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, 2001
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 October 1, 2001, there were 7,637,559 shares of the Registrant's common stock
outstanding.
FINISHMASTER, INC.
FORM 10-Q
For the Quarter Ended September 30, 2001
TABLE OF CONTENTS
PAGE
Part I. Financial Information 3
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
PART I. FINANCIAL INFORMATION
FINISHMASTER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30, December 31,
2001 2000 (1)
------------- --------------
ASSETS (unaudited)
Current Assets
Cash $ 1,404 $ 1,513
Accounts receivable, net of allowance for doubtful
accounts of $1,374 and $1,337, respectively 30,294 29,063
Inventory 44,504 63,346
Refundable income taxes -- 710
Prepaid expenses and other current assets 7,196 7,808
--------- ---------
Total Current Assets 83,398 102,440
Property and Equipment, net 8,225 8,976
Other Assets
Intangible assets, net 103,108 102,858
Other 3,191 4,043
--------- ---------
106,299 106,901
--------- ---------
$ 197,922 $ 218,317
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 16,832 $ 46,470
Amounts due LDI 713 506
Accrued compensation and benefits 7,318 6,033
Accrued expenses and other current liabilities 2,785 3,232
Current maturities on long-term debt 7,119 10,990
--------- ---------
Total Current Liabilities 34,767 67,231
Long-Term Debt, less current maturities 97,481 90,652
Other Long-Term Liabilities 5,324 3,628
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; 7,637,559 and 7,540,804
shares issued and outstanding 7,638 7,540
Additional paid-in capital 27,936 27,367
Other comprehensive income (loss) (1,563) --
Retained earnings 26,339 21,899
--------- ---------
60,350 56,806
--------- ---------
$ 197,922 $ 218,317
========= =========
(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.
The accompanying notes are an integral part of the condensed consolidated
financial statements.
FINISHMASTER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Net Sales $ 83,706 $ 85,600 $253,182 $257,613
Cost of Sales 52,175 54,209 159,638 164,930
-------- -------- -------- --------
Gross Margin 31,531 31,391 93,544 92,683
-------- -------- -------- --------
Expenses
Operating 12,961 12,266 39,612 39,038
Selling, General and Administrative 11,529 12,613 33,441 33,972
Amortization of Intangible Assets 1,424 1,532 4,168 4,593
-------- -------- -------- --------
25,914 26,411 77,221 77,603
-------- -------- -------- --------
Income from Operations 5,617 4,980 16,323 15,080
Interest Expense, net 2,409 2,968 6,692 8,906
-------- -------- -------- --------
Income Before Income Taxes and Extraordinary Loss 3,208 2,012 9,631 6,174
Income Tax Expense 1,589 1,055 4,696 3,252
-------- -------- -------- --------
Net Income Before Extraordinary Loss 1,619 957 4,935 2,922
Extraordinary Loss on Early Extinguishments of Debt,
Net of Income Tax Benefit of $324 -- -- 495 --
-------- -------- -------- --------
Net Income $ 1,619 $ 957 $ 4,440 $ 2,922
======== ======== ======== ========
Net Income per Share - Basic and Diluted
Net Income Before Extraordinary Loss $ 0.21 $ 0.13 $ 0.65 $ 0.39
Extraordinary Loss, Net of Income Taxes -- -- 0.07 --
-------- -------- -------- --------
Net Income $ 0.21 $ 0.13 $ 0.58 $ 0.39
======== ======== ======== ========
Weighted Average Shares Outstanding - Basic 7,638 7,539 7,593 7,539
======== ======== ======== ========
Weighted Average Shares Outstanding - Diluted 7,684 7,545 7,621 7,554
======== ======== ======== ========
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 2001 2000
------------ -----------
Net income $ 4,440 $ 2,922
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,292 8,196
Changes in operating assets and liabilities
(excluding the impact of acquisitions):
Accounts receivable 112 (1,652)
Inventories 21,207 1,728
Prepaid expenses and other current assets 803 (2,585)
Accounts payable and accrued expenses (29,185) 8,601
--------- ---------
Net Cash Provided by Operating Activities 5,669 17,210
--------- ---------
Investing Activities
Business acquisitions (4,558) (1,907)
Purchases of property and equipment (587) (1,859)
Other -- (291)
--------- ---------
Net Cash Used In Investing Activities (5,145) (4,057)
--------- ---------
Financing Activities
Debt issuance costs (1,279) (159)
Proceeds from debt 155,445 75,848
Repayments of debt (154,799) (88,209)
--------- ---------
Net Cash Used in Financing Activities (633) (12,520)
--------- ---------
Increase (Decrease) in Cash (109) 633
Cash at Beginning of Period 1,513 619
--------- ---------
Cash at End of Period $ 1,404 $ 1,252
========= =========
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
2000 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,
2001, the Company operated 158 sales outlets and three major distribution
centers in 23 states and is organized into two major geographical divisions -
East and West. The Company aggregates its two geographic divisions into a single
reportable segment. The Company has over 35,000 customers to which it provides a
comprehensive selection of brand name products supplied by BASF, DuPont, 3M and
PPG, in addition to its own FinishMaster Private Brand refinishing accessory
products. The Company is highly dependent on the key suppliers outlined above,
which account for approximately 85% of the Company's purchases.
