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FinishMaster Announces First Quarter Financial Results
INDIANAPOLIS-(Business Wire)-May 6, 2008 - FinishMaster, Inc. (Pink Sheets: FMST) today reported net income for the quarter ended March 31, 2008 of $6,347,000, or $0.80 per diluted share, compared with net income of $3,203,000, or $0.41 per diluted share, in the prior year period. Proceeds from the settlement of a lawsuit received and recorded in the first quarter of 2008 and a non-recurring prior year charge affected the comparability of the Company's financial performance between years. After adjusting for the impact of these two items, net income for the first quarter of 2008 would have been $3,244,000, or $0.41 per diluted share, compared to $4,161,000, or $0.53 per diluted share in the prior year period.
The decline in adjusted net income resulted from slower growth in net sales relative to expenses. The Company experienced weakening demand for automotive paint and accessories due to softer economic conditions throughout the United States. Rising gasoline prices contributed to a decline in total U.S. vehicle miles driven for the first time in twenty-five years, impacting the Company's overall market opportunity for the sale of its products and services. Increased expense levels resulted from continuing expenditures for long-term initiatives whose benefits were not realized in the current period. These initiatives are focused on enabling the Company to change its cost structure and to stimulate demand for its products. The Company also implemented a cost reduction program focused on reducing or reallocating costs from underperforming to higher performing opportunities. During the first quarter, these efforts resulted in the consolidation of nine locations and a reduction of 2.4 percent of the Company's overall workforce.
Management's summary analysis of the Company's quarterly financial performance is as follows:
— Net sales increased 11.8 percent for the quarter due to the combined effect of same branch sales growth, acquisitions and the non-recurrence of a charge in the prior year quarter related to a change in the estimated residual value of product consigned with customers.
— Gross margin dollars increased 13.8 percent for the quarter due primarily to higher sales. As a percentage of net sales, gross margin increased 60 basis points to 29.8 percent due primarily to the non-recurrence of a charge in the prior year quarter related to a change in the estimated residual value of product consigned with customers and the attainment of vendor growth incentives. Partially offsetting the current year increase in margin rate were higher discounts and rebates associated with attracting and retaining customers and increased shipping and handling costs related to rising fuel costs.
— Total expenses as a percentage of net sales increased 90 basis points to 24.5 percent as a result of expenses increasing at a faster rate than net sales. Intangible amortization primarily related to prior year acquisitions accounted for 60 of the 90 basis point increase. The $4,293,000 increase in total expense dollars was due primarily to expenses, including intangible amortization, associated with acquisitions in prior years; higher salary and related expenses associated with wage increases; higher health insurance costs; higher bad debt expenses; and increased information technology expenses.
— Higher average outstanding borrowings of approximately $47,600,000 contributed to increased interest expense. Lower annualized effective interest rates partially offset these higher borrowing costs. The higher average outstanding borrowings resulted from current and prior year acquisitions, a December 2007 one-time dividend to shareholders, and lower cash generated from operating activities.
— Higher other income resulted from a lawsuit settlement that was received and recorded in the current year quarter.
— Higher income tax expense for the quarter was due to higher pre-tax earnings. The Company's effective tax rate for the quarter was 40.6 percent. -0- *T Selected Historical Financial Data (000's omitted, except per share data) Three Months Ended March 31, 2008 2007 ————- ————- Net sales $125,942 $112,650 Gross margin 37,481 32,949 Gross margin % 29.8% 29.2% Operating and SG&A expenses 29,659 26,198 Amortization of intangible assets 1,240 408 Total expenses 30,899 26,606 Income from operations 6,582 6,343 Other income 5,224 - Interest expense 1,115 997 Income tax expense 4,344 2,143 Net income $ 6,347 $ 3,203 Diluted earnings per share $ 0.80 $ 0.41 Diluted weighted average shares outstanding 7,888 7,835 *T -0- *T March 31 December 31, 2008 2007 ———— —————— Cash and cash equivalents $ 5,389 $ 4,230 Accounts receivable, net 47,360 40,103 Inventories 76,703 86,665 Goodwill and intangible assets, net 118,943 119,805 Property, equipment & all other assets 44,678 44,610 Total assets $293,073 $295,413 Accounts payable $ 44,251 $ 51,186 Current & long-term debt 88,726 94,661 Accrued expenses & all other liabilities 27,926 24,278 Shareholders' equity 131,170 125,288 Total liabilities & shareholders' equity $293,073 $295,413 *T
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 178 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/.
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