FinishMaster Announces Third Quarter Financial Results and Acquisition
INDIANAPOLIS--FinishMaster, Inc. (Pink Sheets:FMST) today reported net income for the quarter ended September 30, 2007 of $4,785,000, or $0.61 per diluted share, compared with net income of $5,192,000, or $0.66 per diluted share, in the prior year period. For the nine months ended September 30, 2007, net income was $12,581,000, or $1.61 per diluted share, compared to net income of $14,894,000, or $1.90 per diluted share, in the prior year period.
FinishMaster announced the acquisition of Auto Color Co., Inc., effective October 22, 2007. Auto Color is a leading independent distributor of automotive paints and related accessories to the collision repair industry through eighteen locations in Georgia, Alabama and South Carolina. In addition, Auto Color provides specialty coatings to the industrial and aviation markets.
The decline in net income for the quarter and year-to-date period compared to the prior year periods was a result of expenses increasing at a faster rate than gross margin dollars. On a year-to-date basis a change in the estimated residual value of product consigned with customers during the first quarter of 2007 negatively impacted net sales, gross margins and income from operations by $1,600,000, net income by $955,000 and diluted earnings per share by $0.12. Management’s discussion and analysis below excludes the impact of this accounting estimate change.
- Net sales increased 3.4 percent and 2.3 percent for the quarter and year-to-date period, respectively, due to the combined effect of same branch sales growth in the Company’s traditional business and acquisitions. Five acquisitions, not including Auto Color, were completed in the first nine months of 2007 - four in the first quarter and one in the third quarter.
- Gross margin dollars increased 3.2 percent for the quarter and 2.2 percent year-to-date, due primarily to higher sales volume. As a percentage of net sales, gross margin decreased 10 basis points to 30.4 percent for the quarter and to 30.0 percent year-to-date.
- Total expenses as a percentage of net sales increased 70 basis points for the quarter and 80 basis points for the year-to-date period, to 22.8 percent, as a result of expenses increasing at a faster rate than net sales. The increase in expense dollars was due primarily to higher salary and related expenses associated with wage increases and headcount additions; increased commission expense associated with higher sales in the Company’s traditional business segment; increased expenses associated with attracting and retaining customers; higher legal and professional fees; higher health and workers’ compensation insurance costs; and higher intangible amortization related to the current year acquisitions. Partially offsetting the expense increases was a reduction in employee incentive plan costs.
- Lower average outstanding borrowings and annualized effective interest rates contributed to a decrease in interest expense for the quarter and year-to-date periods.
- Higher income tax expense for the quarter was due to an increase in the Company’s effective tax rate. Lower income tax expense for the year-to-date period was due to lower income before income taxes partially offset by a higher effective tax rate. A lower than normal effective tax rate in the prior year period resulted from a tax provision reduction following an IRS audit.
| Selected Historical Financial Data | ||||||||
| (000's omitted, except per share data) | ||||||||
| Three Months Ended | Nine Months Ended | |||||||
| September 30, | September 30, | |||||||
|
2007 |
2006 |
2007 |
2006 |
|||||
| Net sales | $118,199 | $114,309 | $349,557 | $343,111 | ||||
| Gross margin | 35,947 | 34,841 | 103,874 | 103,239 | ||||
| Gross margin % | 30.4% | 30.5% | 29.7% | 30.1% | ||||
| Operating and SG&A expenses | 26,390 | 24,845 | 78,613 | 74,337 | ||||
| Amortization of intangible assets | 601 | 418 | 1,610 | 1,253 | ||||
| Total expenses | 26,991 | 25,263 | 80,223 | 75,590 | ||||
| Income from operations | 8,956 | 9,578 | 23,651 | 27,649 | ||||
| Interest expense | 689 | 1,134 | 2,308 | 3,514 | ||||
| Income tax expense | 3,482 | 3,252 | 8,762 | 9,241 | ||||
| Net income | 4,785 | 5,192 | 12,581 | 14,894 | ||||
| Diluted earnings per share | $ 0.61 | $ 0.66 | $ 1.61 | $ 1.90 | ||||
| Diluted weighted average shares outstanding | 7,834 | 7,829 | 7,832 | 7,822 | ||||
| September 30, | December 31, | |||
|
2007 |
2006 |
|||
| Cash | $ 4,492 | $ 3,785 | ||
| Accounts receivable, net | 43,876 | 36,727 | ||
| Inventories | 70,501 | 66,760 | ||
| Goodwill and intangible assets, net | 104,904 | 100,689 | ||
| Property, equipment & all other assets | 40,463 | 44,464 | ||
| Total assets | $ 264,236 | $ 252,425 | ||
| Accounts payable | $ 38,872 | $ 37,862 | ||
| Current & long-term debt | 47,654 | 51,073 | ||
| Accrued expenses & all other liabilities | 24,737 | 23,061 | ||
| Shareholders’ equity | 152,973 | 140,429 | ||
| Total liabilities & shareholders’ equity | $ 264,236 | $ 252,425 | ||
FinishMaster is the largest 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 183 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/.