition date of June 30, 1998. The Company believes that the presentation of Management's Discussion and Analysis on a pro forma basis provides a more meaningful understanding of the Company's performance by better reflecting the effect of the AutoPaints acquisition. The following tables include unaudited pro forma consolidated results, as if the acquisition of AutoPaints had occurred on January 1, 1998. The unaudited pro forma amounts do not purport to be indicative of results that would have occurred had the acquisition been in effect for the periods presented, nor do they purport to be indicative of the results that may be obtained in the future.
Net Sales Three Months Ended September 30, Nine Months Ended September 30, - -------------------------------------------------------------------------------------------------------------------------- (In thousands) 1999 Change 1998 1999 Change 1998 - -------------------------------------------------------------------------------------------------------------------------- Historical $ 82,460 2.6% $ 80,338 $ 245,778 5.4% $ 233,120 - -------------------------------------------------------------------------------------------------------------------------- Pro forma $ 82,460 2.6% $ 80,338 $ 245,778 0.4% $ 244,884 - -------------------------------------------------------------------------------------------------------------------------- Net sales for the third quarter increased $2.1 million or 2.6% and pro forma net sales for the first nine months of 1999 increased $0.9 million or 0.4%. These increases are due to same store sales growth and acquisitions. During the first nine months, the Company completed four acquisitions. Gross Margin Three Months Ended September 30, Nine Months Ended September 30, - -------------------------------------------------------------------------------------------------------------------------- (In thousands) 1999 Change 1998 1999 Change 1998 - -------------------------------------------------------------------------------------------------------------------------- Historical $ 29,878 5.6% $ 28,306 $ 88,275 7.3% $ 82,278 Percentage of net sales 36.2% 35.2% 35.9% 35.3% - -------------------------------------------------------------------------------------------------------------------------- Pro forma $ 29,878 5.6% $ 28,306 $ 88,275 1.7% $ 86,799 Percentage of net sales 36.2% 35.2% 35.9% 35.4% - --------------------------------------------------------------------------------------------------------------------------
Gross margin for the third quarter increased $1.6 million or 5.6% due to increased margins of approximately $0.8 million and higher sales volume of $0.8 million. Pro forma gross margin for the first nine months of the year increased $1.5 million or 1.7% primarily due to increased margins of $1.2 million. These increases are attributable to supplier incentive plans and the optimization of early payment discounts.
Operating Expenses Three Months Ended September 30, Nine Months Ended September 30, - -------------------------------------------------------------------------------------------------------------------------- (In thousands) 1999 Change 1998 1999 Change 1998 - -------------------------------------------------------------------------------------------------------------------------- Historical $ 12,285 3.2% $ 11,899 $ 35,524 1.1% $ 35,142 Percentage of net sales 14.9% 14.8% 14.5% 15.1% - -------------------------------------------------------------------------------------------------------------------------- Pro forma $ 12,285 3.2% $ 11,899 $ 35,524 (2.7%) $ 36,495 Percentage of net sales 14.9% 14.8% 14.5% 14.9% - -------------------------------------------------------------------------------------------------------------------------- Operating expenses consist of wages, facility expenses, vehicle and related costs for the Company's store and distribution locations. Operating expenses for the third quarter increased $0.4 million or 3.2%, consistent with the increase in net sales. Pro forma operating expenses for the first nine months of the year decreased $1.0 million or 2.7%. This decrease is a direct result of the Company's profit improvement initiatives that included savings from the consolidation and closure of sales outlets during 1998 and reduced spending programs at store and distribution locations. Selling, General and Administrative Expenses Three Months Ended September 30, Nine Months Ended September 30, - -------------------------------------------------------------------------------------------------------------------------- (In thousands) 1999 Change 1998 1999 Change 1998 - -------------------------------------------------------------------------------------------------------------------------- Historical $ 10,260 4.5% $ 9,815 $ 29,678 6.0% $ 27,993 Percentage of net sales 12.4% 12.2% 12.1% 12.0% - -------------------------------------------------------------------------------------------------------------------------- Pro forma $ 10,260 4.5% $ 9,815 $ 29,678 0.2% $ 29,608 