FinishMaster Announces Second Quarter Financial Results

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 between years of the Company's year-to-date financial performance. After considering the impact of these two items, comparable net income for the year-to-date period declined approximately $0.04 to $1.08 per diluted share. This decline resulted from slower growth in net sales relative to expenses. As previously disclosed in the first quarter earnings release, the Company continues to experience weakening demand for automotive paint and accessories due to soft economic conditions throughout the United States. Rising gasoline prices contributed to a decline in total U.S. vehicle miles driven, impacting the Company's overall market opportunity for the sale of its products and services. Increased expense levels resulted from expenditures for long-term initiatives whose benefits were not realized in the current periods. These initiatives are focused on sales growth and operating effectiveness and efficiency. The Company is implementing a cost reduction program focused on reducing or reallocating costs from underperforming to higher performing opportunities.

Management's summary analysis of the Company's quarterly and year-to-date financial performance is as follows:

-- Net sales increased 8.6 percent for the quarter and 10.1 percent for the year-to-date period due to the combined effect of same branch sales growth and acquisitions. The Company has completed six acquisitions since June 2007 - four in the last half of 2007 and two in 2008.

-- Gross margin dollars increased 18.1 percent and 16.0 percent for the quarter and year-to-date period, respectively, due primarily to higher sales and margin rate. Margin rate increased 250 basis points to 32.0 percent for the quarter and 150 basis points to 30.9 percent for the year-to-date period due primarily to vendor price increases passed through to customers and the attainment of vendor growth incentives. The non-recurrence of a charge in the prior year first quarter related to a change in the estimated residual value of product consigned with customers favorably impacted the margin rate for the year-to-date period.

-- Total expenses as a percentage of net sales increased 190 basis points to 24.3 percent for the quarter and 140 basis points to 24.4 percent for the year-to-date period as a result of expenses increasing at a faster rate than net sales. Intangible amortization and expenses associated with acquired operations account for the majority of the increase in expenses as a percentage of net sales. The increase in total expense dollars for the quarter and year-to-date period was due primarily to expenses, including intangible amortization, associated with acquisitions; higher health insurance costs; higher bad debt expenses; and increased information technology expenses. Partially offsetting these expense increases were lower costs associated with auto and workers' compensation insurance.

-- Higher average outstanding borrowings contributed to increased interest expense for the quarter and year-to-date period. Lower annualized effective interest rates partially offset these higher borrowing costs. The higher average outstanding borrowings resulted from a December 2007 one-time dividend to shareholders and current and prior year acquisitions.

-- Higher other income on a year-to-date basis resulted from a lawsuit settlement that was received and recorded in the current year first quarter.

-- Higher income tax expense for the quarter and year-to-date period was due to higher pre-tax earnings and effective tax rates. The Company's effective tax rate increased 40 basis points for the quarter and year-to date period to 41.0 percent and 40.8 percent, respectively.

Selected Historical Financial Data (000's omitted, except per share data) Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 --------- --------- --------- --------- Net sales $128,891 $118,708 $254,833 $231,358 Gross margin 41,301 34,978 78,782 67,927 Gross margin % 32.0% 29.5% 30.9% 29.4% Operating and SG&A expenses 30,067 26,025 59,726 52,223 Amortization of intangible assets 1,257 601 2,497 1,009 Total expenses 31,324 26,626 62,223 53,232 Income from operations 9,977 8,352 16,559 14,695 Other income - - 5,224 - Interest expense 1,016 622 2,131 1,619 Income tax expense 3,674 3,137 8,018 5,280 Net income $ 5,287 $ 4,593 $ 11,634 $ 7,796 Diluted earnings per share $ 0.67 $ 0.59 $ 1.47 $ 1.00 Diluted weighted average shares outstanding 7,888 7,831 7,888 7,831

June 30, December 31, 2008 2007 ----------- ------------ Cash $ 4,916 $ 4,230 Accounts receivable, net 47,411 40,103 Inventories 94,405 86,665 Goodwill and intangible assets, net 118,291 119,805 Property, equipment & all other assets 46,700 44,610 Total assets $ 311,723 $ 295,413 Accounts payable $ 63,598 $ 51,186 Current & long-term debt 82,057 94,661 Accrued expenses & all other liabilities 29,209 24,278 Shareholders' equity 136,859 125,288 Total liabilities & shareholders' equity $ 311,723 $ 295,413

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 175 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/.

SOURCE: FinishMaster, Inc.

FinishMaster, Inc. Robert R. Millard, 317-263-5200