EXHIBIT 99.2
Index to Financial Statements and Supplemental Schedule
Keystone Automotive Industries, Inc.
Report of Independent Auditors F-2
Consolidated Balance Sheets at March 29, 1996 and March 28, 1997.......... F-3
Consolidated Statements of Income for the years ended March 31, 1995,
March 29, 1996 and March 28, 1997........................................ F-4
Consolidated Statements of Shareholders' Equity for the years ended
March 31, 1995, March 29, 1996 and March 28, 1997........................ F-5
Consolidated Statements of Cash Flows for the years ended March 31, 1995,
March 29, 1996 and March 28, 1997........................................ F-6
Notes to Consolidated Financial Statements................................ F-7
Schedule II Valuation and Qualifying Accounts............................. F-22
F-1
Report of Independent Auditors
The Board of Directors and Shareholders
Keystone Automotive Industries, Inc.
We have audited the accompanying consolidated balance sheets of Keystone
Automotive Industries, Inc. and subsidiaries as of March 29, 1996 and March 28,
1997, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended March 28, 1997.
Our audits also included the financial statement schedule listed in the index at
7(a). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
Inteuro Parts Distributors, Inc. or Car Body Concepts, Inc., wholly owned
subsidiaries, as of and for the year ended December 31, 1996 (see Note 3), which
combined statements reflect total assets of $8,382,913 as of December 31, 1996,
and total revenues of $29,485,099 for the year then ended. Those combined
statements were audited by Arthur Andersen LLP whose report has been furnished
to us, and our opinion, insofar as it relates to data included for Inteuro Parts
Distributors, Inc. and Car Body Concepts, Inc. for that period, is based solely
on their report.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of Arthur Andersen LLP provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Keystone Automotive Industries,
Inc. at March 29, 1996 and March 28, 1997, and the results of its operations and
its cash flows for each of the three years in the period ended March 28, 1997,
in conformity with generally accepted accounting principles. Also, in our
opinion the related financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all material
respects the information set forth therein.
ERNST & YOUNG LLP
Los Angeles, California
May 23, 1997, except
for Note 3, as to which
the date is January 1, 1998
F-2
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
MARCH 29, 1996 MARCH 28, 1997
-----------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 4,517 $ 2,284
Accounts receivable, less allowance for doubtful accounts of
$440 in 1996 and $732 in 1997 16,485 19,873
Inventories, primarily finished goods 33,734 43,374
Prepaid expenses and other current assets 954 1,077
Deferred taxes 779 1,786
-----------------------------------------
Total current assets 56,469 68,394
Property, plant and equipment, at cost:
Land 476 486
Buildings and leasehold improvements 6,073 6,635
Machinery and equipment 7,642 10,032
Furniture and fixtures 7,523 8,638
-----------------------------------------
21,714 25,791
Less accumulated depreciation and amortization 10,633 12,804
-----------------------------------------
11,081 12,987
Intangibles 2,584 3,719
Other asset 1,646 2,083
-----------------------------------------
Total assets $ 71,780 $ 87,183
=========================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ 13,250 $ 12,629
Bankers acceptances and other short-term debt 3,520 3,538
Accounts payable 14,665 18,177
Accrued salaries, wages and related benefits 1,620 1,565
Other accrued liabilities 1,201 753
Long-term debt, due within one year 4,079 1,192
Deferred taxes - 386
-----------------------------------------
Total current liabilities 38,335 38,240
Long-term debt, less current maturities 6,829 1,895
Notes payable to officers, shareholders and other related parties 192 192
Deferred taxes 269 403
Accrued pension cost 36 -
Commitments and contingencies - -
Shareholders' equity:
Preferred stock, no par value:
Authorized shares - 3,000,000
None issued and outstanding - -
Common stock, no par value:
Authorized shares -20,000,000
Issued and outstanding shares - 10,250,000 in 1996 and 11,
750,000 in 1997, at stated value 4,301 15,923
Additional paid-in capital 582 582
Retained earnings 21,236 29,948
-----------------------------------------
Total shareholders' equity 26,119 46,453
-----------------------------------------
Total liabilities and shareholders' equity $ 71,780 $ 87,183
=========================================
See accompanying notes.
F-3
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share and share amounts)
YEAR ENDED
------------------------------------------------------
MARCH 31, 1995 MARCH 29, 1996 MARCH 28, 1997
------------------------------------------------------
Net sales $ 149,581 $ 178,076 $ 223,806
Cost of sales 88,609 107,415 132,085
------------------------------------------------------
Gross profit 60,972 70,661 91,721
Operating expenses:
Selling and distribution expenses 43,101 50,156 61,063
General and administrative 10,831 10,968 13,831
Merger costs - - 905
------------------------------------------------------
53,932 61,124 75,799
------------------------------------------------------
Operating income 7,040 9,537 15,922
Interest expense, net 1,300 1,721 1,477
------------------------------------------------------
Income before income taxes 5,740 7,816 14,445
Income taxes 1,543 2,836 4,435
------------------------------------------------------
Net income $ 4,197 $ 4,980 $ 10,010
======================================================
Net income per share $0.41 $0.49 $0.88
======================================================
Weighted averages shares outstanding 10,255,000 10,250,000 11,408,000
======================================================
(unaudited pro forma information) (Note 3)
Net income, as previously reported $4,197 $4,980 $10,010
Pro forma tax adjustment (705) (258) (1,288)
------------------------------------------------------
Pro forma net income $3,492 $4,722 $ 8,722
======================================================
Pro forma earnings per share $ .34 $ .46 $ .76
======================================================
See accompanying notes.
