FinishMaster Announces Year-End Financial Results

INDIANAPOLIS--FinishMaster, Inc. (Pink Sheets:FMST) today reported net income for the year ended December 31, 2006 of $22,462,000, or $2.87 per diluted share, compared with net income of $15,647,000, or $2.01 per diluted share, in the prior year. For the quarter ended December 31, 2006, net income was $7,568,000, or $0.97 per diluted share, compared to net income of $3,844,000, or $0.49 per diluted share, in the prior year period.

The improvement in net income for the year compared to the prior year was a result of higher other income from a lawsuit settlement, higher net sales and lower interest expense.

• The increase in net sales for the year was due to positive same branch sales growth and acquisitions. Factors contributing to this growth in same branch sales included price increases and net customer additions.
• Higher gross margin dollars resulted from increased sales volume. Gross margin as a percentage of net sales remained constant at 30.0 percent.
• Total expenses as a percentage of net sales decreased 20 basis points to 22.3 percent for the year 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 were approximately $8,900,000 lower than the prior year.
• Higher income tax expense was due to higher income before income taxes, partially offset by a lower effective tax rate. The Company’s effective tax rate fell 190 basis points to 39.0 percent for the year due primarily to a tax provision reduction following an IRS audit.

The increase in inventory as of December 31, 2006 compared to the prior year-end was due to opportunistic fourth quarter inventory purchases.

The improvement in net income for the fourth quarter compared to the prior year quarter was a result of higher other income from a lawsuit settlement and lower interest expense, partially offset by lower operating income and higher income tax expense.

• The increase in net sales for the quarter was due to positive same branch sales growth and acquisitions. Over the last two quarters, the Company has experienced a weakening in demand for automotive paint and accessories in certain geographic regions compared to previous quarters. Regional factors such as weather and economic conditions were the main factors contributing to this weakening demand.
• Lower gross margin dollars resulted from lower margin rate partially offset by increased sales volume. Margin rate fell by 90 basis points to 29.8% as a result of increased customer discounts to meet competitive market conditions and lower amounts earned under vendor incentive programs. Partially offsetting these items were lower inventory reserve requirements and shipping and handling costs.
• Total expenses as a percentage of net sales decreased 20 basis points to 23.0 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 health insurance costs and increased commission expense associated with higher sales.
• Lower average outstanding borrowings and a lower annualized effective interest rate resulted in reduced interest expense for the quarter.
• Higher income tax expense was due to higher income before income taxes, partially offset by a lower effective tax rate.

Selected Historical Financial Data (000’s omitted, except per share data)
	Three Months Ended				Twelve Months Ended
	December 31,				December 31,
	2006		2005		2006		2005
Net sales	$107,341		$104,709		$450,452		$423,803
Gross margin	32,038		32,156		135,277		127,171
Gross margin %	29.8%		30.7%		30.0%		30.0%
Operating and SG&A expenses	24,281		23,887		98,618		93,732
Amortization of intangible assets	391		402		1,644		1,573
Total expenses	24,672		24,289		100,262		95,305
Income from operations	7,366		7,867		35,015		31,866
Other income	6,452		-		6,452		-
Interest expense	1,109		1,320		4,623		5,385
Income tax expense	5,141		2,703		14,382		10,834
Net income	$ 7,568		$ 3,844		$ 22,462		$ 15,647
Diluted earnings per share	$ 0.97		$ 0.49		$ 2.87		$ 2.01
Diluted weighted average shares outstanding	7,835		7,812		7,826		7,795

	December 31,		December 31,
	2006		2005
Cash	$ 3,785		$ 3,821
Accounts receivable, net	36,727		38,353
Inventories	66,760		52,045
Goodwill and intangible assets, net	100,689		101,978
Property, equipment & all other assets	44,464		35,575
Total assets	$ 252,425		$ 231,772
Accounts payable	$ 37,862		$ 37,204
Current & long-term debt	51,073		54,575
Accrued expenses & all other liabilities	23,061		22,055
Shareholders’ equity	140,429		117,938
Total liabilities & shareholders’ equity	$ 252,425		$ 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 168 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/.