Percentage of net sales 12.4% 12.2% 12.1% 12.1% - -------------------------------------------------------------------------------------------------------------------------- Selling, general and administrative expenses ("SG&A") consist of costs associated with the Company's corporate support staff and expenses for commissions, wages, and customer sales support activities. SG&A expenses increased $0.4 million or 4.5% during the third quarter, consistent with the increase in net sales. Pro forma SG&A expenses increased slightly less than $0.1 million or 0.2% for the first nine months of 1999. Initiatives implemented by the Company in 1998 such as the consolidation of four corporate offices into one, the closure and consolidation of sales outlets and reduced spending programs have offset normal increases in SG&A. Depreciation Three Months Ended September 30, Nine Months Ended September 30, - -------------------------------------------------------------------------------------------------------------------------- (In thousands) 1999 Change 1998 1999 Change 1998 - -------------------------------------------------------------------------------------------------------------------------- Historical $ 828 (21.4%) $ 1,054 $ 2,705 5.9% $ 2,554 Percentage of net sales 1.0% 1.3% 1.1% 1.1% - -------------------------------------------------------------------------------------------------------------------------- Pro forma $ 828 (21.4%) $ 1,054 $ 2,705 (2.9%) $ 2,786 Percentage of net sales 1.0% 1.3% 1.1% 1.1% - -------------------------------------------------------------------------------------------------------------------------- Amortization of Intangible Assets Three Months Ended September 30, Nine Months Ended September 30, - -------------------------------------------------------------------------------------------------------------------------- (In thousands) 1999 Change 1998 1999 Change 1998 - -------------------------------------------------------------------------------------------------------------------------- Historical $ 1,777 7.5% $ 1,653 $ 5,297 13.5% $ 4,668 Percentage of net sales 2.2% 2.1% 2.2% 2.0% - -------------------------------------------------------------------------------------------------------------------------- Pro forma $ 1,777 7.5% $ 1,653 $ 5,297 2.1% $ 5,187 Percentage of net sales 2.2% 2.1% 2.2% 2.1% - --------------------------------------------------------------------------------------------------------------------------
Interest Expense, net Three Months Ended September 30, Nine Months Ended September 30, - -------------------------------------------------------------------------------------------------------------------------- (In thousands) 1999 Change 1998 1999 Change 1998 - -------------------------------------------------------------------------------------------------------------------------- Historical $ 2,652 (9.6%) $ 2,934 $ 8,060 (6.6%) $ 8,634 Percentage of net sales 3.2% 3.7% 3.3% 3.7% - -------------------------------------------------------------------------------------------------------------------------- Pro forma $ 2,652 (9.6%) $ 2,934 $ 8,060 (7.0%) $ 8,670 Percentage of net sales 3.2% 3.7% 3.3% 3.5% - --------------------------------------------------------------------------------------------------------------------------
Interest expense for the third quarter decreased $0.3 million or 9.6%, and for the first nine months pro forma interest expense decreased $0.6 million or 7.0% primarily due to lower average outstanding borrowings of approximately $10.2 and $10.7 million, respectively.
Income Tax Expense Three Months Ended September 30, Nine Months Ended September 30, - -------------------------------------------------------------------------------------------------------------------------- (In thousands) 1999 Change 1998 1999 Change 1998 - -------------------------------------------------------------------------------------------------------------------------- Historical $ 1,025 17.5% $ 872 $ 3,482 75.8% $ 1,981 Percentage of net sales 1.2% 1.1% 1.4% 0.8% Effective tax rate 49.4% 91.7% 49.7% 60.3% - -------------------------------------------------------------------------------------------------------------------------- Pro forma $ 1,025 17.5% $ 872 $ 3,482 53.0% $ 2,276 Percentage of net sales 1.2% 1.1% 1.4% 0.9% Effective tax rate 49.4% 91.7% 49.7% 56.2% - --------------------------------------------------------------------------------------------------------------------------
Income tax expense for the third quarter and pro forma income tax expense for the first nine months of 1999 increased due to higher income before income taxes. The Company's effective tax rate consistently varies from the federal statutory rate as a result of certain expenses, principally nondeductible intangible amortization. In 1998, the Company's pro forma effective tax rate for the year was 55.0%. The lower projected rate for 1999 is reflective of higher anticipated full year income before income taxes and consistent levels of nondeductible items.