F-4
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share and per share amounts)
ADDITIONAL
COMMON STOCK PAID-IN RETAINED
-----------------------
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------------------------------------------------------
Balance at March 25, 1994, as previously reported 5,682,622 $ 3,905 $436 $ 6,228 $10,569
Pooling of interests with North Star Plating Co. 2,450,000 - 117 5,592 5,709
Poolings of interests with Inteuro Parts Distributors,
Inc. and Car Body Concepts, Inc. 2,000,000 2 29 1,581 1,612
---------------------------------------------------------
Balance at March 25, 1994, as adjusted 10,132,622 3,907 582 13,401 17,890
Retirement of 62,755 shares of common stock
($3.32 per share) (62,755) (209) - - (209)
Issuance of 180,133 shares of common stock to officers
($3.35 per share) 180,133 603 - - 603
S-Corp distributions related to Inteuro Parts
Distributors, Inc. and Car Body Concepts, Inc. - - - (810) (810)
Net income - - - 4,197 4,197
---------------------------------------------------------
Balance at March 31, 1995 10,250,000 4,301 582 16,788 21,671
S-Corp distributions related to Inteuro Parts
Distributors, Inc. and Car Body Concepts, Inc. - - - (532) (532)
Net income - - - 4,980 4,980
---------------------------------------------------------
Balance at March 29, 1996 10,250,000 4,301 582 21,236 26,119
Issuance of 1,500,000 shares in connection with initial
public offering at $9.00 a share net of offering costs
and commissions of $1,878 1,500,000 11,622 - - 11,622
S-Corp distributions related to Inteuro Parts
Distributors, Inc. and Car Body Concepts, Inc. - - - (1,298) (1,298)
Net income - - - 10,010 10,010
---------------------------------------------------------
Balance at March 28, 1997 11,750,000 $15,923 $582 $29,948 $46,453
=========================================================
See accompanying notes.
F-5
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
YEAR ENDED
----------------------------------------------
MARCH 31, MARCH 29, MARCH 28,
1995 1996 1997
----------------------------------------------
OPERATING ACTIVITIES
Net income $ 4,197 $ 4,980 $ 10,010
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,596 2,016 3,086
Deferred taxes (639) 239 (487)
Provision of losses on uncollectible accounts 270 317 747
Provision for losses on inventory 1,324 641 322
(Gain) loss on sales of assets 87 133 (150)
Stock issued for compensation 603 - -
Changes in operating assets and liabilities:
Accounts receivable (1,046) (4,805) (3,334)
Inventories (1,834) (5,253) (7,522)
Prepaid expenses and other current assets (539) 683 (111)
Other assets 176 445 (436)
Accounts payable 253 3,515 3,453
Accrued salaries, wages and related benefits (165) 546 (108)
Other accrued liabilities and accrued pension costs (22) (504) (458)
----------------------------------------------
Net cash provided by operating activities 4,261 2,953 5,012
INVESTING ACTIVITIES
Proceeds from sales of assets 144 201 270
Acquisitions of certain service centers (1,289) (3,051) (3,175)
Intangible assets acquired (175) (2,003) (1,751)
Purchases of property, plant and equipment (4,130) (2,861) (4,378)
----------------------------------------------
Net cash used in investing activities (5,450) (7,714) (9,034)
FINANCING ACTIVITIES
Borrowings under bank credit facility 2,950 1,560 19,129
Payments under bank credit facility (1,210) (50) (19,750)
Bankers acceptances and other short-term debt, net (1,024) 1,067 18
Borrowings on notes payable to officers, shareholders and other related parties 114 361 -
Payments on notes payable to officers, shareholders and other related parties (135) (364) (172)
Borrowings on long-term debt 4,386 5,059 1,024
Principal payments on long-term debt (1,863) (2,499) (9,027)
S-Corp distributions related to Inteuro Parts Distributors, Inc. and
Car Body Concepts, Inc. (810) (532) (1,055)
Proceeds from initial public offering - - 11,622
Principal payments on capital lease obligations (141) - -
Retirement of stock (209) - -
----------------------------------------------
Net cash provided by financing activities 2,058 4,602 1,789
----------------------------------------------
Net increase (decrease) in cash and cash equivalents 869 (159) (2,233)
Cash and cash equivalents at beginning of year 3,807 4,676 4,517
----------------------------------------------
Cash and cash equivalents at end of year $ 4,676 $ 4,517 $ 2,284
==============================================
SUPPLEMENTAL DISCLOSURES:
Interest paid during the year $ 1,245 $ 1,734 $ 1,516
Income taxes paid during the year $ 2,631 $ 2,412 $ 5,311
Acquisition of businesses using debt $ - $ 1,666 $ 500
See accompanying notes.