Principles of Consolidation: The Company's consolidated financial statements
include the accounts of FinishMaster and its wholly owned subsidiaries from the
dates of their respective acquisition. All significant inter-company accounts
and transactions have been eliminated. References to the Company or FinishMaster
throughout this report relate to the consolidated entity.
Majority Shareholder: Lacy Distribution, Inc. ("Distribution"), an Indiana
corporation, is a wholly-owned subsidiary of LDI, Ltd. ("LDI"), an Indiana
limited partnership, and is the majority shareholder of the Company with
5,587,516 shares of common stock, representing 73.2% of the outstanding shares
at September 30, 2001. LDI and Distribution are collectively referred to herein
as "LDI."
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
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. Actual results could differ from those estimates.
Derivative Instruments and Hedging Activities: The Company utilizes derivative
financial instruments, principally interest rate swaps, to reduce its exposure
to fluctuations in interest rates. These instruments are recorded on the balance
sheet at their fair value. Changes in the fair value are recorded each period in
the Other Comprehensive Income (Loss) section of Shareholders' Equity.
Shipping and Handling Fees and Costs: The Company includes the cost of
delivering the product to the customer in the Operating Expense section of the
Consolidated Statements of Operations. Total delivery costs primarily include
wages, benefits, vehicle costs, and freight. The total delivery costs incurred
for the nine months ended September 30, 2001 and 2000, are estimated at $13.2
million and $13.4 million, respectively.
Reclassification: Certain amounts in the consolidated financial statements have
been reclassified to conform to the current year presentation.
2. ACQUISITIONS
On May 7, 2001, the Company acquired the assets of Badger Paint Plus, Inc., a
Wisconsin corporation, Badger Paint Plus of the Twin Cities, Inc., Badger Paint
Plus of Duluth, Inc., Badger Paint Plus of St. Cloud, Inc., Lakeland Sales,
Inc., each a Minnesota corporation, and Badger Paint Plus of Chicago, Inc., an
Illinois corporation (collectively "Badger"). Badger, like FinishMaster, was an
aftermarket distributor of automotive paints, coatings, and paint-related
accessories. The purchase price, including related acquisition costs, was $7.2
million and includes the issuance of 93,999 shares of common stock of the
Company. The acquisition has been accounted for as a purchase and accordingly,
the acquired assets and liabilities have been recorded at their estimated fair
values on the date of the acquisition. Goodwill associated with the acquisition
is being amortized over 15 years and all other intangible assets are amortized
over 5 years. Operating results of Badger have been included in the Company's
consolidated financial statements from the effective date of the acquisition.
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,
-------------------------------------- -------------------------------------
2001 2000 2001 2000
----------------- ----------------- ----------------- ----------------
Numerator:
Net income $ 1,619 $ 957 $ 4,440 $ 2,922
================= ================= ================= ================
Denominator:
Basic-weighted average shares 7,638 7,539 7,593 7,539
Effect of dilutive stock options 46 6 28 15
----------------- ----------------- ----------------- ----------------
Diluted-weighted average shares 7,684 7,545 7,621 7,554
================= ================= ================= ================
Basic net income per share $ 0.21 $ 0.13 $ 0.58 $ 0.39
================= ================= ================= ================
Diluted net income per share $ 0.21 $ 0.13 $ 0.58 $ 0.39
================= ================= ================= ================
4. COMMITMENTS AND CONTINGENCIES
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
effect on the Company's operating results. The suppliers also provide purchase
discounts, prompt payment discounts, extended terms, and other incentive
programs to the Company. To the extent these programs are changed or terminated,
there could be a material adverse impact to the Company.