Net Income and Income Per Share Three Months Ended September 30, Nine Months Ended September 30, - -------------------------------------------------------------------------------------------------------------------------- (In thousands) 1999 Change 1998 1999 Change 1998 - -------------------------------------------------------------------------------------------------------------------------- Historical $ 1,051 1,230.4% $ 79 $ 3,529 170.2% $ 1,306 Percentage of net sales 1.3% 0.1% 1.4% 0.6% Net income per share $ 0.14 1,300.0% $ 0.01 $ 0.47 135.0% $ 0.20 - -------------------------------------------------------------------------------------------------------------------------- Pro forma $ 1,051 1,230.4% $ 79 $ 3,529 98.6% $ 1,777 Percentage of net sales 1.3% 0.1% 1.4% 0.7% Net income per share $ 0.14 1,300.0% $ 0.01 $ 0.47 95.8% $ 0.24 - --------------------------------------------------------------------------------------------------------------------------
Factors contributing to the changes in net income and pro forma net income and the related per share amounts are discussed above. Seasonality and Quarterly Fluctuations The Company's sales and operating results have varied from quarter to quarter due to various factors and the Company expects these fluctuations to continue. Among these factors are seasonal buying patterns of the Company's customers and the timing of acquisitions. Historically, sales have slowed in the late fall and winter of each year largely due to inclement weather and the reduced number of business days during the holiday season. In addition, the timing of acquisitions may cause substantial fluctuations of operating results from quarter to quarter. The Company takes advantage of periodic special incentive programs available from its suppliers that extend the due date of inventory purchases beyond terms normally available with large volume purchases. The timing of these programs can contribute to fluctuations in the Company's quarterly cash flows. Although the Company continues to investigate strategies to smooth the seasonal pattern of its quarterly results of operations, there can be no assurance that the Company's net sales, results of operations and cash flows will not continue to display seasonal patterns.
Financial Condition, Liquidity and Capital Resources (In thousands) September 30, December 31, 1999 1998 - ------------------------------------------------------------------------------------------------ Working capital $ 41,271 $ 42,296 Long-term debt $ 107,947 $ 119,120 - ------------------------------------------------------------------------------------------------ Nine Months Ended September 30, - ------------------------------------------------------------------------------------------------ (In thousands) 1999 1998 - ------------------------------------------------------------------------------------------------ Cash provided by operating activities $ 8,241 $ 12,307 Cash (used in) provided by investing activities $ (1,159) $ 200 Cash used in financing activities $ (6,926) $ (12,506) - ------------------------------------------------------------------------------------------------
Net cash provided by operating activities was $8.2 million for the first nine months of 1999 compared with $12.3 million in the prior year period. This decrease was a result of a negative change in cash flows generated from operating assets and liabilities, partially offset by higher earnings and increased depreciation and amortization expense. The negative change in cash flows generated from operating assets and liabilities was attributable to an increase in accounts receivable and a decrease in accounts payable and accrued expenses. The decrease in accounts payable and accrued expenses resulted from differences in payment terms between years on large inventory purchases. Net cash used in investing activities was $1.2 million for the first nine months of 1999 compared to cash provided by investing activities of $0.2 million in the same period of the previous year. The difference is primarily attributable to the cash acquired through the merger with AutoPaints in 1998. Net cash used in financing activities, primarily the repayment of debt, was $6.9 million for the first nine months of 1999, down from $12.5 million for the first nine months of 1998. This decrease was due to higher borrowings needed to pay vendors. Total capitalization at September 30, 1999 was $175 million, comprised of $122 million of debt and $53 million of equity. Debt as a percentage of total capitalization was 69.7% at September 30, 1999 compared to 72.3% at December 31, 1998. At September 30, 1999, the Company had term credit and revolving credit facilities with original commitments of $40 million and $60 million, respectively. The term credit facility is being reduced through principal payments in accordance with the credit agreement. The Company also had senior subordinated debt of $30 million. During the third quarter portions of the credit agreement were amended. The amendment modified certain loan covenants through March 31, 2001, eliminated the excess cash flow repayment provisions and increased availability under the revolver by $7.5 million through April 30, 2001. The Company was in compliance with the covenants underlying its credit facilities, and had estimated availability under its revolving credit facility of $11.8 million as of November 10, 1999, based upon the September 30, 1999 borrowing base calculation. Based on current and projected operating results and giving effect to total indebtedness, the Company believes that cash flow from operations and funds available from lenders and other creditors will provide adequate funds for ongoing operations, debt service and planned capital expenditures. The Company is, however, currently pursuing other financing arrangements and structures. Should the Company be successful in obtaining acceptable financing terms under new arrangements or negotiating favorable amendments to its existing facilities, available proceeds may be used to retire certain bank term loans, a portion of amounts outstanding under the revolving credit facility and the subordinated debt payable to LDI. Early retirement of indebtedness or amendments of its existing debt facilities may result in the write-off of all or a portion of previously capitalized debt issuance costs. At September 30, 1999, unamortized debt issuance costs were approximately $1.4 million. Year 2000 Date Conversion Many existing computer programs use only two digits to identify years. These programs were designed without consideration for the effects of the upcoming change in the century, and if not corrected, could fail or create erroneous results by or at the Year 2000. Essentially all of the Company's information and technology-based systems, as well as many non-information technology-based systems, are potentially affected by the Year 2000 issue. Technology-based systems reside on the Company's midrange computer, servers and personal computers in the corporate office as well as in division offices and stores. Specific systems include accounting, financial reporting, inventory tracking and control, budgeting, tax, accounts receivable, accounts payable, purchasing, distribution, word processing and spreadsheet applications. Non-information technology-based systems include equipment and services containing embedded microprocessors such as alarm systems and voice mail systems. The Company has relationships with numerous third parties, including several paint manufacturers, equipment suppliers, utility companies, insurance companies, banks, and payroll processors, that may be affected by the Year 2000 issue. The Company's State of Readiness Remediation plans have been established for all major systems potentially affected by the Year 2000 issue. The current status of the plans for information technology-based systems are summarized as follows: 1. Identification of all applications and hardware with potential Year 2000 issues. To the best of the Company's knowledge, this has been completed. 2. For each item identified, performance of an assessment to determine an appropriate action plan and timetable for remediation of each item. The plan may consist of replacement, upgrade or elimination of the application. This phase has been completed. 3. Implementation of the specific action plan. This phase has been completed. 4. Testing each application upon completion. All in-house developed systems have been tested and found to be compliant. Vendor-supplied software has been upgraded to Year 2000 compliant versions, and the Company has certification of compliance from the software vendors. 5. Placement of the new process into production. All applications and systems are now in production. These systems were upgraded in the third quarter of 1999. The Company has identified all non-information technology-based systems. Appropriate remediation plans are being developed, implemented and tested when each affected system is identified. Remediation plans will be completed during the fourth quarter of 1999. Identification of areas of potential third party risk is complete and, for those areas identified to date, remediation plans are being developed and will be completed during the fourth quarter of 1999. The Costs Involved The total cost to the Company of achieving Year 2000 compliance is not expected to exceed $0.1 million and will consist primarily of the utilization of internal resources. Spending to date