F-6
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 28, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS INFORMATION
The principal business of Keystone Automotive Industries, Inc. and its
subsidiaries (the "Company") is the distribution of replacement parts for
automobiles and light trucks to collision repair shops through a network of
service centers located within the United States and one in Mexico.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Keystone Automotive Industries, Inc. and its wholly owned subsidiaries, North
Star Plating Co. ("North Star" - see Note 2) and Inteuro Parts Distributors,
Inc. and Car Body Concepts, Inc. (collectively "Inteuro" - see Note 3). All
significant intercompany transactions have been eliminated in consolidation.
FISCAL YEAR
The Company uses a 52/53 week fiscal year. The Company's fiscal year ends on the
last Friday of March. The fiscal years ended March 31, 1995, March 29, 1996 and
March 28, 1997, included 53, 52 and 52 weeks, respectively.
FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair values of cash and cash equivalents, short-term borrowings and the current
portion of long-term debt approximate cost, due to the short period of time to
maturity. Fair values of long-term debt, which have been determined based on
borrowing rates currently available to the Company for loans with similar terms
or maturity, approximate the carrying amounts in the consolidated financial
statements.
CASH EQUIVALENTS
The Company considers all highly liquid instruments with an original maturity of
three months or less when purchased to be cash equivalents. Cash and cash
equivalents are held by major financial institutions.
INVENTORIES
The Company's inventories consist primarily of automotive crash parts, collision
replacement parts, paint and related items, and bumpers. Inventories are stated
at the lower of cost (first-in, first-out) or market.
F-7
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION AND AMORTIZATION
The Company uses the straight-line method for calculating depreciation and
amortization of property, plant, and equipment over the following estimated
useful lives:
Buildings 20 years
Machinery and equipment 5 -12 years
Furniture and fixtures 5 - 7 years
Auto and truck 3 - 5 years
Leasehold improvements Term of lease or life of the asset, whichever is
shorter, or 5 - 31 years.
Depreciation and amortization expense amounted to approximately $1,564,000,
$1,892,000 and $2,470,000 for the years ended March 31, 1995, March 29, 1996 and
March 28, 1997, respectively.
CONCENTRATIONS OF RISK
Accounts receivable subject the Company to a potential concentration of credit
risk. Substantially all of the Company's customers are in the auto body repair
business, none representing more than 1% of sales. The Company performs periodic
credit evaluations of its customers' financial condition and generally does not
require collateral. Receivables are generally due within 30 days. Credit losses
have consistently been within management's expectations. During 1997, the
Company imported 29% of its products from the Far East.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from these estimates.
STOCK-BASED COMPENSATION
The Company elected to continue to account for stock-based compensation plans
using the intrinsic value-based method of accounting prescribed by Accounting
Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees," and related interpretations. Management has determined that the
effect of applying Financial Accounting Standards Board Statement No. 123's fair
value method to the Company's stock-based awards results in net income and
earnings per share that are not materially different from amounts reported.
Under the provisions of APB 25, compensation expense is measured at the grant
date for the difference between the fair value of the stock and the exercise
price.
REVENUE RECOGNITION
The Company recognizes revenue from product sales at the time of delivery or
shipment. The Company provides its customers the right to return products that
are damaged or defective. The effect of these programs is estimated and current
period sales and costs of sales are reduced accordingly.
F-8
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLES
Excess of cost over net assets acquired is amortized over a fifteen-year period
using the straight-line method. Covenants not to compete are amortized using the
straight-line method over the terms of the agreements. Amortization expense for
the years ended March 31, 1995, March 29, 1996 and March 28, 1997 was $32,000,
$124,000 and $616,000, respectively. Intangibles consists of the following:
MARCH 29, MARCH 28,
1996 1997
------------------------------
(in thousands)
Covenants not to compete $ 1,135 $ 3,012
Excess of cost over net assets acquired 1,605 1,479
------------------------------
2,740 4,491
Less accumulated amortization (156) (772)
------------------------------
$ 2,584 $ 3,719
==============================
EARNINGS PER SHARE
The Board of Directors authorized management of the Company to file a
Registration Statement with the Securities and Exchange Commission permitting
the Company to sell shares of its common stock to the public. The Company
restated its Articles of Incorporation and Bylaws to increase the authorized
shares of common stock to 20,000,000 and to authorize 3,000,000 shares of
preferred stock. No preferred stock has been issued. Additionally, the Board of
Directors and shareholders approved a common stock split of 3.8467 to 1 on April
16, 1996. All share and per share amounts in these financial statements have
been adjusted for the common stock split.
Earnings per share are computed using the weighted average number of shares of
common stock and common stock equivalents (attributable to stock options which
are not material) outstanding during each period. Common stock equivalents were
calculated using the treasury stock method.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted for fiscal years ending
after December 15, 1997. At that time, the Company will be required to change
the method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating basic earnings per share,
the dilutive effect of stock options will be excluded. The impact of Statement
128 on the calculation of earnings per share and fully diluted earnings per
share for the years ended March 31, 1995, March 29, 1996 and March 28, 1997,
will not be material.