The Company is subject to various claims and contingencies arising out of the
normal course of business, including those relating to commercial transactions,
environmental, 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.
5. LONG-TERM DEBT
On March 29, 2001, the Company entered into a new $100.0 million senior secured
credit facility with a syndicate of banks and a new $20.0 million senior
subordinated term credit facility with LDI. The new senior secured credit
facility consists of a $40.0 million term credit facility and a $60.0 million
revolving credit facility. The term credit facility, which expires on June 30,
2006, requires quarterly principal payments that increase in amount over the
term of the loan. Quarterly principal payments begin on June 30, 2001, and are
$1.0 million per quarter in 2001. The revolving credit facility is limited to
the lesser of (1) $60.0 million less letter of credit obligations, or (2) 80
percent of eligible accounts receivable plus 65 percent of eligible inventory
less letter of credit obligations and a reserve for three months facility rent.
Principal is due on June 30, 2006. Both the revolving credit and term facilities
are subject to interest rates, which fluctuate based on the Company's Leverage
Ratio, as defined in the Credit Facility, which range from 1.75% to 2.75% over
LIBOR or 0.00% to 0.75% over prime. For a period of six months after the close
of the transaction, the interest rate was fixed at LIBOR plus 3.00%.
To convert the Company's new senior term credit facility from a floating to a
fixed interest rate obligation, the Company entered into interest rate swap
agreements with notional amounts of $40.0 million. The weighted average fixed
interest rate under these agreements is 5.43%. The current quarter decrease in
the fair value of the interest rate swap was $1.4 million, and the year to date
decrease is $1.6 million, which was recorded in the Other Comprehensive Income
(Loss) section of Shareholders' Equity.
Concurrent with funding the senior secured credit facility, the Company repaid
its $30.0 million senior subordinated term credit facility and entered into a
new $20.0 million senior subordinated term credit facility with LDI. All
outstanding principal is due on March 29, 2007, and interest is payable
quarterly at a rate of 12.2% per annum.
6. RECENT ACCOUNTING PRONOUNCEMENT
In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations ("FAS 141") and
No. 142, Goodwill and Other Intangible Assets ("FAS 142"). FAS 141 requires all
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method. The Company is required to adopt FAS 141 for acquisitions
made after July 1, 2001. Under FAS 142, goodwill and intangible assets with
indefinite lives are no longer amortized but are reviewed annually (or more
frequently if impairment indicators arise) for impairment. Separable intangible
assets that are not deemed to have indefinite lives will continue to be
amortized over their useful lives (but with no maximum life). The amortization
provisions of FAS 142 apply to goodwill and intangible assets acquired after
June 30, 2001. With respect to goodwill and intangible assets acquired prior to
July 1, 2001, the Company is required to adopt FAS 142 effective January 1,
2002. The Company is currently evaluating the effect that adoption of the
provisions of FAS 142 that are effective January 1, 2002 will have on its
results of operations and financial position.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Net Sales
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------------------------------------------------------------------------------------------
(In thousands) 2001 Change 2000 2001 Change 2000
-------------------------------------------------------------------------------------------------------------------
Net Sales $ 83,706 (2.2%) $ 85,600 $ 253,182 (1.7%) $ 257,613
-------------------------------------------------------------------------------------------------------------------
Net sales for the third quarter decreased $1.9 million, or 2.2%, and for the
nine months ended September 30, 2001, $4.4 million, or 1.7% due primarily to a
decline in "same store sales" on a year-to-date basis of approximately 4.1%. The
Company experienced soft market conditions throughout most of its distribution
network. Factors leading to the softening in demand include slower overall
economic conditions; continued productivity improvements in the use of
automotive paint by our customers; flat to declining number of automobiles being
repaired; and changes in vendor supported marketing programs used to attract and
retain customers. These industry dynamics are not expected to reverse in the
next several quarters.