totals approximately $0.1 million. Costs relating to internal systems' Year 2000 compliance are included in the Information Systems budget and are immaterial as a percentage of that budget. All costs related to achieving Year 2000 compliance are based on management's best estimates. There can be no assurance that actual results will not differ from these estimates. Risks and Contingency Plan The Company has identified the risks and is continuing to work on contingency plans in the event certain aspects of its Year 2000 remediation plan failed. It is also developing contingency plans for all mission-critical processes. Under a "worst case" scenario, the Company's operations would be unable to deliver product due to internal system failures and/or the inability of vendors to deliver materials for distribution. Inventory levels of certain key products may be temporarily increased to minimize exposure. While virtually all internal systems can be replaced with manual systems on a temporary basis, the failure of any mission-critical system will have at least a short-term negative effect on operations. Forward-Looking Statements This Report contains certain forward-looking statements pertaining to, among other things, the Company's future results of operations, cash flow needs and liquidity, acquisitions, and other aspects of its business. The Company may make similar forward-looking statements from time to time. These statements are based largely on the Company's current expectations and are subject to a number of risks and uncertainties. Actual results could differ materially from these forward-looking statements. Important factors to consider in evaluating such forward-looking statements include changes in external market factors, changes in the Company's business strategy or an inability to execute its strategy due to changes in its industry or the economy generally, difficulties associated with assimilating acquisitions, the emergence of new or growing competitors, seasonal and quarterly fluctuations, governmental regulations, the potential loss of key suppliers, and various other competitive factors. In light of these risks and uncertainties, there can be no assurance that the future developments described in the forward-looking statements contained in this Report will in fact occur. PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 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 otherwise filed by the Registrant, and are hereby incorporated by reference. Exhibit No. Description of Document 2.1 Agreement and Plan of Merger, dated as of October 14, 1997, by and among FinishMaster, Inc., FMST Acquisition Corporation and Thompson PBE, Inc. (incorporated by reference to Exhibit (c)(2) of Schedule 14D-1 previously filed by FMST Acquisition Corporation on October 21, 1997). 2.2 Agreement and Plan of Merger, dated February 16, 1998, by and among FinishMaster, Inc., LDI AutoPaints, Inc. and Lacy Distribution, Inc. (previously filed with Form 10-K dated March 31, 1998) 3.1 Articles of Incorporation of FinishMaster, Inc., an Indiana corporation, as amended June 30, 1998 (previously filed with Form 10-Q dated August 14, 1998) 3.2 Amended and Restated Code of Bylaws of FinishMaster, Inc., an Indiana corporation (previously filed with Form 10-K/A dated April 14, 1998) 10.1 FinishMaster, Inc. Stock Option Plan (Amended and Restated as of April 29, 1999) (previously filed with Registrant's proxy statement on Schedule 14/A dated April 9, 1999) 21 Subsidiaries of the Registrant (previously filed with Form 10-K dated March 31, 1999) 27* Financial Data Schedule 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 (previously filed with Form 8-K dated December 3, 1997) 99(b) Subordinated Note Agreement, dated as of November 19, 1997, by and between FinishMaster, Inc. and LDI, Ltd. (previously filed with Form 8-K dated December 3, 1997) 99(c) First Amendment to Credit Agreement dated December 10, 1997 (previously filed with Form 10-K dated March 31, 1998) 99(d) Second Amendment to Credit Agreement dated March 27, 1998 (previously filed with Form 10-K dated March 31, 1998) 99(e) Third Amendment to the Credit Agreement dated as of October 30, 1998. 99(f)* Fourth Amendment to the Credit Agreement dated as of September 22, 1999. * filed herewith (b) No Reports on Form 8-K were filed during the quarter ended September 30, 1999. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Date November 12, 1999 FINISHMASTER, INC. By: /s/ Wesley N. Dearbaugh ---------------------------------- Wesley N. Dearbaugh President and Chief Operating Officer By: /s/ Robert R. Millard ---------------------------------- Robert R. Millard Senior Vice President and Chief Financial Officer EX-27 2 FDS FOR FINISHMASTER, INC.