F-9
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. MERGER WITH NORTH STAR AND OTHER ACQUISITIONS
Effective March 28, 1997, the Company completed a merger with North Star. An
aggregate of 2,450,000 shares of Keystone common stock were exchanged for all of
the outstanding common stock of North Star. The transaction was accounted for as
a pooling of interests and therefore, all prior period financial statements
presented include North Star's historical activities. North Star used a
September 30 year end. The North Star balance sheets and statements of income
and cash flow have been conformed to Keystone's fiscal years ended March 31,
1995, March 29, 1996 and March 28, 1997. Net sales, net income and other changes
in shareholders' equity of the combining companies for the last three years are
as follows:
YEAR ENDED
-----------------------------------------
MARCH 31, MARCH 29, MARCH 28,
1995 1996 1997
-----------------------------------------
(in thousands)
Net sales:
Keystone $ 101,596 $ 115,326 $ 138,380
North Star 32,479 43,317 58,227
Intercompany eliminations (1,420) (1,622) (2,286)
-----------------------------------------
Combined $ 132,655 $ 157,021 $ 194,321
=========================================
Net income:
Keystone $ 1,406 $ 3,106 $ 4,836
North Star 1,029 1,230 1,953
-----------------------------------------
Combined $ 2,435 $ 4,336 $ 6,789
=========================================
Other changes in shareholders' equity:
Keystone $ 394 $ - $ 11,622
North Star - - -
-----------------------------------------
Combined $ 394 $ - $ 11,622
=========================================
Changes in shareholders' equity for the year ended March 31, 1995, are due to
the issuance of 180,133 shares of common stock to officers for $3.35 a share and
the retirement of 62,755 shares of common stock. Changes in shareholders' equity
for the year ended March 28, 1997, are due to the proceeds from the Company's
initial public offering less offering expenses, underwriter's commissions and
discounts.
In connection with the merger with North Star, $905,000 of merger costs and
expenses were incurred and have been charged to expense during the third and
fourth quarter of the year ended March 28, 1997. The merger costs and expenses
consisted primarily of legal, accounting, and investment banking fees.
During the year ending March 29, 1996, the Company purchased substantially all
of the assets, primarily inventory, furniture and fixtures, and equipment of
M.A.P. International, C.D. Wheel and United Bumper. The Company paid
approximately $1,192,000 in cash and a note for $150,000 due in October 1998.
F-10
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. MERGER WITH NORTH STAR AND OTHER ACQUISITIONS (CONTINUED)
In January of 1996, North Star purchased substantially all of the assets of
Carolina Bumper, Inc., Carolina Auto and Paint Supply, Inc., Carolina Truck
Specialties/Automotive Colors, Inc. and Carolina Bumper/Automotive Colors, Inc.,
automotive and retail supply businesses. As consideration for the assets
purchased, North Star paid cash of approximately $3,700,000, assumed certain
liabilities and issued a one-year promissory note in the amount of $647,000. The
note is due in monthly installments and bears interest at the rate of 8%.
Promissory notes of $200,000 (due in 12 equal monthly installments) and $500,000
(due in 60 equal monthly installments), were issued in exchange for a five-year
covenant not to compete. Each note bears interest at a rate of 8%.
The acquisitions for the year ended March 29, 1996, were accounted for using the
purchase method. The acquired assets and liabilities were recorded at their
estimated fair values. The results of operations have been included since the
respective dates of acquisition. These results were not significant to the
financial results of the Company.
During fiscal 1997, the Company purchased substantially all of the assets
primarily inventory, furniture and fixtures, and equipment of After Market Parts
& Supply ("AMPS"), Augusta Bumper, Glenn Automotive Paint & Body Supply, Inc.,
and Stockton Plating Inc. The Company paid approximately $5,900,000 in total for
these acquisitions. The acquired assets and liabilities were recorded at their
estimated fair values. The acquisitions were accounted for using the purchase
method. The results of operations have been included since the respective dates
of acquisition. These results were not significant to the consolidated financial
results of the Company.
3. MERGER WITH INTEURO
Effective January 1, 1998, Inteuro merged with and into the Company. An
aggregate of 2,000,000 shares of the Company's common stock were issued in
exchange for all of the issued and outstanding common stock of Inteuro. The
transactions were accounted for as poolings of interests, and therefore, all
prior period financial statements presented include Inteuro's historical
activities.
Prior to the merger, Inteuro's fiscal year ended December 31. The Company's
restated financial statements for 1995, 1996 and 1997 combine the Company's
consolidated financial statements for years ended March 31, 1995, March 29, 1996
and March 28, 1997, with Inteuro's financial statements for years ended December
31, 1994, 1995 and 1996, respectively. Certain amounts from Inteuro's prior
financial statements have been reclassified to conform to the Company's
presentation in the accompanying consolidated financial statements.