Gross Margin
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------------------------------------------------------------------------------------------
(In thousands) 2001 Change 2000 2001 Change 2000
-------------------------------------------------------------------------------------------------------------------
Gross Margin $ 31,531 0.4% $ 31,391 $ 93,544 0.9% $ 92,683
Percentage of net sales 37.7% 36.7% 36.9% 36.0%
-------------------------------------------------------------------------------------------------------------------
Gross margin in the third quarter increased $0.1 million, or 0.4% and $0.9
million, or 0.9% for the nine months ended September 30, 2001 compared to the
prior year periods. Strong gross margin as a percentage of net sales more than
offset the negative impact of lower net sales volume. Gross margin as a
percentage of net sales increased 100 basis points to 37.7%, positively
impacting margin by $0.8 million for the quarter, and increased 90 basis points
to 36.9%, positively impacting margin by $2.5 million for the nine months ended
September 30, 2001. Lower net sales volume negatively impacted margin by $0.7
million and $1.6 million for the quarter and the nine months ended September 30
2001, respectively. The improvement in margin as a percentage of net sales is
primarily the result of large inventory purchases in late 2000 made prior to
manufacturers' price increases, supplier purchasing incentive programs, and
improved inventory management procedures. Margin can be affected by purchasing
opportunities presented to the Company by its vendors. The Company's ability to
maintain the strong margin realized during the first nine months is dependent
upon the availability of favorable purchasing programs from its vendors and its
ability to recover future vendor price increases from its customers.
Operating Expenses
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------------------------------------------------------------------------------------------
(In thousands) 2001 Change 2000 2001 Change 2000
-------------------------------------------------------------------------------------------------------------------
Operating Expenses $ 12,961 5.7% $ 12,266 $ 39,612 1.5% $ 39,038
Percentage of net sales 15.5% 14.3% 15.6% 15.2%
-------------------------------------------------------------------------------------------------------------------
Operating expenses consist of wages, facility, vehicle and related costs for the
Company's branch and distribution locations. Operating expenses for the third
quarter and the nine months ended September 30, 2001 increased $0.7 million, or
5.7% and $0.6 million, or 1.5% compared to the prior year periods. These
increases were due primarily to higher energy costs for gasoline, natural gas
and electricity, and increased vehicle insurance and lease costs.
Selling, General and
Administrative Expenses
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------------------------------------------------------------------------------------------
(In thousands) 2001 Change 2000 2001 Change 2000
-------------------------------------------------------------------------------------------------------------------
Selling, General and
Administrative Expenses $ 11,529 (8.6%) $ 12,613 $ 33,441 (1.5%) $ 33,972
Percentage of net sales 13.8% 14.7% 13.2% 13.2%
-------------------------------------------------------------------------------------------------------------------
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 for the
quarter and nine months ended September 30, 2001 decreased $1.1 million, or 8.6%
and $0.5 million, or 1.5% compared to the prior year periods. Increased costs
associated with attracting and retaining customers, wages and benefits were
offset by lower data communication costs and depreciation expense.
Amortization of Intangible Assets
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------------------------------------------------------------------------------------------
(In thousands) 2001 Change 2000 2001 Change 2000
-------------------------------------------------------------------------------------------------------------------
Amortization of
Intangible Assets $ 1,424 (7.0%) $ 1,532 $ 4,168 (9.2%) $ 4,593
Percentage of net sales 1.7% 1.8% 1.6% 1.8%
-------------------------------------------------------------------------------------------------------------------
Intangible amortization expense for the third quarter decreased $0.1 million, or
7.0%, and for the nine months ended September 30, 2001, $0.4 million, or 9.2%,
as a result of certain intangible assets, principally non-compete agreements,
becoming fully amortized.
Interest Expense, net
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------------------------------------------------------------------------------------------
(In thousands) 2001 Change 2000 2001 Change 2000
-------------------------------------------------------------------------------------------------------------------
Interest Expense, net $ 2,409 (18.8%) $ 2,968 $ 6,692 (24.9%) $ 8,906
Percentage of net sales 2.9% 3.5% 2.6% 3.5%
-------------------------------------------------------------------------------------------------------------------
Interest expense for the third quarter decreased $0.6 million, or 18.8%, and for
the nine months ended September 30, 2001, $2.2 million, or 24.9%, primarily due
to lower average outstanding borrowings. Average outstanding borrowings were
lower compared to the prior year by $18.7 million and $26.5 million for the
three and nine months ended September 30, 2001, respectively. Lower effective
interest rates in the current year periods also contributed to the favorable
decreases in interest expense.