5 (Replace this text with the legend) 0000917321 FinishMaster, Inc. 1,000 U.S. Dollars 9-MOS DEC-31-1999 JAN-1-1999 SEP-30-1999 1.000 1,165 0 31,262 1,848 50,588 89,186 20,354 10,453 211,627 47,915 0 7,536 0 0 45,341 52,877 245,778 245,778 157,503 73,204 0 0 8,060 7,011 3,482 3,529 0 0 0 3,529 0.47 0.47
EX-99.F 3 AMENDMENT FOUR TO THE CREDIT AGREEMENT EXHIBIT 99(f)-Amendment Four to the Credit Agreement AMENDMENT NO. 4 TO CREDIT AGREEMENT ("Amendment") is dated as of September 22, 1999, among FINISHMASTER, INC., an Indiana corporation (the "Borrower"), the institutions listed on the signature pages hereof as Lenders (the "Lenders"), and BANK ONE, INDIANA, N.A. (formerly known as NBD BANK, N.A.) in its capacity as contractual representative for itself and the other Lenders (the "Agent") under that certain Credit Agreement dated as of November 19, 1997 by and among the Borrower, the Lenders and the Agent, as amended by Amendment No. 1 thereto dated as of December 10, 1997, Amendment No. 2 thereto dated as of March 27, 1998 and Amendment No. 3 thereto dated as of October 30, 1998 (the "Credit Agreement"). Defined terms used herein and not otherwise defined herein shall have the meaning given to them in the Credit Agreement. WHEREAS, the Borrower, the Lenders and the Agent have entered the Credit Agreement; and WHEREAS, Borrower, the Lenders and the Agent have agreed to amend the Credit Agreement on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises set forth above, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower, the Lenders and the Agent agree as follows: 1. Amendment to the Credit Agreement. Effective as of the date first above written and subject to the execution of this Amendment by the parties hereto and the satisfaction of the conditions precedent set forth in Section 2 below, the Credit Agreement shall be and hereby is amended as follows: a. Section 1.1 shall be amended as follows: (i) The definition of "Borrowing Base" shall be amended to delete the current clauses (iv) and (v) in their entirety and to substitute the following new clauses (iv) and (v) therefor: "(iv) at all times between November 3, 1998 and April 30, 1999 and between September 22, 1999 and April 30, 2001, $7,500,000; plus (v) at all times between December 1, 2001 (and each year thereafter) and April 30, 2002 (and each year thereafter), $5,000,000;". (ii) The definition of "Excess Cash Flow" shall be deleted in its entirety. b. Section 2.5(B)(i)(b) shall be deleted in its entirety and the words "(b) [RESERVED]" shall be substituted therefor. c. Section 2.15(D)(ii) shall be amended to delete the pricing grid in its entirety and to substitute the following new pricing grid therefor: Applicable Applicable Applicable Eurodollar Floating Rate Commitment Leverage Ratio Margin Margin Fee Percentage Greater than or equal to 4.0 to 1.0 2.25% 0.75% 0.50% Greater than or equal to 3.5 to 1.0 and less than 4.0 to 1.0 2.00% 0.50% 0.375% Greater than or equal to 3.0 to 1.0 and less than 3.5 to 1.0 1.75% 0.25% 0.25% Greater than or equal to 2.5 to 1.0 and less than 3.0 to 1.0 1.50% 0.00% 0.25% Greater than or equal to 2.0 to 1.0 and less than 2.5 to 1.0 1.25% 0.00% 0.25% Less than 2.0 to 1.0 1.00% 0.00% 0.20% d. Section 7.4(A)(i) shall be amended to delete the reference to "September 30, 2000" and to substitute therefor "March 31, 2001". e. Section 7.4(B) shall be amended to delete the portion of the Leverage Ratios chart beginning with the quarter ending September 30, 1999 through and including the quarter ending March 31, 2001 in its entirety and to substitute the following revised quarter ends and Leverage Ratios therefor: "September 30, 1999 4.40 to 1.00 December 31, 1999 4.40 to 1.00 March 31, 2000 4.40 to 1.00 June 30, 2000 4.40 to 1.00 September 30, 2000 4.25 to 1.00 December 31, 2000 4.25 to 1.00 March 31, 2001 4.00 to 1.00". f. Section 7.4(D) shall be amended to delete the portion of the Interest Expense Coverage Ratio chart beginning with the quarter ending March 31, 2000 through and including the quarter ending March 31, 2001 in its entirety and to substitute the following revised quarter ends and Interest Expense Coverage Ratios therefor: "March 31, 2000 2.25 to 1.0 June 30, 2000 2.25 to 1.0 September 30, 2000 2.25 to 1.0 December 31, 2000 2.25 to 1.0 March 31, 2001 2.25 to 1.0". 