F-11
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. MERGER WITH INTEURO (CONTINUED)
Net sales and net income of the combining companies for the last three years are
as follows:
YEAR ENDED
-------------------------------------------
MARCH 31, MARCH 29, MARCH 28,
1995 1996 1997
-------------------------------------------
(in thousands)
Net sales:
Keystone, including North Star $ 132,655 $ 157,021 $ 194,321
Inteuro 16,926 21,055 29,485
-------------------------------------------
149,581 178,076 223,806
Net income:
Keystone, including North Star $ 2,435 $ 4,336 $ 6,789
Inteuro 1,762 644 3,221
-------------------------------------------
$ 4,197 $ 4,980 $ 10,010
===========================================
The above net income reflects the historical results of operations of Inteuro,
which had elected to be taxed under subchapter "S" of the Internal Revenue Code,
and therefore, does not reflect the corporate tax liability that is passed
through to its shareholders. The following pro forma net income and earnings per
share reflect income tax expense of the combining companies at an estimated
statutory rate of 39%:
YEAR ENDED
-------------------------------------------
MARCH 31, MARCH 29, MARCH 28,
1995 1996 1997
-------------------------------------------
(in thousands, except per share amounts)
Pro forma (unaudited):
Net income, as previously reported $ 4,197 $ 4,980 $ 10,010
Proforma tax adjustment on Inteuro's earnings
(705) (258) (1,288)
------------------------------------------
Proforma net income $ 3,492 $ 4,722 $ 8,722
==========================================
Earnings per share $ .34 $ .46 $ .76
==========================================
Weighted average shares outstanding 10,255,000 10,250,000 11,408,000
==========================================
4. SHAREHOLDERS' EQUITY
In June 1996, the Company's Registration Statement of Form S-1 was declared
effective by the Securities and Exchange Commission, permitting the Company to
sell shares of its common stock to the public. The Company and selling
shareholders sold 1,500,000 and 1,605,000 shares, respectively, at the initial
offering price of $9.00 per share. The Company proceeds of $11,622,000 (net of
underwriter commissions and offering costs) were used to pay down bank debt and
for working capital.
F-12
Keystone Automotive Industries, Inc.
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT
Long-term debt and notes payable to officers, shareholders and other related
parties consists of the following:
March 29, March 28,
1996 1997
------------------------
(in thousands)
Note payable to bank, secured by corporate assets of Inteuro and guaranteed by the Inteuro shareholders,
payable in monthly installments of $16,667 plus interest at 0.5% over the prime rate, due June 2001 $ - $ 900
Various covenants not-to-compete, payable with interest up to 8%, payable 2001 804 884
Other interest bearing notes, payable through 1999 1,822 695
Various installment notes with financial institutions and a third party, payable monthly through 2000
with interest ranging from 2.9% to 11.5%, secured by property and equipment 488 533
Note payable to D. Fales, interest at 1% above the prime rate (8.25% at March 28, 1997), payable through
October 1998 150 150
Capital lease obligation, payable in monthly installments of $5,678, including 6.73% interest, payable
through December 1, 1998 175 117
Note payable to bank, secured by all inventories, equipment, accounts receivable and fixed assets,
payable in monthly installments of $62,877, including 8.23% interest, payable through December 31, 2000 3,883 -
Bank revolving line of credit, interest at 0.75% over prime rate for 1995, due June 1996, collateralized
by accounts receivable, inventory and equipment and guaranteed by the Inteuro shareholders 1,000 -
Note payable to PNC bank, monthly payments of $6,649 with a variable interest rate (9.25% at March 29,
1996), payable through April 30, 1999, secured by property 674 -
Note payable to bank, due in monthly installments of $13,333 plus interest at a rate of 0.75% at December
31, 1995, due August 1999, collateralized by accounts receivable, inventory, property and equipment and
guaranteed by the Inteuro shareholders 587 -
Note payable, XRJ, Inc., secured by acquired assets, payable in monthly installments of $56,438, payable
through December 15, 1996 544 -
Mortgage Payable, interest at 8% with monthly principal and interest of $3,329 with a balloon maturity in
May 2001. Collateralized by land and a building in Atlanta having a net book value of $675,072 422 -
Note payable to bank, due in monthly installments of $50,000, plus interest at the prime rate (8.25% at
March 29, 1996) plus .5%, due August 1, 1996 250 -
Other unsecured, non-interest bearing notes to related parties, paid in full in November 1996 172 -
Notes payable to Bumper Exchange, monthly principal of $6,790 and interest at 1% above the prime rate
(8.25% at March 29, 1996), payable through October 1997, secured by inventory, property and equipment 129 -
------------------------
11,100 3,279
Less amount due within one year 4,079 1,192
------------------------
Amounts due after one year $ 7,021 $2,087
========================
F-13
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT (CONTINUED)
Long-term debt due after one year matures approximately as follows: 1998 -
$1,192,000; 1999 - $1,052,000; 2000 - $512,000; 2001 - $423,000; 2002 and
thereafter - $100,000.
6. FINANCING ARRANGEMENTS
On March 25, 1997, the Company entered into a revolving loan agreement with a
commercial lender that provides a $25,000,000 unsecured credit facility that
expires on March 24, 1998. Initial advances under the revolving line of credit
are made with interest at the prime rate (8.5% at March 28, 1997); however, at
the Company's option, all advances may be converted to LIBOR plus 0.75% -
0.875%. The weighted average interest rate on the line of credit was 8.3% and
8.1% for the years ended March 29, 1996 and March 28, 1997, respectively. The
agreement also contains an unused line charge of 0.125%. At March 28, 1997, the
unused portion of the line of credit was $12,371,000.