Income Tax Expense
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------------------------------------------------------------------------------------------
(In thousands) 2001 Change 2000 2001 Change 2000
-------------------------------------------------------------------------------------------------------------------
Income Tax Expense $ 1,589 50.6% $ 1,055 $ 4,696 44.4% $ 3,252
Percentage of net sales 1.9% 1.2% 1.9% 1.3%
Effective tax rate 49.5% 52.4% 48.8% 52.7%
-------------------------------------------------------------------------------------------------------------------
Income tax expense increased for the third quarter, $0.6 million, or 50.6%, and
for the nine months ended September 30, 2001, $1.4 million, or 44.4% due
primarily to higher income before income taxes. The effective tax rate varied
from the federal statutory rate as a result of certain expenses, principally
nondeductible intangible amortization. In 2000, the Company's effective tax rate
for the year was 53.2%. A slightly lower effective tax rate is anticipated for
2001.
Net Income and Income Per Share
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------------------------------------------------------------------------------------------
(In thousands) 2001 Change 2000 2001 Change 2000
-------------------------------------------------------------------------------------------------------------------
Net Income $ 1,619 69.2% $ 957 $ 4,440 51.9% $ 2,922
Percentage of net sales 1.9% 1.1% 1.8% 1.1%
Net income per share $ 0.21 $ 0.13 $ 0.58 $ 0.39
-------------------------------------------------------------------------------------------------------------------
Factors contributing to the changes in 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. 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,
2001 2000
--------------------------------------------------------------------------------
Working capital $ 48,631 $ 35,209
Long-term debt $ 97,481 $ 90,652
--------------------------------------------------------------------------------
Nine Months Ended September 30,
--------------------------------------------------------------------------------
(In thousands) 2001 2000
--------------------------------------------------------------------------------
Cash provided by operating activities $ 5,669 $ 17,210
Cash used in investing activities $ (5,145) $ (4,057)
Cash used in financing activities $ (633) $ (12,520)
--------------------------------------------------------------------------------
The Company's primary sources of funds are from operations and borrowings under
its credit facilities. The Company's principal uses of cash are to fund working
capital, capital expenditures, acquisitions, and the repayment of outstanding
borrowings.
Net cash generated by operating activities was $5.7 million for the first nine
months of 2001 compared with $17.2 million in the prior year period. This
decrease was attributable to cash flow used by operating assets and liabilities,
principally accounts payable. Operating assets and liabilities may fluctuate
significantly depending upon inventory purchasing programs and payment terms
offered by our vendors.
Net cash used in investing activities, primarily for acquisitions, was $5.1
million in the first nine months of 2001, compared to $4.1 million in 2000. In
2001, $4.2 million of cash was used for the acquisition of Badger.
Net cash used by financing activities, primarily the repayment of borrowings,
was $0.6 million in the first nine months of 2001, compared to $12.5 million in
the prior year period. The decrease in net debt repayments was a result of
reduced cash flows generated from operating activities in the current year. The
use of cash for debt issuance costs related to the new credit facilities was
$1.3 million.
Total capitalization at September 30, 2001, was $165.0 million, comprised of
$104.6 million of debt and $60.4 million of equity. Debt as a percentage of
total capitalization was 63.4% at September 30, 2001 compared to 64.1% at
December 31, 2000.
On March 29, 2001, the Company entered into a new $100.0 million senior secured
credit facility with a syndication of banks and a new $20.0 million senior
subordinated term credit facility with LDI. Further details regarding these
facilities are described in Note 5 "Long-Term Debt" of this document.
The Company was in compliance with the covenants underlying its credit
facilities, and had estimated availability under its revolving credit facilities
of $6.4 million as of October 1, 2001, based upon the September 30, 2001
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.
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 documents 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 30, 2000)
99(a) Credit Agreement, dated as of March 29, 2001, among
FinishMaster, Inc., the Institutions from Time to Time Parties
Thereto as Lenders and National City Bank of Indiana, as Agent
(previously filed with Form 10-Q dated May 10, 2001)
99(b) Subordinated Note Agreement, dated as of March 29, 2001, by and
between FinishMaster, Inc. and LDI, Ltd. (previously filed with
Form 10-Q dated May 10, 2001)
(b) Reports on Form 8-K. There were no reports on Form 8-K filed in the
quarter ended September 30, 2001.
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 14, 2001 FINISHMASTER, INC.
By: /s/ Wesley N. Dearbaugh
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Wesley N. Dearbaugh
President and Chief Operating Officer
By: /s/ Robert R. Millard
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Robert R. Millard
Senior Vice President and
Chief Financial Officer