2. Conditions Precedent. This Amendment shall become effective as of the date above written, if, and only if: a. the Agent has received duly executed originals of this Amendment from the Borrower, the Lenders and the Agent; b. the Borrower shall have paid to the Agent, for the benefit of each Lender that delivers a signature page to this Amendment on or prior to the effective date hereof, an amendment fee in the amount of ten basis points on the aggregate Commitment of all of the Lenders; and c. the Borrower shall have paid to Banc One Capital Markets, Inc. (formerly known as First Chicago Capital Markets, Inc.), as Arranger, a fee in the amount disclosed in that certain Fee Letter dated as of September 13, 1999. 3. Representations and Warranties of the Borrower. The Borrower hereby represents and warrants as follows: (a) This Amendment and the Credit Agreement, as amended hereby, constitute legal, valid and binding obligations of the Borrower and are enforceable against the Borrower in accordance with their terms. (b) Upon the effectiveness of this Amendment, the Borrower hereby reaffirms all representations and warranties made in the Credit Agreement, and to the extent the same are not amended hereby, agrees that all such representations and warranties shall be deemed to have been remade as of the date of delivery of this Amendment, unless and to the extent that any such representation and warranty is stated to relate solely to an earlier date, in which case such representation and warranty shall be true and correct as of such earlier date. 4. Reference to and Effect on the Credit Agreement. (a) Upon the effectiveness of Section 1 hereof, on and after the date hereof, each reference in the Credit Agreement to "this Credit Agreement," "hereunder," "hereof," "herein" or words of like import shall mean and be a reference to the Credit Agreement as amended hereby. (b) The Credit Agreement, as amended hereby, and all other documents, instruments and agreements executed and/or delivered in connection therewith, shall remain in full force and effect, and are hereby ratified and confirmed. (c) Except as expressly provided herein, the execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the Agent or the Lenders, nor constitute a waiver of any provision of the Credit Agreement or any other documents, instruments and agreements executed and/or delivered in connection therewith. 5. Governing Law. This Amendment shall be governed by and construed in accordance with the internal laws (as opposed to the conflict of law provisions) of the State of Indiana. 6. Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. 7. Counterparts. This Amendment may be executed by one or more of the parties to the Amendment on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. IN WITNESS WHEREOF, this Amendment has been duly executed and delivered on the date first above written. FINISHMASTER, INC., as Borrower By: /s/ Robert R. Millard ------------------------------------- Name: Robert R. Millard Title: Senior Vice President and Chief Financial Officer BANK ONE, INDIANA, N.A. (formerly known as NBD BANK, N.A.), as Agent By: /s/ Scott C. Morrison ------------------------------------- Name: Scott C. Morrison Title: Vice President LENDERS: BANK ONE, INDIANA, N.A. (formerly known as NBD BANK, N.A.) By: /s/ ---------------------------------------- Name: Scott C. Morrison Title: Vice President BANK OF AMERICA, N.A. (formerly known as BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION) By: /s/ ---------------------------------------- Name: Title: HARRIS TRUST AND SAVINGS BANK By: /s/ ---------------------------------------- Name: Title: KEYBANK NATIONAL ASSOCIATION By: /s/ ---------------------------------------- Name: Title: LASALLE BANK NATIONAL ASSOCIATION By: /s/ ---------------------------------------- Name: Title: THE NORTHERN TRUST COMPANY By: /s/ ---------------------------------------- Name: Title: PNC BANK, NATIONAL ASSOCIATION By: /s/ ---------------------------------------- Name: Title: -----END PRIVACY-ENHANCED MESSAGE-----