The revolving loan agreement is subject to certain restrictive covenants and
requires that the Company maintain certain financial ratios. The Company was in
compliance with all covenants as of March 28, 1997.
In addition, Inteuro has a $2,000,000 note payable with a bank, accrued interest
on the principal sum outstanding is payable monthly at a rate equal to 0.5% over
the prime rate and all unpaid principal and accrued but unpaid interest are due
in June 1998. At March 28, 1997, Inteuro had not drawn on the note with the
bank.
Inteuro's long-term debt and revolving line of credit agreements with its
principal lending institution contain certain restrictions and covenants. Under
the covenants, it must maintain minimum debt service coverage, tangible net
worth, and current ratios, as defined. As of December 31, 1996, Inteuro is
in compliance with the debt covenants of its principal lending institution.
7. RELATED PARTY TRANSACTIONS
The Company has entered into various property lease agreements with related
parties, including certain of the Company's directors and officers and
agreements with a corporation which is owned by a family member of a Company
officer and director. The leases contain terms up to 10 years. The Company
believes that the terms and conditions of such leases with affiliated parties
are no less favorable than could have been obtained from unaffiliated parties in
arm's length transactions at the time such leases were entered into. Rent
expense paid to related parties, included in the total rent expense, amounted to
$724,000, $665,000 and $931,000 for 1995, 1996 and 1997, respectively,
exclusively of the Company's obligation for property taxes and insurance.
Notes payable to officers, shareholders, and other related parties of $192,000
are unsecured, due October 1, 1998, and bear interest at the prime rate (8.25%
at March 28,1997) plus 1%. Interest expense incurred in connection with these
obligations was $32,000 at March 31, 1995, $43,000 at March 29, 1996 and $21,000
at March 28, 1997.
F-14
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS (CONTINUED)
7. RELATED PARTY TRANSACTIONS (CONTINUED)
In December 1996, Inteuro sold its Atlanta facility and land to a related
entity. At the time of the sale, the facility and land had a book value of
$662,000 and related outstanding debt of $415,000. Inteuro distributed the net
assets related to the facility and land of $244,000 to the related entity. No
rent payments were made to the related entity in 1996.
8. INCOME TAXES
The liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
Significant components of the Company's deferred tax liabilities and assets are
as follows:
MARCH 29, MARCH 28,
1996 1997
-----------------------------
(in thousands)
Deferred tax assets:
Book depreciation over tax $ 36 $ -
Uniform cost capitalization 546 765
Inventory reserve 204 206
Accrued expenses not currently deductible for tax 413 696
Other, net 108 313
-----------------------------
Total deferred tax assets 1,307 1,980
Deferred tax liabilities:
Prepaid expenses (381) (385)
Tax depreciation over book - (182)
-----------------------------
Total deferred tax liabilities (381) (567)
-----------------------------
Net deferred tax assets $ 926 $1,413
=============================
No valuation allowance was necessary for deferred tax assets in 1996 or 1997.
F-15
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
Significant components of the provision for income taxes attributable to
operations under the liability method are as follows:
YEAR ENDED
-------------------------------------------
MARCH 31, MARCH 29, MARCH 28,
1995 1996 1997
-------------------------------------------
(in thousands)
Current:
Federal $1,760 $2,064 $3,958
State 422 533 964
-------------------------------------------
2,182 2,597 4,922
Deferred:
Federal (436) 203 (390)
State (203) 36 (97)
-------------------------------------------
(639) 239 (487)
-------------------------------------------
$1,543 $2,836 $4,435
===========================================
Inteuro had elected to be treated as an S corporation under the provisions of
the Internal Revenue Code. Accordingly, taxable income of Inteuro has been
reported in the tax returns of the individual shareholders of Inteuro, prior to
January 1, 1998. Subsequent to January 1, 1998, the operating results of Inteuro
will be included in the consolidated federal and state tax returns of the
Company.
The reconciliation of income taxes at the U.S. federal statutory tax rate to
reported income tax expense is as follows:
YEAR ENDED
-----------------------------------------------
MARCH 31, MARCH 29, MARCH 28,
1995 1996 1997
-----------------------------------------------
(in thousands)
Income taxes at statutory tax rate $1,952 $2,657 $ 4,911
State income taxes, net of federal tax effect 303 414 727
S-Corp earnings of Inteuro (705) (258) (1,288)
Non-deductible expenses 14 17 47
Other, net (21) 6 38
-----------------------------------------------
$1,543 $2,836 $ 4,435
===============================================
9. EMPLOYEE BENEFIT PLANS
The Company has an employee stock ownership plan which covers substantially all
of its employees. Under the terms of the Internal Revenue Code, each year's tax
deductible contribution is limited to a maximum of 15% of the Company's
qualified payroll. A carryover of unused allowable contributions is allowed,
subject to certain limits. Under the terms of the plan, the Company makes the
contribution to the Trustee, who is required to follow the Administrative
Committee's investment decisions. The Company's contributions to the plan were
$190,000 in 1995, and none in 1996 and 1997, respectively.
