The improvement in net income for the quarter and year compared to the prior year periods was a result of higher net sales and gross margin rate partially offset by higher operating and selling, general & administrative expenses and income tax expense.
-- The increase in net sales for the quarter and year was due primarily to positive same branch sales growth. Factors contributing to this growth included improved market conditions, supplier price increases passed through to customers, and the success of various sales and marketing initiatives. All of the Company's geographical regions realized growth in same branch sales. Acquisitions and growth in the Company's fulfillment business also had an impact on the Company's increase in sales. During 2005, the Company completed five acquisitions compared to two in the previous year.
-- Higher gross margin dollars resulted primarily from increased sales volume. A 50 basis point improvement in the margin rate for the quarter resulted primarily from price increases and higher volume rebates earned under vendor programs.
-- Total expenses as a percentage of net sales decreased 20 basis points to 23.2 percent for the quarter and 30 basis points to 22.5 percent for the year as a result of expenses increasing at a lower rate than net sales. The increase in expense dollars was due to overall wage and benefit increases; higher salary expenses associated with the Company's initiative to increase the number of sales personnel; increased commission expense associated with higher sales; higher IT expenditures related to the Company's investment in new technologies; higher bad debt expenses; and an overall increase in expenses related to current and prior year acquisitions.
-- Lower interest expense resulted from lower average outstanding borrowings.
-- The increase in the effective tax rate in the current year resulted primarily from the prior year's effective tax rate being lower than normal. During 2004, the Company's effective tax rate was reduced due to the release of tax reserves associated with tax asset realization.
Selected Historical Financial Data
(000's omitted, except per share data)
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------- -------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Net sales $104,709 $94,633 $423,803 $385,243
Gross margin 32,156 28,612 127,171 115,368
Gross margin % 30.7% 30.2% 30.0% 29.9%
Operating and SG&A expenses 23,887 21,709 93,732 86,110
Amortization of intangible
assets 402 390 1,573 1,556
Total expenses 24,289 22,099 95,305 87,666
Income from operations 7,867 6,513 31,866 27,702
Interest expense 1,320 1,546 5,385 5,961
Income tax expense 2,703 1,603 10,834 8,437
Net income $3,844 $3,364 $15,647 $13,304
Diluted earnings per share $0.49 $0.43 $2.01 $1.71
Diluted weighted average shares
outstanding 7,812 7,774 7,795 7,759
December 31, December 31,
2005 2004
------------ ------------
Cash $3,821 $2,482
Accounts receivable, net 38,353 33,020
Inventories 57,281 60,200
Goodwill and intangible assets, net 101,978 102,455
Property, equipment & all other assets 30,339 23,676
Total assets $231,772 $221,833
Accounts payable $37,204 $34,210
Current & long-term debt 54,575 67,114
Accrued expenses & all other liabilities 22,055 18,733
Shareholders' equity 117,938 101,776
Total liabilities & shareholders' equity $231,772 $221,833
FinishMaster is the leading national independent distributor of automotive paints, coatings, and related accessories to the automotive collision repair industry. The Company is headquartered in Indianapolis, Indiana, and operates three major distribution centers and 170 branches in 27 of the 35 largest metropolitan areas in the country. For more information on FinishMaster via the Internet, visit FinishMaster's website at http://www.finishmaster.com/.