FinishMaster Announces Second Quarter Financial Results and New Board Member
INDIANAPOLIS--Aug. 2, 2006--FinishMaster, Inc. (Pink Sheets:FMST) today reported net income for the quarter ended June 30, 2006 of $5,371,000, or $0.69 per share (diluted), compared with net income of $4,255,000, or $0.54 per share (diluted), in the prior year period.The Company also announced the election of Mark L. Boxer to the FinishMaster Board of Directors. Mr. Boxer is Executive Vice President and Chief Information Officer for WellPoint, Inc. In this role, he is responsible for managing WellPoint's technology and operations organization. Mr. Boxer oversees WellPoint's information technology, eBusiness and enterprise operations. He had previously served as President and CEO of WellPoint's Consumer-Driven Health Plans, Enterprise Services, and Medicare Government Business organization. Mr. Boxer also plays a key role in WellPoint's strategic planning. "I am pleased with the addition of Mark to the Board and I look forward to his contributions to the Company's overall strategic direction," stated Andre B. Lacy, Chairman and CEO of FinishMaster. "Mark brings technology and operations expertise that will help expand the Company's ability to be recognized as a key factor in the success of its customers and suppliers."
The improvement in net income for the quarter compared to the prior year period was a result of higher net sales and lower interest and income tax expenses partially offset by higher operating and selling, general & administrative expenses.
-- The increase in net sales for the quarter was due primarily to positive same branch sales growth. This was the tenth consecutive quarter the Company has experienced same branch sales growth. Factors contributing to this growth included net customer additions and supplier price increases passed through to customers. Both the traditional and fulfillment business customer segments realized growth in same branch sales. Acquisitions also had an impact on the Company's increase in sales. The Company has completed five acquisitions over the last twelve months with two occurring in 2006 - one each quarter.
-- Higher gross margin dollars resulted from increased sales volume. Gross margin as a percentage of net sales decreased 20 basis points to 30.3 percent primarily due to increased incentives to attract and retain customers.
-- Total expenses as a percentage of net sales decreased 30 basis points to 21.9 percent for the quarter as a result of expenses increasing at a lower rate than net sales. The increase in expense dollars was due primarily to higher salary expense associated with wage increases and headcount additions; increased commission expense associated with higher sales; and higher health insurance costs.
-- Lower interest expense resulted from lower average outstanding borrowings. Average outstanding borrowings for the quarter were approximately $9,843,000 lower than the prior year period while the annualized effective interest rate on these borrowings was 60 basis points higher in the current year period.
-- Lower income tax expense resulted from the reversal of a tax reserve following an IRS audit. This adjustment lowered the Company's effective tax rate for the quarter by 3.5 percent to 36.5 percent.
For the six months ended June 30, 2006, net income was $9,702,000, or $1.24 per share (diluted), compared to net income of $7,500,000, or $0.96 per share (diluted), in the prior year period. The improvement in net income for the year-to-date period compared to the prior year period was a result of higher net sales and margin rate partially offset by higher operating and selling, general & administrative expenses and income tax expense.
-- The increase in net sales for the year-to-date period was due to positive same branch sales growth and acquisitions. Growth in same branch sales was realized in all of the Company's geographical regions.
-- Higher gross margin dollars resulted from increased sales volume and improved margin rate. A 20 basis point improvement in the margin rate was the result of the non-recurrence of a charge in the prior year period related to a customer investment write-off.
-- Total expenses as a percentage of net sales decreased 30 basis points to 22.0 percent for the year-to-date period as a result of expenses increasing at a lower rate than net sales. The increase in expense dollars was due primarily to higher salary expense associated with wage increases, headcount additions, and incentive plan costs; higher health insurance costs; and increased commission expense associated with higher sales.
-- Lower interest expense resulted from lower average outstanding borrowings. Average outstanding borrowings for the year-to-date period were approximately $13,000,000 lower than the prior year period while the annualized effective interest rate on these borrowings was 52 basis points higher in the current year period.
-- Higher income tax expense resulted from higher income before income taxes. The Company's effective tax rate fell 3.5 percent to 38.2 percent for the year-to-date period. Approximately 1.9 percent of this reduction was from the reversal of a tax reserve following an IRS audit.
Selected Historical Financial Data
(000's omitted, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2006 2005 2006 2005
--------- --------- --------- ---------
Net sales $115,245 $108,217 $228,802 $209,749
Gross margin 34,919 32,961 68,398 62,368
Gross margin % 30.3% 30.5% 29.9% 29.7%
Operating and SG&A expenses 24,797 23,653 49,492 45,975
Amortization of intangible
assets 423 380 835 767
Total expenses 25,220 24,033 50,327 46,742
Income from operations 9,699 8,928 18,071 15,626
Interest expense 1,237 1,356 2,380 2,759
Income tax expense 3,091 3,317 5,989 5,367
Net income $5,371 $4,255 $9,702 $7,500
Diluted earnings per share $0.69 $0.54 $1.24 $0.96
Diluted weighted average shares
outstanding 7,822 7,808 7,819 7,781
June 30, December 31,
2006 2005
------------- ---------------
Cash $4,001 $3,821
Accounts receivable, net 40,074 38,353
Inventories 59,839 52,045
Goodwill and intangible assets, net 101,471 101,978
Property, equipment & all other assets 37,789 35,575
Total assets $243,174 $231,772
Accounts payable $39,480 $37,204
Current & long-term debt 54,857 54,575
Accrued expenses & all other liabilities 21,168 22,055
Shareholders' equity 127,669 117,938
Total liabilities & shareholders'
equity $243,174 $231,772
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 169 branches in 39 of the 50 largest metropolitan areas in the country. For more information on FinishMaster via the Internet, visit FinishMaster's website at http://www.finishmaster.com/.