F-16
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
In March 1979, the Company adopted a defined benefit pension plan (the "Plan")
to provide pension benefits to all non-union employees. Plan benefits are based
on an employee's years of service and the compensation during the five years of
employment which would yield the highest average compensation. The assets of the
Plan consist primarily of investments in mutual funds, time certificates of
deposit, and marketable debt securities. The Company's policy is to fund pension
cost accrued.
The net periodic pension cost for the Plan consisted of the following:
YEAR ENDED
-----------------------------------------------
MARCH 31, MARCH 29, MARCH 28,
1995 1996 1997
-----------------------------------------------
(in thousands)
Service costs - benefits earned during the year $ 120 $ 132 $ 154
Interest cost on projected benefit obligation 188 213 232
Actual return on assets (136) (153) (199)
Net amortization and deferral 40 45 40
-----------------------------------------------
$ 212 $ 237 $ 227
===============================================
The following is a summary of the status of the funding of the Plan:
MARCH 29, MARCH 28,
1996 1997
--------------------------------
(in thousands)
Actuarial present value of benefit obligations:
Vested benefit obligations $(2,414) $(2,783)
Non-vested benefit obligations (65) (81)
Accumulated benefit obligations --------------------------------
$(2,479) $(2,864)
================================
Projected benefit obligations $(2,902) $(3,380)
Assets of the plan at market 2,442 2,989
--------------------------------
Projected benefit obligation greater than assets of the plan (460) (391)
Unrecognized net obligation not yet recognized in periodic pension cost 1,148 1,195
Unrecognized net transition obligation at March 28, 1987, being recognized over 25
years 128 120
Adjustment required to recognize minimum liability:
Accrued but not expensed (1) -
Unfunded liability 36 -
-------------------------------
Prepaid pension included in other assets and prepaid expenses $ 851 $ 924
===============================
F-17
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
In determining the actuarial present value of projected benefit obligations at
March 29, 1996 and March 28, 1997, a discount rate of 8% was used. Future
compensation levels are assumed to increase at an annual rate of 5%. The
expected long-term annual rate of return on assets was 8% for the years ended
March 31, 1995, March 29, 1996, and March 28, 1997. In April 1997, the Board of
Directors approved the freezing of the defined benefit pension plan. Management
estimates, after consulting with the Company's actuary, that the curtailment of
the Plan is not material to the Company's results of operations. However, this
estimate depends on the Plan's asset values at the date of curtailment.
North Star, a wholly owned subsidiary, adopted a 401(k) plan in fiscal 1996 that
covers substantially all of its employees. Employees who have completed more
than one year of service are eligible and may contribute from 1% to 15% of their
base pay. The Company matches 50% of the first 4% of employee contributions.
Employee contributions vest immediately, while employer contributions vest based
on years of service. Contributions to the plan were $43,000 and $173,000, as of
March 29, 1996 and March 28, 1997, respectively. On April 1, 1997, the plan was
amended to include substantially all of the Company's employees and to increase
the matching contribution to 6% of employee contributions.
10. STOCK COMPENSATION PLANS
In 1996, the Board of Directors of the Company adopted a Stock Incentive Plan
(the "Plan"). There were 730,000 shares of Common Stock reserved for issuance
under the 1996 Plan. The 1996 Plan provides for granting of stock options that
may be either "incentive stock options" within the meaning of Section 422A of
the Internal Revenue Code of 1986 (the "Code") or "non-qualified stock options,"
which do not satisfy the provisions of Section 422A of the Code. Options are
required to be granted at an option price per share equal to the fair market
value of Common Stock on the date of grant. Stock options may not be granted
longer than 10 years from the date of the 1996 Plan. All options granted have
ten-year terms and vest at the rate of 25% per year, commencing one year from
the date of grant.
WEIGHTED
AVERAGE
EXERCISE
STOCK OPTION PLAN SHARES PRICE
---------------------------------------------------------------------------------------
Outstanding at March 29, 1996 - $ -
Granted 432,000 $ 11.90
Exercised - -
Expired - -
------------------------------------
Outstanding at March 28, 1997 432,000 $ 11.90
====================================
F-18
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. STOCK COMPENSATION PLANS (CONTINUED)
The following tabulation summarizes certain information concerning outstanding
and exercisable options at March 28, 1997:
Price Range
---------------------------------------
$ 12.25
to
$ 9.00 $ 15.00
----------------- -----------------
Outstanding options:
Number outstanding 220,000 212,000
Weighted average exercise price $ 9.00 $ 14.90
Weighted average remaining contractual life in years 9.2 9.3
Exercisable options:
Number exercisable 20,000 45,000
Weighted average exercise price $ 9.00 $ 12.69
There were no exercisable options outstanding in fiscal years 1995 and 1996.
