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Letter to the Editor

FinishMaster Q1 Earnings up 18%

FinishMaster, Inc. has reported that net income for the first quarter of 2004 increased 18 percent, to $3,282,000, or $0.42 per share, compared with net income of $2,773,000, or $0.35 per share, in the prior year period. The improvement in net income for the quarter compared to the prior year period was a result of higher net sales and decreased interest expense.

The increase in net sales was due to positive same branch sales growth and prior year acquisitions. The increase in same branch sales is attributable to various sales and marketing initiatives implemented during the prior year designed to increase the Company's competitiveness and market presence. The prior year acquisition that had a significant impact on the Company's current quarter sales increase was the Automotive Refinish Technologies acquisition which resulted in the Company entering ten new markets.

Higher gross margin dollars resulted from increased sales volume, partially offset by a 130 basis point decline in the margin rate. The deterioration in margin rate was a result of higher shipping and handling costs as a percentage of net sales, increased discounts to attract and retain customers, and the lower margin-rate fulfillment business representing a greater share of our overall sales verses our full-service business.

Operating and selling, general and administrative expenses as a percentage of net sales decreased 90 basis points to 23.4 percent as a result of expenses increasing at a lower rate than net sales. The increase in overall expense dollars was due to the selling and operating expenses associated with the ten branch locations acquired in the prior year from Automotive Refinish Technologies; higher wages and benefits associated with the Company's initiative to increase sales personnel; increased insurance costs; and higher bad debt expense.

Lower average outstanding borrowings resulted in a decrease in interest expense. FinishMaster is a 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 165 branches in 27 of the 35 largest metropolitan areas in the country.

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