If the Company had elected to recognize compensation cost based on the fair
value of the options granted at the grant date as prescribed by Statement of
Financial Accounting Standards No. 123, net income and earnings per share would
have been reduced to the pro forma amounts shown below:
MARCH 28,
(In thousands, except per share amounts) 1997
---------------------------------------- -----------
Pro forma:
Net income $9,888
Earnings per share:
Primary $ 0.87
Fully diluted $ 0.87
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model using the following weighted average
assumptions:
MARCH 28,
1997
-----------
Risk free interest rate 6.52%
Expected life in years 4
Expected volatility 26.8%
Expected dividend yield 0.00%
F-19
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. STOCK COMPENSATION PLANS (CONTINUED)
In fiscal 1995, the Company had 180,133 shares exercised at a weighted average
price of $3.35. This resulted in compensation expense of $1,200,000. The plan
under which these options were granted was terminated in 1995.
11. COMMITMENTS
The Company leases substantially all of its property and a portion of its plant
and equipment. Certain of the leases contained renewal options from two to five
years.
Future minimum lease payments, under noncancelable operating leases with initial
terms of one year or more, are approximately as follows at March 28, 1997:
RELATED TOTAL
PARTY OPERATING
LEASES OTHER LEASES
---------------------------------------------------
(in thousands)
1998 $1,610 $ 4,366 $ 5,976
1999 946 3,491 4,437
2000 1,078 2,927 4,005
2001 1,005 1,813 2,818
2002 977 774 1,751
Thereafter 2,881 234 3,115
---------------------------------------------------
Total minimum rental payments $8,497 $13,605 $22,102
===================================================
Total rent expense amounted to $3,271,000, $4,823,000 and $6,217,000 for 1995,
1996 and 1997, respectively, exclusive of the Company's obligation for property
taxes and insurance. Certain leases contain provisions for rent escalation that
is being amortized on a straight-line basis over the lives of the leases.
F-20
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended March 29, 1996 and March 28, 1997. The summary of the quarterly results of
operations includes the quarterly results of Inteuro for the years ended
December 31, 1995 and 1996 on a three-month lag basis.
QUARTER ENDED
--------------------------------------------------------------------
1996: JUNE 30 SEPTEMBER 29 DECEMBER 29 MARCH 29
--------------------------------------------------------------------
(In thousands, except per share amounts)
Net Sales $39,963 $40,513 $43,993 $53,607
Gross Profit 16,135 15,889 17,632 21,004
Net Income 1,367 811 1,228 1,574
Earnings Per Share 0.13 0.08 0.12 0.15
QUARTER ENDED
--------------------------------------------------------------------
1997: JUNE 28 SEPTEMBER 29 DECEMBER 29 MARCH 29
--------------------------------------------------------------------
(In thousands, except per share amounts)
Net Sales $52,560 $51,183 $57,473 $62,590
Gross Profit 21,158 20,696 23,768 26,099
Net Income 2,294 2,341 2,849 2,526
Earnings Per Share 0.22 0.20 0.24 0.21
Quarterly and year-to-date computations of per share amounts are made
independently. Therefore, the sum of per share amounts for the quarters may not
agree with per share amounts for the year shown elsewhere.
13. SUBSEQUENT EVENTS
Effective on May 23, 1997, the Company's Chairman and Chief Executive Officer
resigned his positions to pursue other interests. Under the terms of the
employment agreement, the Company is obligated to pay the balance of his
contract and to provide for certain employee benefits. The Company will record a
pre-tax charge of $700,000 in the first quarter of fiscal year 1998 in
connection with the settlement of all outstanding obligations.
The Company is planning to file a Form S-1 Registration Statement with the SEC
in connection with a secondary offering of its common stock. The filing is
expected to be effective June 1997. Management has indicated the proceeds from
the offering will be used to paydown the Company's indebtedness under its
revolving lines of credit.
The Company is currently negotiating acquisitions for substantially all the
assets and specific liabilities of a bumper distributor located in the Southeast
and a wheel remanufacturer located in the Midwest for approximately $4,100,000
in cash. The acquisitions are expected to be completed in June of 1997.
F-21
KEYSTONE AUTOMOTIVE INDUSTRIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
ADDITIONS
-----------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING OF COSTS AND OTHER AT END OF
DESCRIPTION YEAR EXPENSES ACCOUNTS DEDUCTIONS YEAR
-------------------------------------------------------------------------------------------------------------------------------
Year ended March 31, 1995
Allowance for uncollectible accounts $ 418 $ 270 $ - $257 $431
Year ended March 31, 1996
Allowance for uncollectible accounts 431 403 - 394 440
Year ended March 28, 1997
Allowance for uncollectible accounts 440 778 - 486 732
/(1)/ Uncollectible accounts written off, net of recoveries.
ADDITIONS
------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING OF COSTS AND OTHER AT END OF
DESCRIPTION YEAR EXPENSES ACCOUNTS DEDUCTIONS YEAR
- -----------------------------------------------------------------------------------------------------------------------------------
Year ended March 31, 1995
Allowance for slow-moving inventory $ 80 $ 1,324 $ - $ 42 $ 1,362
Year ended March 31, 1996
Allowance for slow-moving inventory 1,362 641 - 1,508 495
Year ended March 28, 1997
Allowance for slow-moving inventory 495 322 - 307 510
F-22